EconPol Policy Reports

Improving the economic and social integration of immigrants should be prioritized along with economic and health policies to prevent a rise in far-right parties in the wake of the Covid-19 crisis, as the economic downturn caused by the pandemic and the increased economic insecurity of large numbers of the population could lead to xenophobic reactions and rejection of immigrants. This policy report from Anthony Edo and Yvonne Giesing analyzes the impact of immigration on the rise of far-right parties and finds that, while there is a general tendency towards an increase in far-right voting caused by immigration, this is not automatic and depends on the type of migration. And, say authors, the degree of economic and social integration of immigrants plays an important factor in the formation of anti-immigrant sentiment.  

Hernán D. Seoane (EconPol Europe, Universidad Carlos III de Madrid) has reviewed the main theories of interest rate determination and studied the dynamics of the real interest rate in US. Using cointegration techniques, he searched for equilibrium relationships between the real interest rate, monetary factors and real factors and studied how these relationships change with the policy regimes. His analysis of monthly US data since the early 20th century finds equilibrium relationships between a measure of the real interest rate, the policy interest rate and industrial production growth only after the end of the Bretton Woods. The equilibrium relationships between these variables are not invariant to changes in the monetary policy regime.

The Eurosystem has become one of the crucial players in the market for euro area government bonds. After first substantive purchases through the Securities Market Programme (SMP) in 2010, the Eurosystem’s involvement has reached a new breadth and magnitude with the establishment of the Public Sector Purchase Programme (PSPP) in 2015. On top of this, the ECB Council has set up the Pandemic Emergency Purchase Programme (PEPP) in March 2020 in order to stabilize the euro area economy in the crisis and to contain the rise of sovereign risk premia.This study analyzes trends in the rules, volumes and country allocations of the two active sovereign purchase programmes, the PSPP and the PEPP. For an economic assessment, it is of importance to which extent the purchase programmes are of an asymmetric nature and whether the Eurosystem increasingly accepts the role of a strategic creditor who has veto power in debt negotiations.

Existing literature suggests that firm R&D support policies stimulate private R&D within a country and that in most cases, the positive impact of government support is stronger on smaller firms. Recent evidence also indicates that some of the policy instruments, such as patent box policies, are tools that multinationals use to lower their total tax bill through profit shifting. In this policy report, İrem Güçeri (EconPol Europe, Oxford University), Marko Köthenbürger (EconPol Europe, ETH Zurich) and Martin Simmler (EconPol Europe, Oxford University) find that the most prevalent support policies are effective in fostering private enterprise sector R&D and small and young firms seem to benefit the most from both public R&D and R&D tax incentives.

This report analyzes self-selection and motivations of emigrants from Denmark, one of the richest and most redistributive welfare states in the world. Authors Ilpo Kauppinen (EconPol Europe, VATT Institute for Economic Research), Till Nikolka (EconPol Europe, ifo Institute, LMU Munich) and Panu Poutvaara (EconPol Europe, ifo Institute, LMU Munich) present evidence on how migrants are self-selected with respect to their education, earnings, and unobservable abilities, measured by residual earnings. They document main motivations of emigrants, present evidence on how couples have self-selected into emigration, how couples decided on their emigration and how the partners’ labor force participation changed after emigration. Finally, they ask whether emigrants differ from non-migrants in terms of their attitudes towards redistribution.