Search

Using a spatial general equilibrium model, this paper investigates the resilience of European Union regions under three alternative recessionary shocks, each activating different economic adjustmen...

This paper uses a general equilibrium framework to evaluate the macroeconomic impacts of the legislative measures contained in the third strand of the Investment Plan for Europe. Differently from most of the existing European policies evaluated with economic impact assessments, these measures do not involve any funds or money injections in the economy. Rather, they aim at either lowering or removing the remaining obstacles to a fully functioning European single market. We find that the removal of those barriers may lead to substantial economic gains for the regions in the European Union. Our results indicate considerable heterogeneity in economic impact across regions.

We quantify the general equilibrium effects on economic growth of improving the quality of institutions at the regional level in the context of the implementation of the European Cohesion Policy for the European Union and the UK. The direct impact of changes in the quality of government is integrated in a general equilibrium model to analyse the system-wide economic effects resulting from additional endogenous mechanisms and feedback effects. The results reveal a significant direct effect as well as considerable system-wide benefits from improved government quality on economic growth. A small 5% increase in government quality across European Union regions increases the impact of Cohesion investment by up to 7% in the short run and 3% in the long run. The exact magnitude of the gains depends on various local factors, including the initial endowments of public capital, the level of government quality, and the degree of persistence over time.

The European cohesion policy is the EU's main investment policy and targets all regions and cities across the EU to support job creation, business competitiveness, economic growth, and sustainable development. In the 2014-2020 programming period, one third of the EU budget has been allocated to the projects under this policy. This report contains a macroeconomic impact assessment of the European cohesion policy with a focus on Polish regions. The analysis deals in particular with the spillover effects arising from the policy intervention resulting from indirect trade effects and other inter-regional interdependencies and interactions. The analysis shows that the policy has a positive long-run impact, lasting years after the end of the programmes. This reflects the fact that cohesion policy supports investments in key engines of growth improving the structure of the Polish economy.

The UK Government’s acceptance of the Committee on Climate Change (CCC) advice on moving to a net zero carbon economy by 2050 makes the need to decarbonise how we heat our homes of even more pressing and strategic importance. Whatever the mix of solutions that is ultimately adopted, increased electrification of our energy system and economy is inevitable.

The paper illustrates the effect of a permanent demand-side shock in the perturbed regions and the associated spillover effects in the non-perturbed regions using the RHOMOLO spatial-numerical general equilibrium model of the EU economy. We test to what extent gradual upward pressure on wages generated by a domestic increase in demand alters the magnitude of the economic impacts in the long-run and the degree to which this could result in changes in trade patterns. We also assess the size and the direction of the effects with varying trade substitution elasticities and under both perfectly and imperfectly competitive product markets.

In this paper we provide the mathematical presentation of the RHOMOLO model. In addition, we perform some stylized and illustrative simulations with the aim to make the reader familiar with the economic adjustment mechanisms incorporated into the model. Essentially, we attempt to offer the reader and the potential users of the model an intuition of the transmission channels existing in the current version RHOMOLO. The analysis is kept simple to facilitate a better understanding of the model's findings. We simulate a permanent demand-side shock implemented separately for each of the 267 regions contained in the model. We repeat the same simulation under three alternative labour market closures and three different imperfectly competitive product market structures., JRC.B.3-Territorial Development

In this paper we assess the system-wide economic impact of the key financial instruments adopted by the European Union for the implementation of the regional policy: The Structural funds and The Cohesion Funds. We take a bottom-up approach by aggregating the 86 categories of expenditures defined in the Structural and Cohesion Funds into six main policy variables. The outcomes of the simulations are the results of a combination of demand-and-supply-side shocks that are implemented into the RHOMOLO spatial and dynamic general equilibrium model calibrated on a set of inter-regional Social Accounting Matrices for the year 2010. In our analysis we document the direct, indirect, and general equilibrium effects of the EU regional policy at the regional, national, and EU level. In the short-run, our simulation exercise suggests a pronounced variegate patters across EU regions. In the long-run, a more homogenous spatial distribution is detected. Moreover, we identify and quantify the interregional spillover effects arising from trade links and capital mobility.

The Investment Plan for Europe aims at removing obstacles to investment, providing visibility and technical assistance to investment projects, and at making smarter use of financial resources. The Investment Plan is made up of three pillars: the European Fund for Strategic Investment (EFSI); the European Investment Advisory Hub and the European Investment Project Portal; and the removal of regulatory barriers to investment. Policy simulations using the RHOMOLO dynamic CGE model show positive aggregate macro-economic effects of the EFSI. This Policy Insight contains the result of an additional set of RHOMOLO simulations aimed at quantifying the macroeconomic impact of the legislative proposals contained in the third pillar of the Investment Plan. The EU GDP is expected to be 1.5% higher by 2030 thanks to the removal of barriers to investment in the areas of the Capital Markets Union, the Single Market Strategy, the Digital Single Market, and the Energy Union. This entails the creation of about one million of jobs across the entire EU.

This paper analyses the system-wide impact of increased household energy efficiency in a regional context, using Scotland as an example. It shows that household energy efficiency improvements typically deliver a ‘double dividend’ of a regional economic stimulus and reduction in energy use. However, the trade-off between the two is sensitive to the degree of regional fiscal autonomy, and so is likely to vary across regions. The use of taxation to support the implementation of energy-efficiency improvement programmes negatively impacts competitiveness, unless workers are willing to accept lower after-tax wages to fund public spending on improving household energy efficiency.

We evaluate the macroeconomic impact of the legislative proposals contained in the third pillar of the Investment Plan for Europe using the RHOMOLO modelling framework. In particular, we study a number of proposals related to the Capital Markets Union, the Single Market Strategy, the Digital Single Market, and the Energy Union. The likely economic effects of the removal of cross-country barriers to investment related to these four initiatives are positive and quantified to be on average equal to an increase of 1.5% of EU GDP by 2030. Such an impact would also entail the creation of about 1 million jobs.

Previous studies show that improving efficiency in household energy use can stimulate a national economy through an increase and change in the pattern of the aggregate demand. However, this may impact competitiveness. Here we find that in an open region, interregional migration of workers may give additional momentum to the economic expansion, by relieving pressure on the real wage and the CPI. Furthermore, the stimulus will be further enhanced by the greater fiscal autonomy that Scotland is set shortly to enjoy. By considering a range of CGE simulation scenarios we show that there is a tension between the economic stimulus from energy efficiency and the scale of rebound effects. However, we also show that household energy efficiency increases do typically generate a “double dividend” of increased regional economic activity and a reduction in carbon emissions.

The issues of the forced migration and integration of refugees in the EU society and labour markets are high on the policy agenda. Apart from humanitarian aspects, a sustainable integration of accepted refugees is important also for social, economic, budgetary and other reasons. Although, the potential consequences of the refugee acceptance are being often discussed, little scientific evidence has been provided for the policy debate so far in the context of the current refugee crisis. The present study attempts to shed light on the long-run social, economic and budgetary effects of the rapidly increasing forced immigration into the EU by performing a scenario analysis of alternative refugee integration scenarios. Our simulation results suggest that, although the refugee integration (e.g. by the providing language and professional training) is costly for the public budget, in the medium- to long-run, the social, economic and fiscal benefits may significantly outweigh the short-run refugee integration costs. Depending on the integration policy scenario and policy financing method, the annual long-run GDP effect would be 0.2% to 1.4% above the baseline growth, and the full repayment of the integration policy investment (positive net present value) would be achieved after 9 to 19 years., JRC.B.3-Territorial Development

The issues of the forced migration and integration of refugees in the EU society and labour markets are high on the policy agenda. Apart from humanitarian aspects, a sustainable integration of accepted refugees is important also for social, economic, budgetary and other reasons. Although, the potential consequences of the refugee acceptance are being often discussed, little scientific evidence has been provided for the policy debate so far in the context of the current refugee crisis. The present study attempts to shed light on the long-run social, economic and budgetary effects of the rapidly increasing forced immigration into the EU by performing a scenario analysis of alternative refugee integration scenarios. Our simulation results suggest that, although the refugee integration (e.g. by the providing language and professional training) is costly for the public budget, in the medium- to long-run, the social, economic and fiscal benefits may significantly outweigh the short-run refugee integration costs. Depending on the integration policy scenario and policy financing method, the annual long-run GDP effect would be 0.2% to 1.4% above the baseline growth, and the full repayment of the integration policy investment (positive net present value) would be achieved after 9 to 19 years.

The fiscal powers of the Scottish Government have recently been significantly enhanced as a consequence of the implementation of the Scotland Act 2012, which required the Parliament to set a Scottish Rate of Income Tax (SRIT) from April 2016. The SRIT can vary from that in the rest of the UK by up to 10p in the pound. More extensive powers over income tax will come into effect in April 2017 as a consequence of the Scotland Act 2016, which sought to implement the proposals of the Smith Commission (2014). The Scottish Government will then gain the power to set income tax rates and thresholds (but not personal allowances). All income tax receipts on wage income collected in Scotland will be received by the Scottish Government, with a corresponding adjustment in the block grant, as detailed in the new Fiscal Framework (2016). These changes will make Scotland one of the most powerful devolved governments in the world in terms of the proportion of public spending and tax revenues under its control, although there of course remains a debate about how effective these new powers are and whether or not they go far enough.

This report presents the current version of the European Commission's spatial computable general equilibrium model RHOMOLO, developed by the Directorate-General Joint Research Centre (DG JRC) in collaboration with the Directorate-General for Regional and Urban Policy (DG REGIO) to undertake the ex-ante impact assessment of EU policies and structural reforms. The RHOMOLO model has been used with DG REGIO for the impact assessment of Cohesion Policy, and with the European Investment Bank for impact assessment of EU investment support policies. The structure of the model departs from standard computable general equilibrium models in several dimensions. First, it generalises the modelling of market interactions by introducing imperfect competition in products and labour markets. Second, it exploits the advantages of a full asymmetric bilateral trade cost matrix for all EU regions to capture a rich set of spatial market interactions and regional features. Third, it acknowledges the importance of space also for non-market interactions through an inter-regional knowledge spill-over mechanism originating from research and development activities within a country. This report describes the theoretical foundation of RHOMOLO-v2 (v2 = version 2), its mathematical structure, dynamics, data sources and calibration to allow the reader to approach the model and its outputs with a higher degree of awareness of its strength and limitations. Indeed, as for any general equilibrium model with a reasonable level of complexity, in RHOMOLO it is often challenging to track the mechanisms at work after a policy shock and clearly disentangle causes and effects because of the high number of channels of adjustment and the presence of many feedback effects. The purpose of this documentation is thus to provide a compass to the reader to sail safely through its many equations, assumptions and connections., JRC.B.3-Territorial Development