Luigi Paganetto Editor Wealth, Income Inequalities, and Demography The Long-Term Policy View Wealth, Income Inequalities, and Demography Luigi Paganetto Editor Wealth, Income Inequalities, and Demography The Long-Term Policy View 123 Editor Luigi Paganetto Tor Vergata Foundation for Economic Research Rome, Italy ISBN 978-3-319-05908-2 ISBN 978-3-319-05909-9 (eBook) DOI 10.1007/978-3-319-05909-9 Springer Cham Heidelberg New York Dordrecht London Library of Congress Control Number: 2014948211 © Springer International Publishing Switzerland 2014 This work is subject to copyright. 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Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com) Contents Introduction ...................................................................... 1 Luigi Paganetto Restoring Europe’s Luster ...................................................... 5 Indermit Gill and Martin Raiser Russian Federation: National and Regional Trends in Regulatory Burden and Corruption ........................................ 45 Gregory Kisunko and Stephen Knack Institutional Creativity for Happy High-Income Societies: Can Basic Income-Based Reforms Help to Build Them? ......................... 105 Lorenzo Bona Crisis in the Eurozone: Some Popular Fallacies and a Few Unpleasant Remarks............................................................. 125 Luigi Bonatti and Andrea Fracasso Information Technology and Labor Market Polarization in Europe....... 145 Paolo Naticchioni and Giuseppe Ragusa Sovereign Risk, Monetary Policy and Fiscal Multipliers: A Structural Model-Based Assessment ........................................ 163 Alberto Locarno, Alessandro Notarpietro, and Massimiliano Pisani Perspectives for Growth and Income Equality in the European Monetary Union: 2012 –2025 ................................................... 211 Fred Campano, Alberto Costantiello, and Dominick Salvatore Effort and Hours over the Business Cycle..................................... 229 Domenico J. Marchetti and Francesco Nucci Policy Prescriptions for a Good Economy ..................................... 251 Luigi Paganetto and Pasquale Lucio Scandizzo v vi Contents The Measurement of Underground Economy in Italy ....................... 265 Amedeo Argentiero and Carlo Andrea Bollino Trade Relations Between Latin American Countries and the European Union ........................................................ 283 Miguel Ruíz-Cabañas Izquierdo Introduction Luigi Paganetto Five years after the 2008 crisis, economic growth is still anaemic in many countries. Public debt continue to increase in advanced countries. The combined quantitative easing programmes by Japan, the US and the UK and the liquidity injections in EU are now of an unprecedented scale. Emerging countries are driving world’s economic growth. The Eurozone and US business cycles seems to have decoupled. US GDP growth tends to show a positive rate around 2 %. EU growth by contrast seems to be on a negative trend, recently including Germany. Unemployment and excess capacity in EU are high relative the postwar expe- rience. IMF forecasts indicate that current unemployment rates will be probably unchanged in 2015. EU Commission in 2012 put in evidence the emergence of the increasing phenomenon of long-term unemployment. One year or more is retained as the criteria for measuring this phenomenon. In 2011 those unemployed for more than 1 year were almost 10 million. The reduction of this phenomenon is a priority for citizens and policy makers. The EU Commission pointed out that there is evidence that long periods of unemployment create a negative impact on personal health and well-being. Moreover, the longer people remain unemployed, the harder it becomes for them to find a job. Data suggest that we have to face a malaise most similar to the depression instead of continuing to talk about recession. Mediterranean countries exhibit a continuing lack of International competitiveness. Austerity policies manifested their limits. Under quantitative easing the new money does not get into the real economy. The main beneficiaries of these policy are the investors, traders and speculators that have a very low propensity to consume goods and services. L. Paganetto () Tor Vergata Foundation for Economic Research, Rome, Italy e-mail: [email protected] L. Paganetto (ed.), Wealth, Income Inequalities, and Demography, 1 DOI 10.1007/978-3-319-05909-9__1, © Springer International Publishing Switzerland 2014 2 L. Paganetto J. Stiglitz said that the big lesson of the crisis is that economies are not necessarily efficient, stable or self-correcting. What is needed therefore is to correct the economy. The crisis can’t be faced using tools able to fight recession. Indeed the crisis has been accompanied by important structural changes as increasing income inequality, population ageing and shifting wealth from advanced to emerging countries. OECD estimated that, after two decades of shifting wealth, developing and emerging countries are likely to account for nearly 60 % of world GDP by 2030. At the G20 table are participating the leaders of the countries of the heart of the shifting wealth story: Brazil, China, India, Indonesia and South Africa. OECD secretary general pointed out that large emerging market economies have helped to soften the impact of the most serious global recession since the 1930s. Through their trade and investment links they have also mitigated the impact of the crisis on the rest of the developing world. And now in the recovery phase they are a major source of growth. An important consequence of the shifting wealth phenomenon is the coming out of a new competitiveness environment and the new role of demand of emerging countries for advanced economies, European especially. Europe and Italy have not completed so far the structural adjustments needed to face the new phase opened by shifting wealth. Income inequalities increased in the recent years. OECD stated that today in the area, the average income of the richest 10 % of the population is about nine times that of the poorest 10 %—a ratio of 9 to 1. However, the ratio varies widely from one country to another. It is much lower than the OECD average in the Nordic and many continental European countries, but reaches 10 to 1 in Italy, Japan, Korea, and the United Kingdom; around 14 to 1 in Israel, Turkey, and the United States; and 27 to 1 in Mexico. The latest trends in the 2000s showed a widening gap between the rich and the poor not only in some of the already high inequality countries like Israel and the United States, but also—for the first time—in traditionally low-inequality countries, such as Germany, Denmark, and Sweden (and other Nordic countries), where inequality grew more than anywhere else in the 2000s. Rising income inequality creates economic, social and political challenges. Are redistributive strategies based on governments transfers the right remedy? Experience says no. They are neither effective nor financially sustainable. Pre-distribution policies could be a new interesting approach. Investing in the human capital is the strategic key. In his paper on innovation and inequality Phelps expresses the view that “there is no question that effective initiatives can be taken to address particular inequalities. Subsidies for employers to hire low-wage workers is one initiative that could be taken to address a particularly serious inequality. But there is no way to restore the sense of equality that prevailed as late as the 1960s without remedying the ills that caused inequalities to widen: the narrowing of high innovation to a handful of industries and the consequent slowing of economic growth to a snail’s pace”. Introduction 3 J. Stiglitz argued in his recent book “The price of inequality” that structural changes in inequality played a significant role in our present