Measuring Institutional Competitiveness in Europe

CESifo Economic Studies, Forthcoming

Posted: 21 Jun 2013

See all articles by Stefan Huemer

Stefan Huemer

European Central Bank (ECB)

Beatrice Scheubel

European Central Bank (ECB); Ludwig Maximilian University of Munich (LMU) - Center for Economic Studies (CES)

Florian Walch

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: March 15, 2013

Abstract

While there are many methods to measure the competitiveness of an economy, most of these concepts ignore the fact that competitiveness can change not only because of market processes such as wage negotiation but also because of political decision making. Governments that compete with others for factors of production face the incentive to adjust key policy variables such as tax rates to improve their competitive position. Disentangling market-induced and politics-induced changes in competitiveness are not easy, but strongly warranted given current discussions that some Economic and Monetary Union (EMU) Member States should improve their competitive position within the euro area by adjusting policy variables. Increasing country competitiveness is one of the key objectives currently discussed by policy makers in the context of creating an economic union in the euro area, to complement monetary union. We propose a new competitiveness index that captures the dimensions in which politics can influence competitiveness beyond factor price adjustments. Our index shows that the individual components of institutional competitiveness have developed heterogeneously among EMU Member States. To explain these divergent developments, the uneven integration within the European Union Single Market may play a role.

Keywords: competitiveness, institutional competitiveness index, fiscal policy

JEL Classification: E02, E44, F15, H11, N44

Suggested Citation

Huemer, Stefan and Scheubel, Beatrice and Walch, Florian, Measuring Institutional Competitiveness in Europe (March 15, 2013). CESifo Economic Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2282401

Stefan Huemer

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Beatrice Scheubel (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ludwig Maximilian University of Munich (LMU) - Center for Economic Studies (CES)

Schackstr. 4
Munich, 80539
Germany

Florian Walch

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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