Research in Economics and Mathematics

Funder

Organizational Unit

Publications

Twin deficits through the looking Glass : time-varying analysis in the Euro Area

Publication . Afonso, António; Coelho, José Carlos

Using two measures of the fiscal position, the cyclically adjusted primary budget balance (CAPB) and the total budget balance, we assess the Twin Deficit Hypothesis for the Euro Area in the period 1995-2020. Furthermore, we estimate time-varying coefficients of the current account balance responses to changes in the CAPB and in the government balance and we identify the determinants of these responses. The CAPB and the government balance, in addition to being determinants of the current account balance, are also determinants of the time- varying responses of the current account balance. The levels of government balance, current account balance and public debt, as a percentage of GDP, and the temporal period (before and after 2010) also influence these responses.

2022-01Working paper

Open access

Drivers of the tax effort : evidence from a large panel

Publication . Barros, Victor; Jalles, João Tovar; Sarmento, Joaquim Miranda

This paper extends previous literature by assessing the drivers of tax effort in a large panel of 122 countries over the period 1980 to 2017 and refining the analysis to regions, periods, income group, and economic development level. Our focus is on five blocks of determinants, namely: economic, fiscal, openness, structural, and political. We find that tax effort is influenced by all blocks, although results differ per income group. Tax effort in advanced economies is driven by all blocks of drivers, except political variables, while openness, structural, and political blocks prevail in developing economies. There is no consistency regarding the determinants across the four regions (Latin America, Africa, Europe and Asia). We also find that during the first two decades under analysis, tax effort is mainly associated with both higher levels of countries’ tax revenues and the role of the agricultural sector in the economy, while from 1999 onwards the determinants are mainly driven by left-wing ruling governments and the economic and fiscal blocks of variables. Our results are robust for a battery of sensitivity and robustness tests. Taken all together, our findings suggest the existence of heterogeneous impacts, which implies that policies resulting in improvements in the level of tax effort can affect countries in different ways.

2021-04Working paper

Open access

Financial development and macroeconomic performance : a cointegration approach

Publication . Ferreira, Cândida

The paper tests the existence of long-term relations, measured through cointegration, between all the IMF financial development indices and some macroeconomic performance indicators applying panel cointegration tests in a panel with 46 countries, and in a panel including only the sub-sample of the 28 EU countries over the interval 1990-2017. Overall, there are no significant differences between the results obtained for whole sample and the panel including only the EU countries. The results obtained clearly point to the existence of cointegration between the financial development indices and the real Gross Domestic Product, as well as with the inflation, the unemployment rate, and very particularly, with the current account, and with the net international investment position. The results also show there are no significant differences between the results obtained for the financial institutions and for the financial markets. Moreover, the results related to the specific aspects addressed by the IMF indices very well demonstrate that much more important than the simple access to or the depth of the financial institutions and markets is the efficiency of these institutions and markets.

2020-12Working paper

Open access

Pay and unemployment determinants of migration flows in the European Union

Publication . Afonso, António; Alves, José; Beck, Krzysztof

We analyze the migration drivers within the European Union countries. For a set of 23 EU countries over the 1995-2019 period, we use Bayesian Model Averaging and quantile regression to assess notably the relevance of unemployment and earnings. We find that the existence of a common border increases the number of net migrants by 172 people per 1000 inhabitants. In addition, 1000 PPP Euro increase in the difference in net annual salaries increases net migration by approximately 50 and 42 people per 1000 inhabitants in a working age of both countries under uniform and binomial-beta model prior, respectively. Moreover, one percentage point increase in the difference in the unemployment rate is associated with an increase in net immigration by approximately 6 and 3 persons by 1000 inhabitants in both countries. These results are also corroborated with the quantile regression results. Hence, human capital inside the EU is moving in search of higher cross-country earnings

2022-12Working paper

Open access

Modelling credit risk : evidence for EMV methodology on portuguese mortgage data

Publication . Borges, Maria Rosa; Machado, Raquel

Traditional credit risk models failed during the recent financial crisis and revealed weaknesses in forecasting and stress testing procedures. One of the main reasons for this failure was the fact that they did not include lifecycle and macroeconomic adverse selection effects. The Exogenous-Maturity-Vintage (EMV) models emerged in this context, in the credit risk literature. In this article, we assess the applicability of the EMV models to a dataset consisting of Portuguese mortgage data between 2007 and 2017, to study the determinants of default rates. We obtain and examine the exogenous, maturity and vintage curves from the dataset under analysis, plotting defaults rates through time, under each of the three component’s logic (default rates by calendar period, by age and by vintage). We show that these curves follow the expected behavior. Finally, we identify a set of explanatory variables suitable to be incorporated in an EMV model specification, for forecasting purposes, and discuss the rationality for their inclusion in the model.

2020Working paper

Open access