Europe's growth challenge

233 Pages·2017·8.012 MB·English

by  Åslund, Anders, Djankov, Simeon

i
Europe’s Growth Challenge
ii
iii
Europe’s Growth
Challenge
Anders Åslund and Simeon Djankov
1
iv
1
Oxford University Press is a department of the University of Oxford. It furthers
the University’s objective of excellence in research, scholarship, and education
by publishing worldwide. Oxford is a registered trade mark of Oxford University
Press in the UK and certain other countries.
Published in the United States of America by Oxford University Press
198 Madison Avenue, New York, NY 10016, United States of America.
© Oxford University Press 2017
All rights reserved. No part of this publication may be reproduced, stored in
a retrieval system, or transmitted, in any form or by any means, without the
prior permission in writing of Oxford University Press, or as expressly permitted
by law, by license, or under terms agreed with the appropriate reproduction
rights organization. Inquiries concerning reproduction outside the scope of the
above should be sent to the Rights Department, Oxford University Press, at the
address above.
You must not circulate this work in any other form
and you must impose this same condition on any acquirer.
Library of Congress Cataloging- in- Publication Data
Names: Åslund, Anders, 1952– author. | Djankov, Simeon, author.
Title: Europe’s growth challenge / Anders Åslund and Simeon Djankov.
Description: New York, NY : Oxford University Press, [2017]
Identifiers: LCCN 2016017256 | ISBN 9780190499204 (hardcover) |
ISBN 9780190499228 (epub)
Subjects: LCSH: Economic development—Europe. | Europe—Economic policy.
Classification: LCC HC240 .A837 2017 | DDC 338.94—dc23
LC record available at https://lccn.loc.gov/2016017256
1 3 5 7 9 8 6 4 2
Printed by Sheridan Books, Inc., United States of America
v
Contents
List of Tables and Figures ix
Preface xi
Acknowledgments xv
Abbreviations xvii
Map of the European Union xix
Introduction 1
1. Why We Are Writing This Book 2
2. Macroeconomic Stimulus Is Not the Cure 5
3. The Urgency of Change Is Rising with Stagnation and Crises 7
4. The Refugee Crisis Is a Catalyst for Change 8
5. Brexit: The Urgency for Change 10
6. TTIP Can Help Europe Open Up Vital Markets 11
7. Reinforcing International Economic Freedom 12
8. Statistics 13
1. What Is Right and Wrong with Europe? 15
1. A Dialectical Development 16
2. Europe’s Economic Growth Path 17
3. Migration: Big Waves 21
4. Far from Full Employment 22
5. Great Human Capital 23
6. Institutions Supporting Rule of Law 25
7. Conclusions: Europe’s Economic Strengths and Weaknesses 28
2. Limiting the Fiscal Role of the State 29
1. The Great Expansion 30
2. The Pendulum Swings Back 33
3. What Is the Right Level of Public Expenditures? 34
4. What the State Does and How Much It Costs 36
5. How Public Finances Can Be Balanced 40
6. The Maastricht Criteria: A Welcome Step 42
7. Conclusions: Toward Balanced Public Budgets 43
3. Taxes That Support Entrepreneurship and Growth 45
1. Europe’s Evolving Tax Systems 46
vi
2. Falling Corporate Profit Tax Rates 48
3. Personal Income Taxes: Driven Down 51
4. Payroll Taxes: Limiting Official Work 54
5. Value- Added Taxes: Rising and Standardized 55
6. The Question of Tax Harmonization 57
7. Conclusions: Europe Has Examples to Follow 58
4. Reforming Pensions 61
1. How Pension Systems Have Evolved 62
2. The Need for Change 63
3. Tightening of Early Retirement Schemes 64
4. Retirement Age Rising 65
5. Comprehensive Pension Reform 68
6. The Role of Pension Funds 70
7. Impact of the Global Financial Crisis 73
8. Conclusions: Convergence around Pensions Based
on Defined Contributions 75
5. Opening Up Services and Digital Trade 77
1. The EU’s 2006 Services Directive: An Attempt to Open Service Trade 78
2. Europe’s Service Market Remains Fragmented 80
3. Why Regulate Professions? 83
4. The Transatlantic Trade and Investment Partnership: A Means to Liberate Service
Trade and E- Commerce 84
5. Integrating Capital Markets 87
6. Conclusions: Service Trade Needs to Be Opened Up 91
6. Creating Jobs 92
1. Expanding Education and Vocational Training 95
2. Increasing Participation by Women 98
3. Absorbing Immigrants 99
4. Germany’s Labor Immigration Policies 101
5. Reducing the Labor Tax Wedge 102
6. Labor Regulation Reforms 104
7. Conclusions: Job- Creating Policies Need to Proceed 107
7. Cutting Red Tape 109
1. EU Initiatives 110
2. European Commission Measures 112
3. Making It Easier to Open a New Firm 113
4. Facilitating Property Transfers 115
5. Making Litigation More Efficient 117
6. A Proposed Guide for Regulatory Reform 118
7. Conclusions: Europe Can Cut More Red Tape 120
vi Contents
vii
8. Developing a Single Energy Market 122
1. The European Energy Market Today 123
2. The Energy Revolution of the Last Decade 125
3. The Third EU Energy Package of 2009: An Attempt at Marketization 126
4. The European Energy Union of 2015: Another Attempt at Marketization 127
5. Energy Saving and Pollution Control 128
6. Nord Stream 2: A Challenge to Europe’s Single Market 129
7. Conclusions: Toward Energy Security and Efficiency 131
9. Catching Up in Innovation 133
1. Europe Used to Be Innovative 133
2. How Europe Is Lagging Behind 135
3. Creating a Single Market for Innovative Products 139
4. The Need for Venture Capital 141
5. Too Rigid Laws 142
6. The Importance of Good University Education 143
7. Too Little Business Research and Development 145
8. Conclusions: Many Steps Required 146
Conclusions: How Europe Can Be Turned Around 148
1. Limit Public Expenditures to 42 Percent of GDP 148
2. Open Up Services and Digital Trade 149
3. Reduce the Burdens on Labor 149
4. Improve Higher Education and Create Better Conditions for Innovation 151
5. Reform Pensions 151
6. Complete the European Energy Union 152
Notes 153
References 169
Index 181
Contents vii
viii
ix
List of Tables and Figures
TABLES
4.1 Retirement Age in Europe 66
5.1 Direct Costs of Corruption in Public Procurement, 2010 85
7.1 Days Required to Transfer Property, 2015 109
7.2 Best and Worst in Red Tape in Europe, 2015 113
FIGURES
1.1 The Four Periods in Europe’s Postwar History 18
1.2 GDP, EU- 15 vs. United States, 1970– 2014 19
1.3 GDP Per Capita in PPP, EU- 15 vs. United States, 1970– 2013 20
1.4 Life Expectancy at Birth, 2014 24
1.5 Infant Mortality, 2014 24
1.6 Economic Freedom, 2013 26
1.7 Rule of Law, 2013 27
2.1 Total Public Expenditure, 2015 30
2.2 The Glorious 30 in Public Expenditures, 1945– 1975 32
2.3 Public Spending on Education, 2014 37
2.4 Public Spending on Health Care, 2014 38
2.5 Total Social Protection, 2014 39
2.6 Large Reductions in Public Expenditures, 1993– 2007 41
2.7 Big Public Debt Declines, 1995– 2007 42
3.1 Difficulty in Complying with Tax Administration, 2015 47
3.2 Corporate Tax Revenue, 2014 49
3.3 Corporate Tax Rates, EU- 15 vs. United States, 1981 and 2016 50
3.4 Corporate Tax Rates in Eastern Europe, 2016 50
3.5 Top Personal Income Tax Rates, Eastern Europe, 2015 53
3.6 Top Marginal Personal Income Tax Rates, EU- 15, 1981 and 2015 53
3.7 Personal Income Tax Revenues, 2014 54
3.8 Payroll Tax Revenues, 2014 55
3.9 Total Indirect Tax Revenues, 2012 57
4.1 Share of Pensions in Public Expenditure, 2013 62
4.2 Size of Pension Funds, 2014 70
4.3 Where Can Pension Funds Invest? 71
4.4 Real Return of Pension Funds 72
ix