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Working Paper Series in Economics
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No. wp2021-7
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- Natalia Levenko and Karsten Staehr
- Tax compliance in post-transition:
You and your friends matter, not the government
This paper contributes to the literature that seeks to assess the importance of
various theories on tax evasion by individuals. The various theories can be
distinguished in detail using a very fine-grained survey of Estonian residents that
was collected in three rounds from 2018 to 2020. Principal component analysis
shows that the survey replies are mutually consistent and form distinct clusters that
match key theories on tax evasion. Logit estimations of tax compliance use the
principal components and various control variables as covariates. Theories of
individual rational choice do not gain support. Factors associated with personal
norms and with social norms and customs are important for tax compliance.
Importantly, theories of reciprocity that depict a positive relation between approval
of the government and tax compliance receive no support, possibly reflecting the
wide spread of views on the role of government in post-transition Estonia. Sample
splits reveal that the results apply broadly across various subsets of taxpayers. The
results of the principal component regressions are corroborated by logit estimations
where the survey variables enter individually
- JEL-Codes: H26, H83
- Keywords: tax evasion, monetary and non-monetary motives, auditing, behavioural choice, norms and customs, reciprocity
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No. wp2021-6
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- Mathias Juust
- Trade effects of a negative export shock
on direct exporters and wholesalers
This paper examines the effects on the exports of Estonian firms of the Russian
export shock of 2014, which was a multifaceted negative market-wide income
shock. The dataset covers all the Estonian exporters that exported to Russia in 2013
and the empirical analysis uses a difference-in-difference method in combination
with the coarsened exact matching method to account for heterogeneities between
the treatment and control groups. I find that the wholesalers affected were able to
show better export performance after the shock than direct exporters were. The
trade performance after the shock was lower for both wholesalers and direct
exporters that had lower initial productivity levels
- JEL-Codes: F13, F14, F23
- Keywords: export shock, firm-level trade effects, trade effects, trade policy
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No. wp2021-5
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- Eva Brandten
- The role of risk attitudes and expectations
in household borrowing in Estonia
This study investigates the relations between risk attitudes and expectations and
different aspects of borrowing by households in Estonia. The central research
question is whether risk aversion and optimism provide additional information
beyond the main economic and sociodemographic characteristics in explaining
borrowing behaviour. The paper uses microdata from the Estonian Household
Finance and Consumption Survey (HFCS) to estimate probit and Heckman models.
My analysis shows that risk-tolerant households apply for loans more often than
risk-averse households do and that their loans are larger. For mortgage loans, risk
aversion is related to the probability of having a loan, whereas for non-mortgage
loans, risk aversion is related to the size of the outstanding liabilities. The variables
describing the household’s expectations for its future financial situation are on their
own related to the decision to apply for a loan, but they do not contain any relevant
additional information beyond the main economic and sociodemographic
characteristics of the household
- JEL-Codes: G51, D14
- Keywords: household debt, mortgage loans, non-mortgage loans, borrowing decisions, income and price expectations, risk attitudes, Household Finance and Consumption Survey
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No. wp2021-4
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- Jaanika Meriküll and Marina Tverdostup
- The gap that survived the transition:
the gender wage gap over three decades in Estonia
This paper looks at the gender wage gap throughout the transition from
communism to capitalism and throughout a time of rapid economic convergence.
The case of Estonia is used, and micro data from the Labour Force Survey from
1989 to 2020 are employed. The communist regimes had highly regulated wage
setting and high levels of educational attainment and labour market participation
for women. Although the regime was formally egalitarian, the gender attitudes were
conservative and the raw gender wage gap was as large as 41% at the end of the
communist period in Estonia. The large gender wage gap under communist rule
narrowed quickly during the first years of economic transition, but the further
decline in the gap has been slow. The paper has two main messages. The first is that
there is strong inertia in the gender wage gap persisting through the communist
period and economic convergence. None of the known long-run cultural drivers of
gender attitudes can explain this. The second is that the decline in the gap is related
to the overall decline in wage inequality, the rise in minimum wages, and more
egalitarian gender attitudes. The gender attitudes are responsible for a smaller effect
than wage inequality is.
- JEL-Codes: J31, J71, P23
- Keywords: gender wage gap, wage distribution, decomposition, post-communist economies, wage inequality, minimum wages, gender attitudes
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No. wp2021-3
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- Anita Suurlaht
- The asymmetric effect of monetary policy on European financial markets
This paper analyses the impact of unanticipated changes in domestic and foreign monetary
policy on aggregate stock market performance and risk in ve countries: France, Germany,
Italy, Spain and the UK, using an event study methodology. We also study whether the
common monetary policy has the same impact in selected EU member states. We relate the
e ect of domestic and foreign monetary policy surprises on nancial markets to the
prevailing phase of the economic cycle and the state of market sentiment. Our results
suggest that during recessions and periods with low sentiment, unanticipated foreign
monetary policy contraction is associated with negative stock market returns and increased
nancial market risk. We nd that although there is asymmetry within the monetary policy
transmission to nancial markets within the EU, domestic monetary policy surprises have
little effect on stock returns and stock market risk, particularly during phases of economic
expansion and rising sentiment
- JEL-Codes: F36; F42; G15
- Keywords: Macro policy transmission; nancial markets; economic integration
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No. wp2021-2
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- Nicolas Reigl
- Expectational errors and business cycle fluctuations in Europe
This paper investigates how supply noise and demand noise contribute
to business cycle fluctuations in three major European economies. A structural
vector autoregressive model is used to identify supply, demand, supply
noise and demand shocks. The identification scheme is built on nowcast
errors of output growth and the inflation rate that are derived from
the Consensus Economics Survey. The results indicate that positive supply
noise and positive demand noise shocks have an expansionary effect
on output but their magnitude differs across countries. The two shocks
contribute equally to business fluctuations and jointly they account for
around one quarter of the total variation in GDP in each of the three
countries.
- JEL-Codes: E31, E32, E58
- Keywords: Business cycles, noise shocks, SVAR, survey expectations
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No. wp2021-1
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- Juan Carlos Cuestas, Merike Kukk and Natalia Levenko
- House price misalignments and economic growth in Europe
In this paper we investigate house price misalignments and their effect on the
real economy. We estimate the long-term relationship between house prices and the
fundamentals that determine long-term house prices for a panel of European
countries with dynamic OLS, using data from 2004–2018. We find that income has
been the main driver of house prices based on fundamentals in all countries, while
the supply of dwellings has calmed the rise in house prices in some countries. We
calculate house price misalignments, which are deviations of house prices from the
value based on fundamentals, and we employ them in the growth model. The results
of the growth regression indicate that house price imbalances amplify business
cycles in the short term, but in the long term house price overvaluations slow
economic growth down. The findings imply that it is crucial to take measures to
stabilise housing cycles
- JEL-Codes: E21, E44, R21, R31, G01
- Keywords: housing markets, fundamental house price, misalignments, imbalances, overvaluation, economic growth
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No. wp2020-8
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- Tairi Room and Orsolya Soosaar
- The gender gap in pension wealth in Europe: Evidence from twenty countries
- JEL-Codes: D14, G23, G11, J32
- Keywords: retirement saving behaviour, voluntary retirement savings, mandatory retirement saving system, private pension wealth, gender gap, Europe
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No. wp2020-7
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- Merike Kukk, Jaanika Merikyll and Tairi Room
- The gender wealth gap in Europe: A comparative study using a model averaging methodology
There is abundant evidence on the gender wage gaps across countries, but much
less is known about the gender differences in personal wealth. This paper provides
comparative estimates of the gender wealth gaps for 21 European countries,
employing data from the Household Finance and Consumption Survey. A common
problem for studies focusing on this topic is that the data on wealth are usually
provided at the household level and not at the individual level. This means it is only
possible to estimate gender wealth gaps for single-person households. To overcome
this constraint, we propose a novel approach using a model averaging methodology
to predict individualised wealth data for multi-person households. We find that the
gender wealth gaps tend to be in favour of men in the whole population, especially
when estimated at the top of the wealth distribution. In contrast, the estimated gaps
in the subset of single-person households tend to be statistically insignificant. The
country-level gender wealth gaps are correlated with overall wealth inequality but
not with gender gaps in pay and employment.
- JEL-Codes: D31, G51, J16, J71
- Keywords: gender gap, imputation, model averaging, wealth distribution, inequality, intra-household allocation of wealth, household finance, Europe
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No. wp2020-6
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- Merike Kukk and Natalia Levenko
- Alternative financing and the non-performing loans of the corporate sector in Estonia
The paper investigates how much alternative options for corporate financing
have affected the quality of domestic corporate bank loans in Estonia. We use
quarterly data from 2004Q1�2019Q3 and three different methods to detect the
relationship between the non-performing corporate loans of domestic banks and
alternative sources of financing for firms. We find that a rise in intra-group
borrowing from parent companies is associated with an increase in overdue
corporate loans. There is also some evidence that foreign bank loans and trade credit
might be positively related to non-performing corporate loans. The results suggest
that a broader set of sources of corporate financing beyond domestic bank loans
should be considered when assessing the dynamics of the overdue corporate loans
of the domestic banking sector.
- JEL-Codes: G32, G34, C11, C14
- Keywords: corporate debt, non-performing loans, alternative financing, Bayesian model averaging, local projection method
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