Working Paper BETA #2014-19

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Title : Labour market regulation and fiscal parameters: A structural model for European regions.

Author(s) : Roberto Martino, Phu Nguyen-Van

Abstract : Deregulation of the labour market and public budget balance are usually consid- ered a fundamental requirement for economic performance. This study analyses the long term relationship between these indicators and gross value added (GVA) for a panel of European regions from 1995 to 2008. Following Olley and Pakes (1996) and Levinsohn and Petrin (2003), a structural equation is estimated using a two stages semi-parametric procedure. Results suggest no univocal evidence of a detri- mental effect of labour protection on long term GVA, while public deficit spending is positively associated with higher output. A negative relationship with debt arises only for economies with very high debt/GDP ratios.

Key-words : Labour protection; convergence criteria; production function; European Union.

JEL Classification : C20; E23; O47; R11