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Impact of Financial Incentives to Work on Individual Behaviour: An Estimation for France by Thomas Piketty Does making low-paid jobs more financially attractive for the jobless have a significant positive impact on employment levels in France? Various reforms introduced in France's social transfers system between 1982 and 1996 have changed the financial incentives to work for various categories of population, depending on the number of dependent children, family structure and other factors. We use individual data from the INSEE employment surveys conducted from 1982 to 1997 (involving some 150,000 observations each year) to see if the new incentives introduced by these reforms, such as the income support benefit (RMI) and first job allowance (APE), have led to adjustments in the differential employment levels of these various population groups, all other (observable) things being equal. This methodology has recently been used for the American Earned Income Tax Credit (EITC) Survey and in natural experiments in Canada. In principle, it enables us to make an unbiased estimate of the elasticity of labour force participation and job-seeking behaviour in relation to financial incentives. The findings suggest that elasticity is relatively greater for women (with or without dependent children). On the other hand, the data used do not enable us to show any significant effect of financial incentives to work on men's transition from non-employment to employment.

The Impact of Government Deficits on European Economic Convergence Rates by Isabelle Cadoret and Christophe Tavera This paper is a theoretical and empirical examination of the consequences of the government deficit criterion contained in the Maastricht Treaty on economic convergence rates in Europe. We use a Solow growth model that explicitly accounts for government deficits. Theoretical analysis shows a multiplicity of equilibria, as well as bifurcation equilibria. A simulation using the model shows that application of the government deficit criterion leads to more rapid and more uniform convergence rates in European countries.

The Growth and Stability Pact: Stabilisation, Credibility and the EMU Fiscal Criteria by Dominique Bureau The monetary credibility versus regional stabilisation dilemma that underlies discussions about EMU fiscal criteria can be illustrated using a simple model, in which opting for an independent European Central Bank is assumed to solve monetary credibility problems, but the Member States are also assumed to maintain a strong capacity for fiscal stabilisation to cope with demand shocks. We show how, in this context, the trade-off between anti-inflation credibility and stabilisation after asymmetric shocks is a delicate issue, since the central bank does not have a simple means of curbing fiscal authorities' expansionary bias. As monetary policy is a public good in a certain way, national governments should free ride on it. Our model does not highlight the intrinsic externalities between the Member States' fiscal policies through imports or interest rates. Instead it puts the accent on the externality arising from a single monetary policy. This means we can regard the introduction of mechanisms, such as those called for in the Growth and Stability Pact, as an additional instrument aimed at alleviating the credibility/stabilisation dilemma. This would enable fiscal authorities to remain autonomous, but make them accountable, as long as sanctions are perceived as being relatively automatic.

The Indonesian Coffee Quality Problem: A Microeconomic Explanation by Catherine Benjamin and Chantai Le Mouël The Indonesian government aims to improve the quality of coffee produced in the country. Coffee growers often harvest their crops before the beans are ripe, which results in poor quality. Two reasons explain the growers' behaviour: they are not aware of the government's national policy to improve quality; and there are imperfections in the capital market. We use a household model that reveals the explanatory factors for Indonesian coffee growers' microeconomic harvesting behaviour. Econometric estimations are used to quantify the effects of the various factors and to show how important credit is in determining harvesting behaviour.