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Estimating a simultaneous-equations spatial panel model of demand and distribution in the European Union, 1998–2024

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  • Gilberto Tadeu Lima

  • Andre M. Marques

Abstract

This paper estimates a simultaneous-equations model of aggregate demand and income distribution using spatial panel data for 27 European Union countries over 1998-2024. We reach the following findings. First, an increase in a country`s wage share has a significant negative effect on domestic capacity utilization and on capacity utilization in neighboring countries. Second, higher domestic capacity utilization significantly reduces the country`s own wage share while increasing neighboring economies` wage shares. Third, impulse response functions corroborate these short-run relationships. Fourth, although aggregate demand is predominantly profit-led in the short run, it becomes wage-led over longer horizons, particularly through the spillover effects of wage share on capacity utilization. Fifth, regarding indirect effects, higher wage share in neighboring countries reduces domestic capacity utilization in the short run but increases it over longer horizons. Conversely, higher neighboring-country capacity utilization initially reduces domestic wage share. However, this effect tends to reverse in the longer run.

Suggested Citation

  • Gilberto Tadeu Lima & Andre M. Marques, 2026. "Estimating a simultaneous-equations spatial panel model of demand and distribution in the European Union, 1998–2024," Working Papers, Department of Economics 2026_26, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2026wpecon26
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    Keywords

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • F15 - International Economics - - Trade - - - Economic Integration
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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