Does the Technological Content of Government Demand Matter for Private R&D? Evidence from US States
Viktor Slavtchev, Simon Wiederhold
American Economic Journal: Macroeconomics,
No. 2,
2016
Abstract
Governments purchase everything from airplanes to zucchini. This paper investigates the role of the technological content of government procurement in innovation. In a theoretical model, we first show that a shift in the composition of public purchases toward high-tech products translates into higher economy-wide returns to innovation, leading to an increase in the aggregate level of private R&D. Using unique data on federal procurement in US states and performing panel fixed-effects estimations, we find support for the model's prediction of a positive R&D effect of the technological content of government procurement. Instrumental-variable estimations suggest a causal interpretation of our findings.
Read article
International Banking and Liquidity Risk Transmission: Evidence from Canada
James Chapman, H. Evren Damar
IMF Economic Review,
No. 3,
2015
Abstract
This paper investigates how liquidity conditions in Canada may affect domestic and/or foreign lending of globally active Canadian banks, and whether this transmission is influenced by individual bank characteristics. It finds that Canadian banks expanded their foreign lending during the recent financial crisis, often through acquisitions of foreign banks. It also finds evidence that internal capital markets play a role in the lending activities of globally active Canadian banks during times of heightened liquidity risk.
Read article
Corporate Taxation and Firm Location in Germany
Götz Zeddies
IWH Discussion Papers,
No. 2,
2015
Abstract
German Fiscal Federalism is characterized by a high degree of fiscal equalization which lowers the efficiency of local tax administration. Currently, a reform of the fiscal equalization scheme is on the political agenda. One option is to grant federal states the right to raise surtaxes on statutory tax rates set by the central government in order to reduce the equalization rate. In such an environment, especially those federal states with lower economic performance would have to raise comparatively high surtaxes. With capital mobility, this could further lower economic performance and thus tax revenues. Although statutory tax rates are so far identical across German federal states, corporate tax burden differs for several reasons. This paper tries to identify the impact of such differences on firm location. As can be shown, effective corporate taxation did seemingly not have a significant impact on firm location across German federal states.
Read article
The Ex Ante versus Ex Post Effect of Public Guarantees
H. Evren Damar, Reint E. Gropp, Adi Mordel
The Role of Central Banks in Financial Stability: How has it Changed?,
2013
Abstract
In October 2006, Dominion Bond Rating Service (DBRS) introduced new ratings for banks that account for the potential of government support. The rating changes are not a reflection of any changes in the respective banks’ credit fundamentals. We use this natural experiment to evaluate the consequences of bail out expectations for bank behavior using a difference in differences approach. The results suggest a striking difference between the effects of bail out probabilities during calm times (“ex ante”) versus during crisis times (“ex post”). During calm times, higher bail-out probabilities result in higher risk taking, consistent with the moral hazard view and much of the empirical literature. However, in crisis times, we find that banks with higher bail out probabilities tend to increase their risk taking less compared to banks that were ex ante unlikely to be bailed-out. Charter values are one part of the explanation: Supported banks may have a funding advantage relative to non-supported banks during the crisis. However, we cannot rule out that other factors also may be playing a role, including tighter supervision of supported banks in crisis times.
Read article
The Impact of Government Procurement Composition on Private R&D Activities
Viktor Slavtchev, Simon Wiederhold
Abstract
This paper addresses the question of whether government procurement can work as a de facto innovation policy tool. We develop an endogenous growth model with quality-improving in-novation that incorporates industries with heterogeneous innovation sizes. Government demand in high-tech industries increases the market size in these industries and, with it, the incentives for private firms to invest in R&D. At the economy-wide level, the additional R&D induced in high-tech industries outweighs the R&D foregone in all remaining industries. The implications of the model are empirically tested using a unique data set that includes federal procurement in U.S. states. We find evidence that a shift in the composition of government purchases toward high-tech industries indeed stimulates privately funded company R&D.
Read article
The Political Setting of Social Security Contributions in Europe in the Business Cycle
Toralf Pusch, Ingmar Kumpmann
IWH Discussion Papers,
No. 4,
2011
Abstract
Social security revenues are influenced by business cycle movements. In order to
support the working of automatic stabilizers it would be necessary to calculate social insurance contribution rates independently from the state of the business cycle. This paper investigates whether European countries set social contribution rates according to such a rule. By means of VAR estimations, country-specific effects can be analyzed – in contrast to earlier studies which used a panel design. As a result, some countries under investigation seem to vary their social contribution rates in a procyclical way.
Read article
Midterm Projection: Economic Development and the Public Budget in the Years 2011 - 2015
Kristina vanDeuverden, Rolf Scheufele
Wirtschaft im Wandel,
No. 1,
2011
Abstract
In 2010 economic activity in Germany improved steadily. While global trade increased in the first half of the year – and, thus, German exports – domestic demand became increasingly important. Private Investment recovered and – even more important – consumption contributed to economic growth. Moreover, employment reached an all-time high and unemployment decreased further during the year.
Until 2015 economic growth will keep to be relatively high. German external trade will still gain momentum by the development of global trade. However, economic development will be driven more and more by domestic demand. Interest rates will remain relatively low and stimulate investment activity. Moreover, unemployment will continually shrink, partly reflecting demographic developments, but partly mirrored in increasing employment. Due to a higher degree of employment security and rising wages consumption will gain momentum. Real GDP will increase by 2.3% in 2011 and by 1.7% in 2012. From 2013 – 2015 it will rise by 1½% on average.
While the German economy will gain strength, public budgets will clearly improve. In 2010 the deficit ratio exceeds the Maastricht threshold only slightly; in relation to nominal GDP the German budget deficit was about 3.2%. Concerning the high fiscal stimulus, mainly given in the years 2009 and 2010, the deficit ratio is surprisingly low. While income and wage taxes as well as the receipts from social security contributions already increased, unemployment benefits already declined substantially.
The midterm projection shows a favorable development of public budgets. While employment remains high and unemployment continually decreases, the wage tax and the social security contributions will boost revenue. On contrast the same development will lessen public expenditure, especially transfers.
This projection relies heavily on the assumption that fiscal policy will trace its consolidation plans. For instance, it is assumed that the federal level will implement their plans from summer/autumn 2010 and that there will be no additional measures. In this case, in 2015 the German public budget will show a surplus of ¼% in relation to GDP.
Read article
Shadow Budgets, Fiscal Illusion and Municipal Spending: The Case of Germany
Peter Haug
IWH Discussion Papers,
No. 9,
2009
Abstract
The paper investigates the existence of fiscal illusion in German municipalities with special focus on the revenues from local public enterprises. These shadow budgets tend to increase the misperception of municipal tax prices and seem to have been neglected in the literature. Therefore, an aggregated expenditure function has been estimated for all German independent cities applying an “integrated budget” approach, which means
that revenues and expenditures of the core budget and the local public enterprises are combined to one single municipal budget. The estimation results suggest that a higher relative share of local public enterprise revenues might increase total per capita spending as well as spending for non-obligatory municipal goods and services. Empirical evidence for other sources of fiscal illusion is mixed but some indications for debt illusion, renter illusion or the flypaper effect could be found.
Read article
Banking Integration, Bank Stability, and Regulation: Introduction to a Special Issue of the International Journal of Central Banking
Reint E. Gropp, H. Shin
International Journal of Central Banking,
No. 1,
2009
Abstract
The link between banking integration and financial stability has taken center stage in the wake of the current financial crisis. To what extent is the banking system in Europe integrated? What role has the introduction of the common currency played in this context? Are integrated banking markets more vulnerable to contagion and financial instability? Does the fragmented regulatory framework in Europe pose special problems in resolving bank failures? What policy reforms may become necessary? These questions are of considerable policy interest as evidenced by the extensive discussions surrounding the design and implementation of a new regulatory regime and by the increasing attention coming from academia.
Read article
Local Taxes and Capital Structure Choice
Reint E. Gropp
International Tax and Public Finance,
No. 1,
2002
Abstract
This paper investigates the question of taxation and capital structure choice in Germany. Germany represents an excellent case study for investigating the question of whether and to what extent taxes influence the debt-equity decision of firms, because the relative tax burdens on debt and equity vary greatly across communities. German communities levy local taxes on profits and long-term debt payments in addition to personal and corporate taxes on the federal level. A stylized model is presented incorporating these taxes. The model shows that local taxes create substantial incentives for firms to use debt financing. Furthermore, the paper empirically investigates the effect of local business taxes on the share of debt used to finance incremental investments by German firms. I find that local taxes significantly influence the capital structure choice of firms, controlling for a large number of other factors. In an extensive sensitivity analysis the tax effect are found to be robust across several different specifications.
Read article