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
The Ending of Solidarity Pact Payments: Are the “Neue Länder” Prepared Sufficiently?
Katja Wilde, Sabine Freye
Wirtschaft im Wandel,
No. 3,
2009
Abstract
Up to 2019, the “Neue Länder” in Germany are benefitting from financial transfer within the framework of the solidarity pact. From 2005 to 2007, the “Neue Länder” were able to improve they financial situation and used the solidarity pact payments efficiently. However, these payments are decreasing annually. This implies a significant financial reduction to the “Neue Länder’s” overall budgets and a considerable challenge for their future investments. This article analyses publications by the governments of the “Neue Länder” about their medium term budget planning and related progress reports from the year 2006. The consolidation of their budgets seems to be an essential aspect in the policy strategy of “Neue Länder” due to limited tax autonomy and legal restrictions on their expenditures. However, we identified several consolidation strategies with regard to infrastructural priorities, restructuring of administration, and creation of reserves. The public revenues of the “Neue Länder” are expected to decline in 2009 due to the current recession. In case that there are no fundamental changes in the underlying economic structures, the financial scope of the “Neue Länder” is going to be increasingly constrained, in particular with regard to future investments.
Read article
Economic Stimulus Packages and their Effects – A Simulation with the IWH Macroeconometric Model
Rolf Scheufele
Wirtschaft im Wandel,
No. 1,
2009
Abstract
This article deals with the macroeconomic effects of different economic stimulus packages. It evaluates several measures including direct tax cuts, a reduction of the contribution payment to social security, an increase in government spending and a temporary cut of the value added tax rate. Further, the measures of the latest economic stimulus packages are assessed and it is found that their effects on production and employment are only of moderate size.
Read article
Low Wages in the Service Sector in Eastern Germany: Extent and Reasons
Joachim Wilde, Christian Keller
Wirtschaft im Wandel,
No. 11,
2008
Abstract
In recent years, employment has grown noticeably in Germany. Although this is good news, some people criticize that many jobs are low-paid, i.e. the wage is less than two thirds of the medium wage. An eye-catching example is the service sector in Eastern Germany. However, a systematic analysis of this sector in Eastern Germany is missing until now. The article closes this gap in the literature.
Concerning the whole service sector in Eastern Germany, about 25 percent of the employees get a low (gross) wage. This is not much more than the average of all sectors. However, in some branches of the service sector, much more employees get low wages. More than 40% of the employees of retail trade, restaurant business and services near to companies (“unternehmensnahe Dienstleistungen”) are paid low. The probability to get a low wage is significantly higher for women and the so-called minijobbers.
Since the tax system adjusts differences, all calculations were also done for net wages. On the one hand, the part of low-paid workers decreases for all branches and all subpopulations. On the other hand, the probability to get a low wage does not differ anymore between minijobbers and full-time employees. Thus, the tax system does not only reduce low-paid employment, it also changes its structure.
Read article
Economic Effects of the Halle Institute for Economic Research
Ulrich Blum
Wirtschaft im Wandel,
No. 10,
2008
Abstract
The most important approach to assess the scholarly performance of an institute is to evaluate its academic output. Economic research institutes such as the Halle Institute for Economic Research (IWH) furthermore are targeted at providing policy advice to public authorities. This adds an additional criterion, the ability to impact policy discussions in Germany and beyond.
A rarely discussed issue is the effect of an institute on the local economy. The IWH is located in a region of East Germany that is still catching up economically. Transformation problems are still very visible. In such an economic environment, the expenditures of an institute play an important role in stabilizing local demand. The analysis shows, by using input-output-methods, that the most important factor for the local economy is the demand stemming from wages earned by the employees of the institute. Especially the local area, where most of the staff lives, heavily benefits from this effect. Expenditures of about 4.6 million Euros which include the salaries of the staff of about 70 persons generates sufficient demand in the area to guarantee employment for another 35 persons. In addition, as crowding out of activities by additional demand is presently not an issue in East Germany, the taxes generated account for a considerable part of the budget.
Read article
Die volkswirtschaftliche Bedeutung von Private Equity
Ulrich Blum
Private Equity. Beurteilungs- und Bewertungsverfahren von Kapitalbeteiligungsgesellschaften,
2008
Abstract
Private equity is a very specific institutional way of providing private capital to enterprises. The contribution inquires why it increased its economic importance and public visibility over the last years. The role of private capital within the framework of the innovation theory, transaction cost theory and the risk theory is assessed. Private equity is a specific way of organizing the procurement with private capital for enterprises in risky markets in order to efficiently reducing transaction costs. More and above, it is important for credible market-entry strategies. As most markets are incomplete and because of tax regulations which cannot be considered to be efficient under present conditions, the economic role of private equity has increased. The increase economic role, but also importance in the firm, necessitates a steering of enterprises along value-oriented objectives. As the “hype” has decreased in summer 2007, the article ends with an assessment of future prospects.
Read article
Suburban Municipalities on Trial – Analysing the Sustainability of Socioeconomic Structures at the Example of the Municipality Schkopau
Sabine Döhler, Alexander Kubis
Wirtschaft im Wandel,
No. 7,
2008
Abstract
This article analyses socio-economic criteria of municipalities next to large cities. In a case study, we examine the municipality Schkopau in the south of Saxony-Anhalt. We ask if the fusion of smaller communes to this “new” municipality created in 2004 was rational in terms of sustainable socio-economic structures. Hence, we use the criteria of satellite towns developed by Boustedt.
We show that the criterion of political independence is assured by law. Meanwhile, the criteria independence of culture and urban development are not completely fulfilled. Due to the high density of industrial enterprises, the municipality has high tax revenue and therefore a strong financial basis. Also, the criterion of the minimum population figure is implemented.
Based on the specific results of the satellite town criteria, we could not find definite results for the municipality Schkopau, they are rather ambivalent. This result is partly caused by the strong interactions within the functional area of the provinces Saxony, Saxony-Anhalt and Thuringia. Due to the high dynamic of the structural change, we also point out the necessity to enhance the criteria for sustainable socio-economic structures of local and regional municipalities.
Read article
Das bedingungslose Grundeinkommen und seine Finanzierung
Ingmar Kumpmann
cege-Report Februar 2008,
2008
Abstract
This is a reply to a contribution of Robert Schwager in the preceding cege-Report. The unconditional basic income is intended to reduce poverty. For its financing, some hitherto existing social benefits and tax privileges can be dropped. But the core of the financing problem is the effect of the basic income on the incentives in the economy.
Read article
On the Economics of Ex-Post Transfers in a Federal State: A Mechanism Design Approach
Martin Altemeyer-Bartscher, T. Kuhn
WWDP, 95,
No. 95,
2008
Abstract
As a common feature in many federal states grants-in aid are payed to jurisdictions ex post, i.e. after local policy measures have chosen. We show that the central government cannot offer grants ex ante in a federal states with informational asymmetries as well as inter-temporal commitment problems. Local governments’ incentives to provide public goods are distorted if they rely on federal grants-in-aid offered ex post. Furthermore it becomes obvious that local governments are apt to substitute tax revenue for higher grants-in-aid if relevant local data are unobservable for the central government. To which extend ex post transfers mitigate local governments’ incentives crucially depends on the information structure predominant in the federation.
Read article
Business cycle forecast 2008: German upswing takes a break
Wirtschaft im Wandel,
No. 1,
2008
Abstract
Economic growth in the industrial countries will be much more muted in 2008 than in the past year. One cause is the prolonged oil price hike during 2007. The second and more important cause is the intensification of tensions on world financial markets. Due to problems in the financial sector, credit expansion will slow next year in the euro area as well as in the US. This will dampen demand in the real economy. A significant downswing in the industrial countries, however, is not the most likely scenario: in the US, expansive economic policy and a weak dollar that gives production in the US a competitive edge will prevent the economy from sliding into recession. In the euro area, high profitability of firms and structural improvements in the working of labour markets will help the economy cope with the stronger euro and with higher costs of external financing due to the turmoil in the financial sector. In Germany, the upswing has still not reached the demand of private households. The main reason is that real wages were stagnating in 2007 and will not rise by much in 2008, since inflation has accelerated considerably at the end of last year. In addition, weaker dynamics of external demand will dampen export growth. This and the end of tax incentives for investment at the end of 2007 will dampen investment activity. All in all, the economy will slow down in the first half of 2008. However, chances are good that the upswing will only have taken a break: when the dampening external shocks have ceased, the driving powers of the upswing will prevail; dynamic employment growth is a reflection of the strong confidence of firms. A major risk for employment and for the German economy in general is, however, the possibility that the policy concerning the labour markets changes course; bad omens are the recent the introduction of minimum wages for postal services and the announced extension of unemployment benefits for persons older than 50.
Read article
