Financial policy dominated by consolidation
Kristina vanDeuverden
Wirtschaft im Wandel,
No. 10,
2002
Abstract
Submitting the Stability and Growth Pact European member states committed themselves to reduce their budget deficits. In spring this year the German fiscal position worsened more and more and it became obvious that the deficit target would – again – be missed. Despite the worsened starting point Germany affirmed to follow its original stability programme and to attain a budget “close to balance” by the year 2004. Thus, consolidation will have to be strengthened and the scope for fiscal policy narrows down.
If current fiscal policy is not sustainable, the necessity of consolidation is obvious. However, the mode of consolidation is controversial. The Stability and Growth Pact focuses on converging budget deficits close to balance. For this, short-term oriented consolidation dominates the more medium and long-term oriented aspects of fiscal policy. Generating economic conditions by fiscal policy is at least restricted, maybe temporarily impossible – and shortening the consolidation period increases its costs.
A forecast of the government’s financial development in the years 2002 to 2006 shows clearly that the restructuring of revenues and expenditure will show no progress. In particular, the lack of structural reforms will burden Germany’s fiscal situation in the medium-term oriented consolidation period. However: the political self-commitment this spring leaves no scope for alternatives, but to enforce the consolidation. Despite some efforts, the projection concludes that by the year 2004 the budget will show a deficit.
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Bank-Firm Relationships and International Banking Markets
Hans Degryse, Steven Ongena
International Journal of the Economics of Business,
No. 3,
2002
Abstract
This paper reviews how long-term relationships between firms and banks shape the structure and integration of banking markets worldwide. Bank relationships arise to span informational asymmetries that are endemic in financial markets. Firm-bank relationships not only entail specific benefits and costs for both the engaged firms and banks, but also directly affect the structure of banking markets. In particular, the sunk cost of screening and monitoring activities and the 'informational capital' collected by the incumbent banks may act as a barrier to entry. The intensity of the existing firm-bank relationships will determine the height of this barrier and shape the structure of international banking markets. For example, in Scandinavia where firms maintain few and strong relationships, foreign banks may only be able to enter successfully through mergers and acquisitions. On the other hand, Southern European firms maintain many bank relationships. Therefore, banks may consider entering Southern European banking markets through direct investment.
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Intra-industry trade between European Union and Transition Economies. Does income distribution matter?
Hubert Gabrisch, Maria Luigia Segnana
IWH Discussion Papers,
No. 155,
2002
Abstract
EU-TE trade is increasingly characterised by intra-industry trade. For some countries (Czech Republic), the share of intra-industry trade in total trade with the EU approaches 60 percent. The decomposition of intra-industry trade into horizontal and vertical shares reveals overwhelming vertical structures with strong quality advantages for the EU and shrinking quality advantages for TE countries wherever trade has been liberalised. Empirical research on factors determining this structure in an EU-TE framework has lagged theoretical and empirical research on horizontal trade and vertical trade in other regions of the world. The main objective of this paper is, therefore, to contribute to the ongoing debate over EU-TE trade structures, by offering an explanation of intra-industry trade. We utilize a cross-country approach in which relative wage differences and country size play a leading role. In addition, as implied by a model of the productquality
cycle, we examine income distribution factors as determinates of the emerging
EU-TE structure of trade flows. Using OLS regressions, we find first, that relative
differences in wages (per capita income) and country size explain intra-industry trade, when trade is vertical and completely liberalized and second, that cross country differences in income distribution play no explanatory role. We conclude that if increasing wage differences resulted from an increasing productivity gap between highquality and low-quality industries, then vertical structures will, over the long-term create significant barriers for the increase in TE incomes and lowering EU-TE income differentials.
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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.
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Employment in the East German environmental sector - an analysis based on the IAB Company Panel
Walter Komar
Wirtschaft im Wandel,
No. 13,
2001
Abstract
The estimations of environmental employment in this paper are based on an analysis of IAB-Firm-Panel. In 1999 182 000 man were working in production of environmental goods and services. Recording to self-assessment of firms intermediate term environmental employment will increase in environmental services sector, particulary in the field of climate protection.
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Environmental policy under product differentiation and asymmetric costs - Does leapfrogging occur and is it worth it?
Jacqueline Rothfels
IWH Discussion Papers,
No. 124,
2000
Abstract
This paper studies the influence of environmental policies on environmental quality, domestic firms, and welfare. Point of departure is Porter’s hypothesis that unilateral environmental regulation may enhance the competitiveness of domestic firms. This hypothesis has recently received considerable support in theoretical analyses, especially if imperfectly competitive markets with strategic behavior on behalf of the agents are taken into account. Our work contributes to this literature by explicitely investigating the implications of asymmetric cost structures between a domestic and a foreign firm sector. We use a partial-equilibrium model of vertical product differentiation, where the consumption of a product causes environmental harm. Allowing for differentiated products, the domestic industry can either assume the market leader position or lag behind in terms of the environmental quality of the produced product. Assuming as a benchmark case that the domestic industry lags behind, we investigate the possibility of the government to induce leapfrogging of the domestic firm, i.e. a higher quality produced by the domestic firm after regulation than that of the competitor prior to regulation. It is shown that in the case of a cost advantage for the domestic firm in the production process the imposition of a binding minimum quality standard can serve as a tool to induce leapfrogging. In case of a cost disadvantage the same result can be achieved through an adequate subsidization of quality dependend production costs. Thus, careful regulation enables the domestic firm in both scenarios to better its competitive position against foreign competitors and to earn larger profits. Additionally, environmental quality and welfare can be enhanced.
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On long-term energy export potentials of Central and Eastern Europe
Martin Weisheimer
Wirtschaft im Wandel,
No. 11,
1995
Abstract
Es wird nachgewiesen, dass mittel- und osteuropäische Länder ein bemerkenswertes Potenzial für Energieexporte besitzen. Das bezieht sich bei Elektrizität vor allem auf Russland, Ukraine und Tschechien, bei Steinkohle auf Polen, bei Erdgas und Erdöl auf Russland. Die Chancen und Risiken des erhöhten Energieexportes sowie ihre Determinanten werden analysiert.
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