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19.04.2018 • 7/2018
Joint Economic Forecast Spring 2018: Germany’s Economic Experts Raise Forecast Slightly
Berlin, 19 April – Germany’s leading economic experts raised their forecasts for 2018 and 2019 slightly in their Spring Joint Economic Forecast released on Thursday in Berlin. They now expect economic growth of 2.2 percent for this year and 2.0 percent for 2019, versus 2.0 percent and 1.8 percent respectively in their autumn forecast. “The German economy is still booming, but the air is getting thinner as unused capacities are shrinking“, notes Timo Wollmershaeuser, ifo Head of Economic Forecasting. Commenting on the new German government’s economic policy, he adds: “It is precisely when the government’s coffers are full that fiscal policy should reflect the implications of its actions for overall economic stability and the sustainability of public finances. The extension of statutory pension benefits outlined in the coalition agreement runs counter to the idea of sustainability.”
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Alternatives to GDP - Measuring the Impact of Natural Disasters using Panel Data
Journal of Economic and Social Measurement,
A frequent criticism of GDP states that events that obviously reduce welfare of people can nevertheless increase GDP per capita. We use data of natural disasters as quasi experiments to examine whether alternatives to GDP (Human Development Index, Progress Index, Index of Economic Well-Being and a Happiness Index) lead to more plausible responses to disasters. Applying a Differences-in-Differences approach and estimates from various panels of countries we find no noteworthy differences between the response of real GDP per capita and the responses of suggested alternative welfare measures to a natural disaster except for the Human Development Index.
Taxation, Corruption, and Growth
European Economic Review,
We build an endogenous growth model to analyze the relationships between taxation, corruption, and economic growth. Entrepreneurs lie at the center of the model and face disincentive effects from taxation but acquire positive benefits from public infrastructure. Political corruption governs the efficiency with which tax revenues are translated into infrastructure. The model predicts an inverted-U relationship between taxation and growth, with corruption reducing the optimal taxation level. We find evidence consistent with these predictions and the entrepreneurial channel using data from the Longitudinal Business Database of the US Census Bureau. The marginal effect of taxation for growth for a state at the 10th or 25th percentile of corruption is significantly positive; on the other hand, the marginal effects of taxation for growth for a state at the 90th percentile of corruption are much lower across the board. We make progress towards causality through Granger-style tests and by considering periphery counties where effective tax policy is largely driven by bordering states. Finally, we calibrate our model and find that the calibrated taxation rate of 37% is fairly close to the model׳s estimated welfare maximizing taxation rate of 42%. Reducing corruption provides the largest potential impact for welfare gain through its impact on the uses of tax revenues.
Nested Models and Model Uncertainty
Scandinavian Journal of Economics,
Uncertainty about the appropriate choice among nested models is a concern for optimal policy when policy prescriptions from those models differ. The standard procedure is to specify a prior over the parameter space, ignoring the special status of submodels (e.g., those resulting from zero restrictions). Following Sims (2008, Journal of Economic Dynamics and Control 32, 2460–2475), we treat nested submodels as probability models, and we formalize a procedure that ensures that submodels are not discarded too easily and do matter for optimal policy. For the United States, we find that optimal policy based on our procedure leads to substantial welfare gains compared to the standard procedure.
Intellectual Property Rights Policy, Competition and Innovation
Journal of the European Economic Association,
To what extent and in what form should the intellectual property rights (IPR) of innovators be protected? Should a company with a large technology lead over its rivals receive the same IPR protection as a company with a more limited advantage? In this paper, we develop a dynamic framework for the study of the interactions between IPR and competition, in particular to understand the impact of such policies on future incentives. The economy consists of many industries and firms engaged in cumulative (step-by-step) innovation. IPR policy regulates whether followers in an industry can copy the technology of the leader. We prove the existence of a steady-state equilibrium and characterize some of its properties. We then quantitatively investigate the implications of different types of IPR policy on the equilibrium growth rate and welfare. The most important result from this exercise is that full patent protection is not optimal; instead, optimal policy involves state-dependent IPR protection, providing greater protection to technology leaders that are further ahead than those that are close to their followers. This is because of a trickle-down effect: providing greater protection to firms that are further ahead of their followers than a certain threshold increases the R&D incentives also for all technology leaders that are less advanced than this threshold.
The Political Setting of Social Security Contributions in Europe in the Business Cycle
IWH Discussion Papers,
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.
The Long Way to Convergence
Wirtschaft im Wandel,
20 Jahre Deutsche Einheit - Teil 1 -
After nearly 20 years of economic development in unified Germany, East German states compared to the West German Leander still lag behind in terms of welfare. During the years immediately following unification, East Germany displayed high economic growth, but lost its relative strength largely in recent times. Therefore, this paper asks whether East Germany is still catching up in terms of per capita output. By considering the cross- section of German states, one can estimate an average convergence speed of approximately 2% per year. However, this catching-up process is partly driven by demographic effects and by migration from East to West Germany. If one considers a time series test of convergence, a catching-up process can still be identified, although the speed is lower and estimated to be around 1%. This implies that the convergence process of East Germany will need further decades until the regional gap will be closed.
Agenda 2010: Neues unter Deutschlands Himmel?
The paper analyzes to what extent the reform of the German social security and welfare system, known as the “Hartz-IV-Reforms” under the “Agenda 2010”, has been successful. It is shown that the integration of welfare and social security payments increased efficiency as did prior deregulations of the labor market. However, the implementation was partly inefficient due to a misalignment between crucial instruments and incentive structure of individuals. This led to unforeseen expenditures that partly continue until today. Due to this inefficiency, parts of the reform lost its political acceptance. Furthermore, the article shows that many of these reforms had already been prepared intellectually by selected think tanks in the 90ies. The reforms are consistent with a consensus among scholars regarding the ability of the modern state to protect citizens from individual life risks. Finally, the article discusses the future agenda with respect to other important economic policy instruments beyond the integration of welfare and social security such as incentive structure in the established taxation system.