Current publications

Cover of EconPol Working Paper 64

Calamities, Common Interests, Shared Identity: What Shapes Altruism and Reciprocity?

Cevat Giray Aksoy (European Bank for Reconstruction and Development, King's College London and IZA), Antonio Cabrales (Universidad Carlos III de Madrid), Mathias Dolls (ifo Institute, CESifo, IZA and ZEW), Ruben Durante (ICREA, UPF, IPEG, Barcelona School of Economics, and CEPR), Lisa Windsteiger (Max Planck Institute for Tax Law and Public Finance

Information on the Covid-19 pandemic increases altruistic behavior and reciprocity towards compatriots, citizens of other EU countries, and non-EU citizens. This is one key result of a large-scale survey experiment conducted in August 2020 by EconPol Europe network members in nine European countries. The study also finds that priming common European values boosts altruism and reciprocity, but only towards compatriots and fellow Europeans. In contrast, priming common economic interests (EU trade) has no tangible impact on behaviour. The survey experiment provides novel evidence on how trust, reciprocity, and altruism are affected by a major health crisis (Covid-19), common economic interests (EU trade) and shared values (EU ideals).

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Cover of EconPol Policy Brief 35

Taxing the Residual Profit of Multinational Enterprises: A Critique of Formulaic Apportionment and a Proposal

Wolfram F. Richter (TU Dortmund University, CESifo Munich, IWH Halle, IZA Bonn)

In the context of a changed digital economy, the OECD has put forward a proposal that requires large multinational companies to pay some of their income taxes where revenue is generated; i.e. in countries where the consumers or users are located. It is suggested that taxing rights should be allocated using a revenue-based formula. This policy brief argues against the use of such a rule that requires the multilateral assessment of MNEs’ worldwide profit. The need to define a common consolidated tax base would disproportionately complicate the search for po-litical agreement within the Inclusive Framework. Instead, the OECD should apply more practical rules that rely on unilateral profit splitting and do not require uniform international rules on ac-counting. Countries could be granted the right to impose a withholding tax on outbound pay-ments, such as payments for digital services. To the extent that there are allocable costs, as for example with pharmaceuticals and vaccines, these should be tax-deductible on the condition that the country receiving the payments adopt the new tax regime.  

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Cover of EconPol Policy Report 31

Is There a Need for Reverse Mortgages in Germany? Empirical Evidence and Policy Implications

Florian Bartsch (Paris School of Economics), Florian Buhlmann (ZEW Mannheim), Karolin Kirschenmann (ZEW Mannheim), Carolin Schmidt (University of Cambridge)

In the face of shifting demographics capital-funded old-age provision is increasingly becoming important in many European countries. Generating sufficient capital for old-age provision, however, poses a challenge to private households. Homeowners can resort to illiquid housing wealth by using home reversion plans or reverse mort-gages. While reverse mortgages are common in the USA and the UK, a German market is quasi non-existent. This Policy Report provides evidence on the demand- and supply-side reasons for the absence of a reverse mortgage market in Germany. It finds that there is potential for the market to grow in the medium term and could benefit cash-poor but house-rich households, hence decreasing old-age poverty. While the analysis focuses on Germany, its implications are equally relevant for other European countries, in particular for those with higher homeownership rates and less generous public pension schemes.

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Cover of EconPol Policy Brief 34

How Fast Must Vaccination Campaigns Proceed in Order to Beat Rising Covid-19 Infection Numbers?

Claudius Gros (Goethe University Frankfurt), Daniel Gros (EconPol Europe, CEPS)

Facing a third Covid-19 outbreak in the spring of 2021 a central question for European policymakers is at what point a vaccination campaign has acquired sufficient speed to overcome the increase in infections, so as to justify lifting NPIs at least partially. The authors of this study derive an expression for a critical threshold that is shaped by three factors: First, the mortality risk from a Covid-19 infection increases exponentially with age. Second, the sizes of age cohorts decrease linearly at the top of the population pyramid. And third, vaccination proceeds at an increasing speed. The study finds that it is easier for countries with a comparatively young population and fast vaccination programs to reach this critical threshold than for countries with an older population and slower vaccination programs. An important conclusion of the research is, that slow vaccination hurts twice: The number of vaccinated people increases only at a slow rate. But it also means that vaccination programs’ ability to control aggressive new Covid-19 strains is strongly reduced. 

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Cover of EconPol Working Paper 63

What Are the Priorities of Bureaucrats?

Evidence from Conjoint Experiments with Procurement Officials

Janne Tukiainen (University of Turku and VATT), Sebastian Blesse (ZEW Mannheim), Albrecht Bohne (ZEW Mannheim), Leonardo M. Giuffrida (ZEW Mannheim, MaCCI), Jan Jääskeläinen (Aalto University), Ari Luukinen (FCCA), Antti Sieppi (FCCA)

The functioning of public bureaucracies is considered a principal driver of government effectiveness and state capacity. Surveying more than 900 real-life procurement officials in Finland and Germany on the basis of hypothetical choice experiments the authors of this study find that bureaucratic decision-making is based to a large extent on intrinsic motivation. While bureaucrats lack important career or pay incentives, they have substantial discretion at work. Contracting officers value a certain degree of competition and consider (too) rigid regulation as the biggest threat to the procurement process. This supports previous research finding that in countries with high public sector capacity more rules are detrimental to procurement outcomes. Another important conclusion that can be drawn from the survey is that procurement bureaucrats aim to avoid negative risks concerning prices and supplier reputation as well as awarding public contracts to bidders with prior bad performance.

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Cover of EconPol opinion

30 Years of Mercosur – Status Quo and Future Integration Steps

Andreas Baur, Lisandra Flach and Feodora Teti (ifo Institute and LMU Munich)

Thirty years after its foundation, Mercosur’s member countries have little reason to celebrate. On the one hand, trade liberalization within Mercosur in the first years after its foundation have led to an intensification of intra-Mercosur trade and can be regarded as an early success. On the other hand, the transition from a trade agreement to a customs union has failed and deeper integration steps hardly seem feasible. In the past 10 years, China has overtaken the EU as Mercosur’s most important trading partner, resulting in trade flows shifting away from Europe to the Chinese market. What’s more, integration into global supply chains has been successful only in places. In light of this, the EU-Mercosur trade agreement could play an important role – argue Andreas Baur, Lisandra Flach and Feodora Teti.

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Cover of EconPol Working Paper 62

Do Financial Markets Reward Government Spending Efficiency?

António Afonso (EconPol Europe; ISEG; REM/UECE), João Tovar Jalles (EconPol Europe; ISEG; REM/UECE; Economics for Policy and Centre for Globalization and Governance; IPAG Business School), Ana Venâncio (ISEG; ADVANCE/CSG)

To mitigate the economic impact of the corona crisis many governments have heavily engaged in counter-cyclical policies contributing to record high deficit and debt levels. Therefore, the more efficient use of public resources will be given special attention by financial markets’ participants. For a sample of 34 OECD countries over the period 2007-2018, this study finds that increased public spending efficiency is indeed rewarded by the three main rating agencies Standard & Poors, Moody´s and Fitch through higher sovereign credit rating notations. And these in turn naturally imply lower funding costs for governments in capital markets - an important policy implication to consider in times of Covid-induced scarce budgetary resources.

 

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Cover of EconPol Working Paper 61

Removing Welfare Traps: Employment Responses in the Finnish Basic Income Experiment

Jouko Verho (VATT Institute for Economic Research), Kari Hämäläinen (VATT Institute for Economic Research), and Ohto Kanninen (Labour Institute for Economic Research)

Replacing minimum unemployment benefits with a guaranteed basic income of equal size has minor employment effects in an advanced country, researchers from the Finnish VATT Institute for Economic Research and the Labour Institute for Economic Research find. The study examined 2,000 benefit recipients in Finland who were randomized to receive a monthly basic income between 2017 and 2018. The experiment sought to remove potential welfare traps that unemployed persons face by diminishing administrative barriers through a monthly basic income combined with a considerable improvement in the monetary incentives for employment. The authors of the study find that the 95% confidence interval of the first-year primary outcome estimate, measured in annual employment days, ranges from -2.3 to 5.4, concluding that the experiment had minor employment effects at best.

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Cover of EconPol Working Paper 60

Corruption and Economic Growth: Does the Size of the Government Matter?

António Afonso (EconPol Europe; ISEG – School of Economics and Management, Universidade de Lisboa; REM – Research in Economics and Mathematics, UECE), Eduardo de Sá Fortes Leitão Rodrigues (ISEG – School of Economics and Management, Universidade de Lisboa)

Corruption has a negative effect on the economy - specifically on the level and growth of GDP - and large governments register less benefit from reducing corruption than small governments. This working paper from António Afonso and Eduardo de Sá Fortes Leitão Rodrigues finds that developing economies, regardless of government size, benefit less from reducing corruption and government size is not sufficient to explain the influence of corruption on economic activity - although the level of effectiveness of public services is crucial. The findings suggest that private investment is a potential transmission channel for corruption. 

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Cover of EconPol Policy Brief 33

Incentives for Accelerating the Production of Covid-19 Vaccines in the Presence of Adjustment Costs

Claudius Gros (Goethe University Frankfurt), Daniel Gros (EconPol Europe, CEPS)

Delays in the availability of vaccines are very costly for society but existing fixed price contracts provide no incentives for producers to speed up delivery: a dose delivered tomorrow receives the same price as a dose delivered in the next quarter. The benefits for early delivery are huge for society, but non-existent for suppliers. A better contract would have the price fully  variable over time. In this policy brief, the authors show that it is straightforward to design an optimal contract, which aligns the time paths of the price with that of the social value of a vaccination. There is a clear policy conclusion: contracts should contain incentives for accelerated production. Vaccines delivered early should command a higher price.

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