Overview publications

NATO Defense Spending in 2023: Implications One Year After Russia’s Invasion of Ukraine

Florian Dorn, Niklas Potrafke, Marcel Schlepper

War is raging close to NATO's Eastern border. Russia has attacked Ukraine and threatens those states that in the past had been part of Moscow's sphere of influence. Many of them are now member states of NATO. As a collective defense alliance, this poses a threat to all NATO members. Since the ability to defend against an aggressor does not come for free, defense spending will be on the agenda at the NATO Summit in Vilnius in July 2023. NATO Secretary General Jens Stoltenberg has already expressed his expectation that all member states no longer see the 2% target as a mere ambition, but as the floor for their future defense spending. This paper presents first results for the expected defense spending of the 30 NATO members and the candidate country Sweden in 2023.

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Minimum Income Support Systems as Elements of Crisis Resilience in Europe

Werner Eichhorst, Holger Bonin, Annabelle Krause-Pilatus, Paul Marx, Mathias Dolls, Max Lay

The new Policy Report analyses the role of social policies in different European welfare states regarding minimum income protection and active inclusion. It finds consistent differences in terms of crisis resilience across countries and welfare state types. In general, Nordic and Continental European welfare states with strong upstream systems and minimum income support (MIS) show better outcomes in core socio-economic outcomes such as poverty and exclusion risks. However, labour market integration shows some dualisms in Continental Europe. The study shows that MIS holds particular importance if there are gaps in upstream systems or cases of severe and lasting crises.

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How to Reconstruct Ukraine? Challenges, Plans and the Role of the EU

POLICY DEBATE OF THE HOUR

Anna Bjerde, Romina Bandura, Anders Åslund, Marek Dabrowski, Christopher A. Hartwell and Dmytro Boyarchuk, Barry Eichengreen, Stephan von Cramon-Taubadel and Oleg Nivievskyi, Joop Adema, Yvonne Giesing, Tetyana Panchenko and Panu Poutvaara

The war in Ukraine is not over yet. Nevertheless, a possible roadmap and proposals for post-war reconstruction strategies are currently being discussed. They should be accompanied by economic and political reforms in the country. To finance this project, Ukraine will need to tap a variety of sources and institutions. This is because it will require investments in the hundreds of billions ‒ perhaps even trillions ‒ of US dollars. The EU, the US and other Western countries have signaled their willingness to provide further financial support for postwar reconstruction. Also potentially involved could be bilateral donors, multilateral banks, private investors, and the Russian state with reparations.

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The Closure of Police Stations Leads to an Increase in Theft Crime

ECONOMIC POLICY AND ITS IMPACT

Sebastian Blesse and André Diegmann

The recent literature on law enforcement activities and police presence shows that the intensity of crime can be influenced by police availability and visibility. This study is one of the first to analyze the effects of police infrastructure on crime occurrence. Attempts to cut back on police infrastructures in the area in favor of supposed efficiency gains can therefore be accompanied by considerable side effects – in the form of an increase in reported property crimes. Thus, the present results can inform policymakers and practitioners about possible unintended side effects of efficiency-oriented restructuring of administrative infrastructures. These should be considered for future plans of an efficient and future-proof reorganization of police structures.

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The Demand for Data Skills in German Companies: Evidence from Online Job Advertisements

BIG-DATA-BASED ECONOMIC INSIGHTS

Jan Büchel, Jan Engler, Armin Mertens

The analysis shows that data skills are required in many job advertisements in Germany and are becoming more relevant. This is a positive sign for the data economy in Germany, as companies increasingly realize the potential of data and try to implement it in their own operations. However, a growing demand for employees with data skills poses challenges for companies in the future in view of the existing skills gap, especially in digitalization professions. Policymakers should intervene by, for example, taking measures that make it easier for companies to recruit foreign workers.

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Regional Income Inequality in Germany

INSTITUTIONS ACROSS THE WORLD

Immo Frieden, Andreas Peichl and Paul Schüle

In this article, the authors provide new evidence on regional income inequality in Germany, using tabulated income tax statistics for the period 1998-2016. Other than related work on regional income inequality in Germany which analyzes income or wages at the county level, we can characterize inequality at the municipality level. As there currently exist 401 counties in Germany, but more than 10,000 municipalities, our analysis is conducted at a much more fine-grained level.

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Has the Time Come for Excess Profit Taxes?

Shafik Hebous

Excess profit taxes (EPTs) emerge as an option to contribute to the extra needed revenues, avoiding a general increase in corporate tax rates, while having the prospect to serve as a gateway to converge toward a permanent efficient rent tax instaed of the corporate income tax. General unilateral (temporary or permanent) EPTs would face the same international pressures from profit shifting and tax competition as the existing corporate income tax, calling for international coordination. A coordinated EPT on multinational enterprises can take the form of a formulary apportionment approach that allocates the EPT base using sales by destination.

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Complex Europe: Quantifying the Cost of Disintegration

Gabriel Felbermayr, Jasmin Gröschl and Inga Heiland

On 1 January 2023, Croatia became the newest member of the Schengen Agreement of the European Union (EU) and also joined the Eurozone. This will not only mean a new currency and the elimination of border controls. It will also mean reductions in barriers to trade between Croatia and other EU member states. The Schengen Agreement and the Eurozone are part of the engine of European integration, namely the reduction of trading costs between the member countries in various dimensions as well as in trade with third countries. This includes the European Customs Union, the European Single Market, the Eurozone, the removal of customs barriers in the Schengen area and the EU’s free trade agreements with third countries.

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Climate Change: Greening the Economy by Green Finance?

POLICY DEBATE OF THE HOUR

Christa Hainz, Claudio Borio, Stijn Claessens and Nikola Tarashev, Jan Krahnen, Jörg Rocholl and Marcel Thum, Jacob Baylon Schumacher, Rainer Haselmann, Sebastian Steuer and Tobias H. Tröger, Florian Berg, Jason Jay, Julian Kölbel and Roberto Rigobon, Emanuela Benincasa, Gazi Kabas and Steven Ongena, Hans Degryse, Tarik Roukny, Joris Tielens

The financial sector may play a central role in climate change. This is because, ideally, climate policy measures create important incentives for investors throughout the globalized world to redirect their capital in favor of a cleaner production and thus lower emissions. That is why climate policy must consider the link between the real sector and the financial sector. This transition will not happen by itself. It requires targeted financing measures. To make it effective, policymakers need information about what economic activity, and thus what investment, can be considered green or sustainable. The task is to identify and compile relevant data and provide it to investors in a suitable classification, e.g., via an ESG rating or a taxonomy. Our authors in the “Policy Debate of the Hour” discuss to which extent green finance can make the economy greener. They also examine the role the financial sector can play in this transition. Among other things, they shed light on how “green” can be measured and look at the role of climate policy and incentive effects. They also provide recommendations for both economic and climate policy. In our “Economic Policy and its Impact” section, the authors shed light on the question of how teaching evolutionary theory changes students' knowledge and important choices in their life. In “Institutions Across the World” we discuss how policymakers can create incentives for households to follow tax rules when they use household-related services. The section “Big Data-Based Economic Insights” uses a textual analysis to look at remarks made in ECB press conferences.

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How to Incentivize Tax Compliance when Households Demand Services? What Works (Better) and General Limitations

INSTITUTIONS ACROSS THE WORLD

Lilith Burgstaller, Sarah Necker

During the recent crises, governments around the world have spent large amounts of public funds to limit the impact of economic downturns on citizens and corporations. The resulting pressure on public funds is highlighting the crucial need to improve tax compliance.

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