Volume 16, Issue 3

This contribution empirically analyzes the individual determinants of tax rate preferences. For that purpose, we use representative survey data from the German General Social Survey, which offers information on attitudes toward progressive, proportional and regressive taxation. On the basis of theoretical considerations, we explore the factors which, beyond an individual’s financial interest, should drive preferences for progressive taxation. Our empirical results confirm that the narrow redistributive self-interest does not offer the sole explanation of the heterogeneity in individual attitudes. Rather, we show that the choice of the favored tax rate is also driven by fairness considerations and beliefs on the role of effort for economic success.

Language is a strong and robust determinant of international trade patterns: Countries sharing a common language trade significantly more with each other than countries using different languages, holding other factors constant. In this article we present the first analysis of the effect of language on trade in an intra-national context. Analyzing unique data for a single-language country, Germany, we find that similarities in the local dialect have a significantly positive impact on regional trade. We interpret this finding as evidence for the trade-promoting effect of culture, because linguistic similarities likely reflect cultural ties across regions, rather than lower costs of communication or similar institutions.

A high standard of security of electricity supply comes at serious electricity system costs. However, these system costs have to be balanced with the economic costs induced by an insecure supply of electricity. Following a macroeconomic approach, we analyze the economic costs imposed by potential power interruptions in Germany. Using an extensive dataset on industries and households, we estimate both Values of Lost Load and the associated hourly costs of power interruptions for different German regions and sectors. We find that interruption costs vary significantly over time, between sectors and regions. Peaking at midday on a Monday in December at 750 Mio € per hour, the average total national outage costs amount to approximately 430 Mio € per hour. A missing gigawatt hour creates average outage costs of about 7.6 Mio €.

Does it matter who pays for ratings? Yes, but not for the rating agencies’ behavior. These are the findings of our experiment where we analyze the effect of the remuneration model of rating agencies on their assessments as well as on investors’ and issuers’ behavior. First, we find that rating agencies’ assessments are comparable whether the agency is (partially) paid by issuers, investors or solely by the experimenter. Issuers, on the other hand, more often do not return investor’s trust when they or investors pay for ratings. Further, investors more often act according to the agencies’ recommendations when they have to pay for this information.

We examine differences in altruism and laziness between public sector employees and private sector employees. Our theoretical model predicts that the likelihood of public sector employment increases with a worker’s altruism, and increases or decreases with a worker’s laziness depending on his altruism. Using questionnaire data from the German Socio-Economic Panel Study, we find that public sector employees are significantly more altruistic and lazy than observationally equivalent private sector employees. A series of robustness checks show that these patterns are stronger among higher educated workers; that the sorting of altruistic people to the public sector takes place only within the caring industries; and that the difference in altruism is already present at the start of people’s career, while the difference in laziness is only present for employees with sufficiently long work experience.

This study analyzes the impact of bank relationships on a firm’s borrowing costs. We find that a firm’s borrowing costs decrease with relationship strength, proxied by the share of bank debt provided by the lender. Borrowing costs, however, rise with relationship length. While the increase over time is weak on average, bank-dependent borrowers face a substantial premium after several relationship years. Switching the lender initially leads to only a small price discount on average. However, the discount is considerable for borrowers that switch and had a strong relationship with their previous lender. Our results suggest that close lending relationships lead to benefits for the firm, but may also imply hold-up costs in the long term.