Volume 65, Issue 1

The central concept of Karl Popper´s idea of an Open Society is the one of “piecemeal engineering”. Using the model of homo oeconomicus economics has provided a coherent justification of piecemeal engineering by means of cost-benefit analysis in a partial equilibrium setting (Kaldor-Hicks-Scitovsky criterion). But preferences are not fixed. Can we then still find a coherent justification of Karl Popper´s piecemeal engineering? The answer is yes, if preferences are “adaptive”. But adaptivity of preferences implies a strong adherence to the status quo. For the generation of progress (for example, by legislation, by expanding infrastructure or by introducing a new product) society has to decentralize decision making, i.e. it has to rely on a market system and on freedom of speech and of research. On the other hand, preferences of citizens only can be the legitimate normative guidelines of private market oriented and of collective decisions if interpersonal impacts on preferences are part of a system of competing interpersonal ”influences” of on preferences. But this requirement for legitimacy leads to “deliberative democracy” as a precondition of the market system. Perhaps the most important mode of inter-personal influence on preferences is imitation of others; for example imitation of parents by their children. It can be shown that the coherence requirement of piecemeal engineering under conditions of inter-personal influences on preferences is fulfilled, if these interpersonal influences exhibit the mode of imitation.

Starting from the roots of the sovereign debt crisis, this article first explains the function of the Lender of Last Resort (LOLR) and, afterwards, shows how supranational institutions, such as the ESM and the ESFS, on the one hand, as well as the ECB on the other hand, acted as a LOLR vis-à-vis European banks and member states during the current crises. However, interventions by a LOLR do, again, evoke problems which consequences and solutions are discussed next: so, the resulting collective responsibility causes crisis-induced costs to be borne by the general public in the form of higher taxes or increasing inflation. Moreover, economic agents are faced with misguiding incentives that favour the emergence of new crises in the future. Therefore, the recent establishment of a European Banking Union takes the centre of the new arrangements that were introduced to solve the problem of resposibility and to break the vicious circle between banking and sovereign debt crises. However, in order to prevent a further systemic crisis, additional measures are proposed to even enhance the stability of the European banking system. Important suggestions are to introduce adequate capital cushions as well as to revise the preferential treatment given by prudential bank regulations to sovereign exposures. Moreover, it is necessary to establish a sovereign insolvency regime in order to credibly exclude a (further) bail-out.

ECB pursues its policy of accomplishing its monetary powers by fiscal policy. In that context ECB has pumped liquidity into the European banking system and has watered down eligibility requirements for collaterals. Despite that risky policy ECB aims at becoming through the banking union the central supervisor for microprudential controlling in the euro zone. ECB is now expected, after the identification of failing banks, to request the single resolution mechanism for their liquidation. Thus the Union organ, which is supposed to pay tribute to the priority objective of price stability, is enabled to accomplish a mission which the bank cannot solve without putting its independence at risk. The central refinancing instance which has accepted for the sake of banks high risks and historically unique interest conditions, is now supposed to catch up with the consequences of its liquidity and collateral policy. Nevertheless ECB refuses to stop the privileged refinancing of the state by banks. If ever in case of insufficient funds of the Single Resolution fund ESM has to recapitalise banks that would trigger off a process of divorce between management and liability in the banking industry. Hopefully then at last the very specific German business model of saving banks and cooperatives would understand that they have financially contributed to a fund without ever using its financial support.

There is currently a debate about the Europeanization of financial policies to procure overall economic stability and to ensure the survival of the Eurozone (EZ). The present theoretical survey asks whether and to what extent reassigning national financial policies to European-level control may help safeguard the EZ. The authors argue that establishing a complementary European financial policy may aid in securing a sound formation of the EZ. From an ordo-liberal standpoint, however, a proper institutional system of checks and balances between national and European competences will play a key role in mitigating moral hazard behavior of EZ members; otherwise, such a reassignment of responsibilities would undermine the survival of the EZ. The authors therefore argue in favor of instead strengthening financial policies on the level of European Member States.

The ECB should resist the temptation to fight the threat of deflation in the euro zone by even more unconventional monetary policies (eg “quantitative easing”). What may have worked in the US or in the UK, will not work in the euro zone. There is even a risk of a deflationary spiral, as this article shows. The arguments are embedded in the current debate about the “too strong” euro.

Zusammenfassung Die Europäische Kommission macht sich seit geraumer Zeit für eine gemeinsame Bemessungsgrundlage für in Europa steueransässige Körperschaftsteuersubjekte stark. Mit dem Richtlinienentwurf vom 16.3.2011 liegt nun ein konkreter Vorschlag zu einer einheitlichen steuerlichen Gewinnermittlung vor, um vom Ecofin-Rat der nationalen Wirtschafts- und Finanzminister angenommen zu werden - die Steuerwelt wartet gespannt auf eine Beschlussfassung. Ein wichtiges Ziel dieser partiellen Harmonisierung ist, die grenzüberschreitende Verrechnung von Steuergewinnen und -verlusten zu ent-problematisieren, wobei durch eine Formelzuteilung das endgültige Besteuerungsrecht bei den Mitgliedstaaten verbleiben soll. Der vorliegende Beitrag möchte die technische Diskussion um das konkrete GKKB-Design um Grundsätzliches zu dieser angedachten Änderung des europäischen Steuerrechtsgefüges ergänzen. Die ordnungsökonomische Sicht soll verdeutlichen, dass die GKKB ein begrüßenswerter Eingriff für mehr Steuertransparenz und allokative Effizienz durch eine nutzungsorientierte Erhebung wäre, der körperschaftsteuerliche Standortwerbung weiterhin zuließe. Summary For quite some time the European Commission is agitating for a common assessment base for corporate taxation of EU tax resident entities. The draft for a council directive from March, 16 th , 2011 is a concrete proposal for a uniform determination of taxable profits in order to be approved by the national economic and finance ministers in the Ecofin - the tax world is eagerly waiting for a resolution. A major aim of this partial harmonisation is to allow an easy cross-border offsetting of tax profits and losses. The final right to tax remains with the Member States what shall ensure a formula apportionment. The present paper wants to add to the technical discussion about the concrete CCCTB design some fundamental thoughts on this intended modification of the European tax law system. It shall be illustrated from a constitutional economics perspective that the CCCTB would be a welcome intervention for more tax transparency and allocative efficiency due to a use-oriented collection which still would allow promoting a location by corporation tax.

This paper develops three arguments for the current academic and political debate on an appropriate regulation of capital markets. (1) To begin with, the paper highlights a conceptual approach to differentiate between socially desirable and undesirable behavior of insider trading. Such trading has socially undesirable effects if it causes rent-seeking behavior of insiders. As a consequence, relevant information will have a black market price. (2) We apply this differentiation to different approaches of capital market regulation. As we will show, a preventive, effective and proportional regulation consists of information and transparency rules in combination with a ban of socially undesirable trading, complemented by whistle blowing. Compared to position limits, such a framework of regulation has socially desirable advantages. (3) Finally, we highlight implications for the current debate about the regulation of European capital markets. In comparison with the USA, the EU still has a backlog and needs to catch up.

Switzerland is a country with a far-reaching federalist constitution. Even though, a secular trend towards government centralization can be observed over the course of time. The latest reform of the federal fiscal equalization scheme in 2008 strengthened the principle of fiscal equivalence. However, the process of government centralization has not come to an end. We argue that the government proposal of a new fiscal constitution in 1948 was more promising since it proposed a clear distinction between the tax and spending power of the federal and the sub-federal level. The crucial aspect of maintaining fiscal equivalence is to implement institutional safeguards to limit the political tendency towards centralization. We argue that a more prominent implementation of the principle of subsidiarity, a specific constitutional boundary for central government intervention, a more limited system of intergovernmental grants and further “brakes” against government centralization should be discussed.

The article analyzes the new UEFA framework for financial sustainability in European football, the so-called Financial Fair Play. Most professional teams in Europe are highly indebted. An insolvency of a team causes negative externalities for other teams and for the leagues in which they are playing. In addition to that, the increasing financial concentration reduces the competitive balance and therefore the attractiveness of European football: In sports literature, this is discussed as the “Scottish or Spanish disease” which also increasingly affects the German Bundesliga. From an institutional choice perspective, Financial Fair Play seems to be an improvement of the current status quo. Nevertheless, it also has shortcomings and needs further improvements. If all intended goals are achievable can only be seen at the end of the transition period 2017

Books on economic topics are seemingly successful when they hit the zeitgeist and striking as possible meet the desires and prejudices of the audience. As the investigation of Piketty’s book about the “Capital in the 21st Century” shows, he hits the nerve of the times, but without being able to convince analytically. Data of the static-descriptive national accounts, combined with elementary macroeconomic growth theory, are not appropriate to draw far-reaching conclusions about the dynamics of the wealth distribution, even if the data encompass long time series of the past. Both economic theories and other available data support very different views on the dynamics of the wealth distribution, contradicting Piketty’s theses. Hence, it can be assumed that Schumpeter’s ‘creative destruction’ can continue to legitimize the unequal distribution of wealth, without a ‘patrimonial capitalism’ (Piketty) arises. Schumpeter's ‘capitalist Hotel’ (Atkinson) remains functional.

The consequences of the rising rates of income inequality are fiercely debated among economists. Yet one argument often brought forward is that high rates of social mobility can reduce the problems caused by inequality of incomes. This paper analyzes the empirical determinants of social mobility across countries and discusses the resulting implications for economic policy. It turns out that particularly less segregation, a good family environment, inspiring cognitive brain stimulation in early childhood education, high rates of employment, good opportunities to catch up to the average human capital endowment, low variations in school quality, and a high amount of social capital foster social mobility. We further find that the "Great Gatsby Curve" is much less pronounced when analyzing the relationship between inequality and mobility in a large sample of countries.

Supporters celebrate the integrated comprehensive school (Gesamtschule) in Germany as a superior school type. They argue that performance levels will tend to be higher and the quality of education to be more equal. In this paper a comparative analysis of Abitur exams in North Rhine-Westphalia at grammar schools (Gymnasium) and at integrated comprehensive schools reveals a significant edge in performance at the former school type. Based on these results, an equality-oriented analysis finds that integrated comprehensive schools may create post-school educational inequality among students. The theory of Yardstick Competition serves as an instrument to analyze whether the performance level of integrated comprehensive schools can be adapted to the performance of grammar schools. In this context relative performance budgeting amongst others is identified as a policy recommendation.

The presentation will be made in four analytical steps: First (part I), the preliminaries contain a clarification of the relevant analytical notions. Thereafter (part II), the process of cognition as seen by Kant will be taken up and following Hayek, the two possibilities to process sensory impressions or impulses by the cerebral cortex, are presented. Finally, in part IV, the use of knowledge of place and time which is dispersed over many individuals, will be presented, referring to the topic of a seminal essay by Hayek.

The present paper deals with an astonishing presumption used frequently in politics, economic affairs as well as in the media. There it is argued as if the business cycle is a fact of economic life. Here it will be argued to the contrary, namely that there is no convincing evidence for the business cycle, that it is a fiction, a product of imagination inspired by some statistical observations which can hardly be explained by applying economic theory. Three verdicts of Hayek will be employed to argue that the legal framework for a business cycle policy should be critically assessed in view of (1) “the errors of macroeconomics”, (2) “the Keynesian dream” and (3) “the pretence of knowledge”. In this paper the argument runs as follows: In part A, the phenomenon will be assessed with regard to its empirical and theoretical quality. In part B, the consequences for the legal framework of an economic policy directed to the presumed business cycle will be analyzed. Part C will be a summary of the argument by repeating those theses and their subsequent explanations, which may help structuring the argument.

The book of Tomas Sedlacek, Economics of Good and Evil, has in my view, merits and flaws. He demands a reintegration of economics with ethics. For anyone who accepts a noncognitivist ethic the demand to conjoin facts and values in order to produce knowledge makes no sense. If economics will be a science it must be a valuefree positive science in the sense of Max Weber and Hans Albert. Sedlacek argues that Smiths Theory of moral Sense is a book about ethics. I demonstrate that the author is wrong. Furthermore it is not correct to tell the reader that Smith believed actions motivated by selflove cannot but be unethical. I demonstrate the contrary opinion of Smith. The critique of economics is sometimes overdone, yet sometimes acceptable. Utility theory cannot explain all behaviour, it lacks, for example, a proper regard of the context of behaviour. Sedlacek makes a very good point arguing that any theory of economic behavior will, if believed by the people, have an effect on the moral relevant attitudes of the people. If ecomics tells us that all people are really selfish, people will react and will become perhaps overly distrustful. But instead to demand for economics enriched by ethics one has to demand for better, i.e. more true theories of behaviour. Ethics belongs to the family, the school, the sports club, the firm, the legislater, the church: It is indispensable, and a convincing ethics can change our behaviour. So one should call for a better ethics if the ruling one can be criticised. Further, if one can show that economics propagates unethical behavior for economic agents, philosopher and ecomists may protest.