Volume 12, Issue 1

Redistributional issues are important in contemporary welfare states. These issues cannot be analyzed using the median voter theorem because preferences fail singlepeakedness: Collective preferences are intransitive, giving rise to cyclical preferences. A suitable instrument for analyzing redistributional issues is the Colonel Blotto game. This game is older than the more familiar prisoner’s dilemma, but it has been solved only recently. The article introduces the Colonel Blotto Game as well as the general structure of its solutions. Thereafter, the game’s logic is illustrated using several policy examples. The two most fascinating results state that, in a political contest, it is never optimal to use pure strategies, and that the political process itself induces remarkable inequalities.

In Germany, both policy makers and researchers have been searching for solutions to overcome the disincentives on labor supply generated by income allowances for welfare recipients (Unemployment Benefit II). Taking proposals of the German Economic Institute (IW) and the governing Liberal Party (FDP) as a starting point, the German Federal Government has intensely discussed this topic during fall 2010 and finally proposed a reform in legislation. In this study, we analyze the potential labor supply effects of the legislated reform and the preceding proposals. In a second step, we augment the different scenarios with a working hours requirement to ensure that only those are subsidized, whose earned income is low due to low hourly wages rather than few working hours. Our simulations confirm the well-known trade-off of in-work benefits: Without working time requirement they tend to create incentives for welfare recipients to increase their labor supply, such that overall labor supply rises. However, the more generous the allowable income regulation, the more expensive the reform gets for the government budget. This comes mainly from the increasing incentive to reduce working hours for those located around the phasing-out level of income. This predominantly affects secondary earners. A working hours requirement reduces these effects and causes more favorable labor market effects and consequently much lower fiscal costs.

In 2001, the voluntary Riester pension scheme was implemented in Germany. Financial subsidies should provide incentives to increase private pension savings. In this paper, we hypothesize that these publicly subsidized savings are mainly driven by the incentives of child benefits and that supplier induced demand is an important factor. Using data from the Socio-economic Panel we analyze the key determinants in the choice of a Riester-pension. We find a higher probability to sign a Riester contract for those with higher income, higher education and children. Furthermore, we show that a contact with an insurance agent in the previous year is a major factor for the possession of a Riesterpension. Separate estimations regarding gender and socialization confirm our hypothesis of heterogeneous determinants.

EU law demands that the allocation of factors and goods within the European Union shall not be distorted by taxes. Efforts to formally harmonize corporate tax regimes in Europe have, however, stalled in recent years. What is more, the source principle has prevailed over residence based taxation which is seen to be more in line with EU law. Tax induced distortions of cross-border investment decisions are supposed to be the consequence. Based on country-specific effective average tax rates from 1998 to 2009, this article shows that there is, however, non-coordinated convergence of tax burdens within the EU. Thus, distortions of cross-border investment decisions are limited and decreasing even without formal harmonization.

This paper investigates whether countries in the EU finance low tax rates by restrictive loss offset rules. As effects from intertemporal loss offset rules are difficult to anticipate, restrictions only marginally affect overall investments. In contrast, tax rates have a significant bearing on investment decisions. Therefore, the combination of low tax rates with restrictive loss offset rules can increase investments without affecting the tax revenue. Our analysis for the EU reveals that countries with low tax rates restrict loss offset possibilities while “high tax” countries allow an unlimited loss carryforward or even a loss carryback.

The group of sovereign wealth funds (SWF) is gaining growing importance in the discussion on corporate governance quality as critical success factor for the longrun performance of exchange listed companies. These institutional investors mostly act as long-term oriented minority block holders (anchor investors) in international capital markets. We show for a specific case how capital market participants evaluate SWF investments in exchange listed companies. From the overall stock price reaction we can conjecture that investors expect from this investment of Aabar a positive impact on the corporate governance. However, there is also the alternative explanation that SWF have superior target selection abilities which allow them to detect undervalued companies in an inefficient capital market.