Volume 13, Issue 3

This paper argues that the European fiscal union and the measures of the ECB constitute a policy of excessively loose budget constraints in the Eurozone. They will slow down or hold back the real devaluation necessary for the southern countries to regain competitiveness and continue to cause capital flight as long as the printing press underbids the capital markets. The paper shows that Europe has the choice between two models: (i) free access to Target credits and eurobonds and (ii) the US model, with annual Target debt redemption and self-liability for any funds borrowed in the market. It suggests creating the United States of Europe following the US model as closely as possible.

As in many other countries, means tested benefits constitute an important part of the Swiss old age security system and disability insurance. In contrast to universal benefits, such targeted transfers are intended to only support the ones in need and thereby lead to low level of public expenses. However, individuals face strong incentives at various stages in life to adapt their behavior in order to become eligible. Using the Swiss Erg¨anzungsleistungen as an example, we argue that means tested benefits increase the incentive to apply for disability benefits, raise the attractiveness of early retirement, and induce individuals to favor a lump sum payment over an annuity. Moreover, they decrease the incentive to purchase private long-term care insurance.

The system of income taxation in Germany is too complex and insufficiently transparent. Many reform proposals have been publicly debated during the past years. However, so far, conflicting goals of positive employment and distributional effects without a negative impact on the state’s budget could not be overcome. A common problem of previous reform proposals is that they have neglected social security contributions and their interactions with income taxes. We tackle this issue by proposing an integrated system of taxation. Our simulations show that this comprehensive reform resolves conflicting goals: employment increases, inequality decreases and tax revenues slightly increase.

The article deals with the development of a new model for taxing personal capital income and business profits incorporating elements of a (lifetime oriented) ACE system and of a traditional system of capital income taxation. This new approach adheres to decision neutrality at the enterprise level while taking into account both international competitiveness of company taxation and the requirement to meet the redistribution goal of the government. Neither a purely consumption based tax system nor the traditional tax system is capable to meet these requirements in a similar way. The distinctive core of the new system is that - according to the ideal approach of taxing lifetime income - notional interest on equity capital is deductible from the taxable profit of enterprises irrespective of their legal form. Interest income, dividends and capital gains received by individuals will be taxed according to a flat rate tax when they are withdrawn from their qualified bank accounts. Compared to the status quo, the introduction of the proposed tax system in Germany would make equity financing of investments more attractive. This could provide companies with the necessary cushion to survive financial or economic crises as they would be equipped with more equity capital.

The unemployment among young people in Germany is one of the lowest in Europe. Notably, the relation between the unemployment rate among young people and the standard unemployment rate is rather low compared to other EU member states. How can this phenomenon be explained? We show, that the German vocational education system ensures labour market entry for many graduates, but also, that vocational preparation courses are extensively used by low skilled young people. If we reassess youth unemployment by the number of participants in such courses we obtain a “shadow unemployment rate for young people” which is in line with official international data. Therefore, minimum labour market qualification standards are often not met by young people. To ensure labour market entry for these persons, we suggest that apprenticeship pay should allowed to be differentiated by qualification. Furthermore, vocational preparation courses should be constructed in a way which leads the young people directly into vocational training with certified degrees.

The Renewable-Energy-Source-Act (EEG) promotes German biogas production in order to substitute fossil fuels, protect the environment and prevent climate change. In this paper we quantitatively analyse the EEG-reform in 2008. Results imply that the reform contributes to an expansion of biogas electricity generation and thus to substitution of fossil fuels. However, subsidies, land and transport emissions per unit of electricity produced increase. An alternative analysis shows that an EEG with tariffs independent from plant-types would provide the highest subsidy-efficiency, lower land requirements and higher transport emissions compared to EEG before its reformation.