Volume 46, Issue 1

The article analyses whether the European Monetary Union (EMU) requires the imposition of strict and binding constraints on national government budget policies. It shows that economic stability of the EMU could be endangered, mainly because of the insufficient credibility of the “no bail-out” rule. The consequences would be excessive budget deficits, upward pressure on interest rates and high inflation in Europe. Further on the paper examines the effectiveness of budgetary rules. In order to improve fiscal discipline sanctions are needed, if the participating countries fail to meet the ceilings.

In recent time it has been argued that Germanys international competitiveness had suffered more from the strong D-Mark than from the national wage level. As a proof it has been pointed to the relative impact of these two factors on the level of German unit labour costs, measured in terms of international currency. It is shown that neither the real exchange rate nor international unit labour costs are an unambiguous indicator of international competitiveness. On the other hand, the seemingly naive indicator of the rise in unit labour costs in national currency is by far more relevant in evaluating the impact of the wage level on national employment, at least in the long run. This is true in case of flexible as well as in the case of fixed exchange rates and also in case of a currency union. Moreover, it is argued that a flexible exchange rate will never do the job of outweighing the negative effects on employment caused by a rise in wages which is in excess of the rise in productivity. Hence with flexible exchange rates national real wage policy must bee eaqually aware of employment needs like with fixed exchange rates or in case of a currency union.

Recipients of public assistance and unemployment benefits face an effective marginal tax rate of (almost) 100%, since these payments decline in a ratio of one by one when own income is earned. The metaphor of an “unemployment trap” describes this labour supply disincentive quite accurately. A negative income tax could overcome this problem, but is considered to be too expensive and to entail some flaws from an allocative point of view. Starting from this critique, we propose a “Targeted Negative Income Tax”, which basically confines the negative income tax to the group of the long-term unemployed. This targeting ensures that the incentives are given to those who need them most, and avoids the massive fiscal burden associated with a general introduction of a negative income tax. The fiscal burden may even be reduced with each long-term unemployed person who is drawn back into the labour market. In this paper, we compare this proposal to some alternative measures created to provide work incentives such as the “Family Credit” and the “Earned Income Tax Credit” introduced in the UK and the US, respectively.

The article analyses the economic rationality of multilateral arrangements in foreign aid policy. In the centre of attention is a comparison of patterns of valuation taken from the theory of welfare concerning selected forms of international co-operation. Furthermore, the paper discusses patterns of explanation for the coming into being and the function of multilateral organisations from a publicchoice- perspective. The result of politico-economic evaluation is ambivalent: On the one hand those institutions reduce the transparency and the possibility of democratic and parliamentary control of international politics respectively. Thus, the structural efficiency of the aims of political programs could be endangered. Furthermore specific agency-problems aggravate the conditions for the realisation of political aims at minimum cost. On the other hand multilateral organisations open up a special strategic set of action for democratically elected politicians upon which institutions such as the IMF or the World Bank could at least possibly foster economic welfare.