Volume 56, Issue 3

North Rhine-Westphalia is to become Germany′s prime state of innovation. That′s not an extravagant wish, that′s vital: Today, innovation decides how a country stands its ground in the international competition between locations. Now, which policy does NRW need in order to become the best address for innovation in Germany? The North Rhine-Westphalian government acts on the conviction: The state has the duty to create a framework. The state should leave the innovation process itself, though, in the hands of the people in the universities, research institutions and companies. Because innovations need liberty.

Sole proprietorships are of great significance for investment and employment in the national economies of many EU states. Although sole proprietorships are also exposed to international competition, their local fiscal conditions have not yet been adequately investigated. The article seeks to close this gap. The focus is on a comparative examination of the tax burden in three states which border on Germany: Denmark, Austria and the Czech Republic. First the tax burden according to the average nominal tax rate alone is examined. In the second scenario the influence of tax benefits for retained profits are taken into account. Scenario number three analyses the effect of the various rules for setting off losses between different fiscal periods. The study shows that, all things considered, Germany is the fiscally most favourable location for about 80 % of German sole proprietorships.

Fifty years after the Rome Treaties, is there empirical evidence for arguing that the EU today is a fully integrated goods and services market in which the “law of one price” prevails at large? Based on a number of consumer price surveys for goods and services in major cities all over the world since the seventies and, comparing the EU to a benchmark, the US market, the paper is affirmative. Price dispersion between EU cities has declined with the Eurozone as the core EU region in the lead surrounded by two concentric circles. EU goods price dispersion has generally approximated the level in the US market. Yet, price dispersion has declined throughout the world underlining the relevance of global integration rather than only regional integration. Furthermore, there is ample evidence that gravity factors against the “law of one price”, such as distance costs and borders, are still effective.

The reform of fiscal federalism in Germany enacted in 2006 has focussed on separating the joint legislation process between the federal government and the States (Laender). The German commission on the reform of federalism is now disputing about further reforms in order to establish a more competitive fiscal system. In this paper we discuss some institutional arrangements minimizing tax sharing between different layers of government and strengthening tax autonomy of the sub-central governments. Furthermore, a reform of the inter-state tax equalization system is proposed which provides more transparency and more incentives to the States to raise their own economic performance and tax base. Finally, as the constitutional borrowing constraints provide no credible enforcement mechanism and as decentralized fiscal policy cannot be effective the States should be bound to balanced budgets and rainy day funds. Only central government should be responsible for stabilization policy.