Newsletter September 2018

In the third quarter of 2018, the German Real Estate Finance Index (DIFI) by ZEW and JLL climbed 3.7 points compared to the previous quarter, recording the first increase of the year. This marks the highest reading of sentiment indicator for commercial real estate financing in 2018. With a current value of minus 4.5 points, the indicator, however, still remains in negative territory.

The Centre for European Economic Research (ZEW) is offering a broad programme of seminars in 2018/19, covering not only relevant economic topics but also many of the soft skills researchers need to succeed. For example, the seminar “Providing Excellent Leadership: A Seminar for Women in Leadership Positions in a Research Context” combines classic leadership principles, skills and tools with insights from the field of communication psychology.

Digitalisation, child poverty, sustainability and populism – these are just some of the challenges facing our society and economy. In the past six months, the student teams have worked together with ZEW and other renowned economic research institutes in Germany to come up with creative and innovative solutions to economic issues. At the final round of the fifth YES! – Young Economic Summit on 27 and 28 September 2018, the twelve student teams will present their solutions at Bucerius Law School in Hamburg.

Farmers in some regions of Germany are currently facing crop failures due to the long period of hot, dry weather this summer. Both the federal and state governments want to help the affected farmers by providing them with around 340 million euros in aid. However, ZEW economist Daniel Osberghaus thinks that offering government aid is the wrong strategy and is calling for more sustainable, long-term solutions.

This year, the Verein für Socialpolitik (VfS), with president of the Centre for European Economic Research (ZEW), Mannheim, Professor Achim Wambach at the helm, held its annual conference at the University of Freiburg with a focus on “Digital Economy”. One of the main take-aways from the conference was that, in terms of digitalisation, Germany has a lot of catching up to do if it wants to compete on the international arena. This is where the knowledge and expertise of economists plays an increasingly valuable role.

The Centre for European Economic Research (ZEW) presented itself successfully at this year’s 33rd Annual Congress of the European Economic Association (EEA), which took place at the University of Cologne from 27 to 31 August and ran in parallel with the 71st Annual European Meeting of the Econometric Society (ESEM). During the five-day event, ZEW researchers held a total of seven talks and lectures, during which they presented their latest research findings relating to labour markets, market design and corporate taxation.

Patrick Gaule, PhD, is a visiting researcher in ZEW’s Research Department “Economics of Innovation and Industrial Dynamics” from 1 August to 15 October 2018. He is a senior lecturer (associate professor) at the University of Bath, UK. His research interests focus on the economics of science and innovation. He particularly concentrates on collaboration in science. During his stay in Mannheim, Patrick Gaule talked about his research in the Brown Bag Seminar “Talent Matters: Evidence from Mathematics“ on 31 July 2018.

Italy’s finance minister Giovanni Tria will today announce the figures for the Italian government’s budget plan for the year 2019. The announcement will reveal whether the government intends to comply with the requirements of the European Stability and Growth Pact regarding the reduction of the national deficit or is setting itself on a course for a strong clash with the European Commission. Professor Friedrich Heinemann, head of the ZEW Research Department “Corporate Taxation and Public Finance” at the Centre for European Economic Research (ZEW) in Mannheim, comments on this matter.

As expected, the US Federal Reserve has raised the target range for the federal funds rate by 0.25 percentage points to 2.00-2.25 per cent. This interest decision marks the third interest rate hike of the year and the eighth increase since the turnaround in monetary policy in 2015. Professor Friedrich Heinemann, head of the ZEW Research Department "Corporate Taxation and Public Finance" at the Centre for European Economic Research (ZEW) in Mannheim, comments on the Fed's latest interest rate decision.

In the most recent survey for September (05–20/09/2018), economic expectations for China experienced a considerable drop. The CEP Indicator, which reflects the expectations of international financial market experts regarding China’s macroeconomic development over the coming twelve months, currently stands at minus 16.0 points, 12.3 points lower than in the previous month (August 2018: minus 3.7 points). This means that the indicator has remained below the long-term average of 4.0 points since March 2018.

The assessment of the current economic situation in China also worsened compared to the previous month, with the indicator dropping 7.5 points to a reading of 1.8 points. The assessment of the current situation has therefore experienced a decrease of 30.5 points since February 2018, when an interim high of 32.3 points was recorded.

Sharing rather than owning is one of the central principles of the digital market economy. Today, so-called “sharing models” are used for all sorts of things, from bicycles and cars to baby clothes and apartments. The sharing economy has a huge amount of potential and the number of users is continuing to rise. This is just one example of how new digital business models are transforming traditional markets at a rapid rate. Digitalisation is breathing new life into existing sectors of the economy and requiring them to make far-reaching structural changes.

In many markets, we are seeing a battle of digital versus analogue. The taxi industry is having to fight for survival in the face of car-sharing platforms like Uber, while in the telecommunications sector text messaging has long since given way to the online messaging service Whatsapp.

The German Federal Ministry for Economic Affairs and Energy is planning to work together with the state governments to speed up the expansion of Germany’s electricity grid by significantly reducing the length of the planning process for the laying of new power lines such as the Südlink and Südostlink. With this purpose in mind, the government intends to pass a new law to cut through some of the bureaucratic red tape and ultimately allow Germany to take some major strides forward in its planned energy transition.

Professor Vitali Gretschko, head of the Research Group “Market Design” at the Centre for European Economic Research (ZEW), Mannheim, shares his view on the government’s plans.

Professor Achim Wambach, President of the Centre for European Economic Research (ZEW), Mannheim, presented his new book, published by Campus Verlag, “Digitaler Wohlstand für alle. Ein Update der Sozialen Marktwirtschaft ist möglich” at an event held today at Urania Berlin. This was followed by a discussion with Peter Altmaier, Member of the German Bundestag and Federal Ministry for Economic Affairs and Energy. “Achim Wambach and Hans Christian Müller show us what form regulatory policy might take in the digital age,” Minister Altmaier said.

The shocks created by digital change are likely to affect the labour markets. However, new technologies do not pose a threat to individual industries, jobs or social prosperity, and should rather be seen as an opportunity. There is, however, a trend towards polarisation: qualification and professional expertise are expected to increase in significance as a result of digitalisation, whereas the gap between wages is set to grow and forms of work are likely to undergo a considerable change, offering workers less social security in the future.

These challenges can only be met through the combination of a forward-looking education and social policy, and an increased support of research and development activities in companies.

In its first meeting after the summer break, the European Central Bank (ECB) decided not to make any changes to its current interest rate policy while also halving its government bond purchases from October onwards. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at the Centre for European Economic Research (ZEW), offers his view on the decision.

The European Union is in danger of squandering more than 250 billion euros in farming subsidies in the coming years without getting anything in return in terms of environmental, climate or animal protection. This is the urgent warning from a recent study jointly produced by the Bertelsmann Stiftung and the Centre for European Economic Research (ZEW), Mannheim.

The ZEW Indicator of Economic Sentiment for Germany recorded an increase of 3.1 points in September 2018 and now stands at minus 10.6 points. The indicator has thus recovered from its low point in July 2018, making a leap of 14.1 within the last two months. However, the indicator is still clearly in negative territory and remains well below the long-term average of 22.9 points. The assessment of the current economic situation in Germany has increased by 3.4 points, leaving the corresponding indicator at 76.0 points.

At a recent meeting, the finance ministers of the European Union agreed on the introduction of a so-called digital tax for Europe at the beginning of 2019, which is in line with the ideas brought forward by the EU Commission. More specifically, they agreed on a digital services tax of three per cent on gross revenue generated from the provision of certain digital services within the EU. The tax is directed at digital companies located in non-EU countries and in EU Member States generating total revenue of over 750 million euros, 50 million of which are made in Europe.

Professor Christoph Spengel, ZEW Research Associate and Chair of Business Administration and Taxation II at the University of Mannheim, comments on this matter.

Professor Achim Wambach, president of the Centre for European Economic Research (ZEW), Mannheim, has been appointed chairman of the commission on “Competition Law 4.0” by the Federal Ministry for Economic Affairs and Energy. The commission, headed by three chairpersons, is expected to draw up proposals to modernise competition law by autumn 2019. To this end, the members of the commission deal with competition policy issues arising from the rapid development of the data economy, the expansion of platform markets as well as the effects of industry 4.0. The aim of the federal government is to make German and European competition law fit for the challenges of digital change. For this purpose, the commission will draw up concrete policy recommendations on European competition law.

The digital revolution is currently in full swing, transforming both our economy and our society. The full force of this development is evident from the wide variety of apps on our smart phones to the digitalisation of our workplaces. The rise of a new generation of intelligent machines has already begun. Modern algorithms record many of the things we do, analysing our behaviour and using the data to develop advertising and new products. Cars will soon be able to drive themselves. Tiny bracelets monitor our day-to-day health. Blockchain technology and a world without cash are just around the corner.

Business models are changing at break-neck speeds to keep up with these complex markets.

Artificial intelligence (AI) are computer systems or software programmes that are able to both act independently and learn how to improve themselves. Since they are able to autonomously execute certain processes and optimise them, AI is quickly gaining in importance in companies, administrations and our everyday life. While already today, AI is used in search engines, online shops or language assistants, e.g. in the form of algorithms, this goes unnoticed by many.

From searching for information on Google to connecting with friends on Facebook, consumers are able to access many services in the digital economy for free. The typical pricing mechanism that plays such a central role in the social market economy is no longer relevant in this new branch of the economy. However, while at first glance all these services might seem free, the internet has its own currency: our personal data. In exchange for online services, users provide companies with information that is of interest to them – particularly for the purposes of advertising.

Whether it is cloud computing services, automated assembly lines that communicate with one another or streaming services for videos or music, many services nowadays require a high-speed internet connection. The same is likely to apply to entirely new developments in the near future, such as self-driving cars and electronic health services. In order to ensure that the potential of all these services and possible innovations is being exploited to the fullest, we need fast and, in some cases, ultra-fast data connections.

Digital change poses major challenges to workers and businesses. While technological change is not a new phenomenon, the rapid development of information and communication technologies (ICT) in recent years has transformed jobs and tasks at unprecedented speeds. And it is not only occupations where you work in direct contact with machines or computers that are affected. Instead, digitalisation permeates almost all areas of the world of work today.

The Organization for Economic Cooperation and Development (OECD) needs to toughen its standards in order to more effectively prevent tax evasion through the shifting of profits overseas or to so-called tax havens. At the same time, greater international pressure needs to be exerted on the US to agree to the Common Reporting Standard (CRS), a practical instrument developed by the OECD to facilitate the automatic exchange of information (AEOI) on taxes and financial accounts across countries. Meanwhile, there is an increasing risk of the US itself becoming a tax haven for overseas assets.

Our publications are available to download in PDF format. PDF files can be viewed using, among others, Acrobat Reader, which you can download for free at https://acrobat. adobe. com/us/en/acrobat/pdf-reader. html

Sebastian Blesse; Philipp Dörrenberg; Anna Rauch
Higher Taxes on Less Elastic Goods? Evidence from German Municipalities

Alan Kirman; Francois Laisney; Paul Pezanis-Christou
Exploration vs Exploitation, Impulse Balance Equilibrium, and a Specification Test for the El Farol Bar Problem

Daniel Dietz; Thomas Zwick
Training in the Great Recession – Evidence from an Individual Perspective

Elisa Casi; Christoph Spengel; Barbara Stage
Cross-Border Tax Evasion After the Common Reporting Standard: Game Over?

Elisa Casi; Sara Nenadic; Mark Dinko Orlic; Christoph Spengel
A Call to Action: From Evolution to Revolution on the Common Reporting Standard

Katharina Dyballa; Kornelius Kraft
Foreign Competition and Executive Compensation in the Manufacturing Industry – A Comparison between Germany and the U.S.

Christoph Spengel, Frank Schmidt, Jost Henrich Heckemeyer, Katharina Nicolay, Alexandra Bartholmeß, Rainer Bräutigam, Julia Braun, Peter Buchmann, Anna Theresa Bührle, Elisa Casi, Verena Dutt, Leonie Fischer, Christoph Harendt, Marcel Olbert, Olena Pfeiffer, Thomas Schwab, Daniela Steinbrenner, Kathrin Stutzenberger, Maximilian Todtenhaupt, Heiko Vay, and Ann-Catherin Werner
Effective Tax Levels Using the Devereux/Griffith Methodology: Final Report 2017

Rainer Bräutigam, Friedrich Heinemann, Thomas Schwab, Christoph Spengel, and Kathrin Stutzenberger
Internationaler Steuerwettbewerb – Bewertung, aktuelle Trends und steuerpolitische Schlussfolgerungen (International Tax Competition – Assessment, Recent Trends and Implications for Fiscal Policy)

Analysis and Application of Innovative Instruments for Climate Change Adaptation Policy and Communication

Employment Effects of Humanitarian Immigration on Previous Migrant Groups

Future Construction: Development of the Market Structure in the German Construction Industry

The Economics of Climate Policy Compliance: Monitoring, Reporting, Verification & Enforcement

SEEK: Carbon Neutral Courier Services by Voluntary Carbon Offsets – a Field Experimental Analysis

Who Pays for Fiscal Rules? Evidence From Italian Municipalities

Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Speaker: Professor Rachel Griffith, PhD (University of Manchester)
Location of the event: ZEW, Mannheim

Speaker: Yan Long (New York University, Abu Dhabi)
Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Speaker: Professor Dr. Tatiana Filatova (University of Twente, Netherlands)
Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Speakers: Dr. Georg Licht (ZEW), Professor Diego Comin, PhD (Dartmouth College, Rockefeller and CEPR), Professor Marja Makarow, PhD (Biocenter Finland, Helsinki), Professor Dr. Luc Soete (Maastricht University), Kurt Vandenberghe (European Commission, Brussels)
Location of the event: Representation of the State of Baden-Württemberg to the European Union, Brussels

Speaker: Professor Dr. Isabel Schnabel (German Council of Economic Experts and Friedrich-Wilhelms University of Bonn)
Location of the event: ZEW, Mannheim

Head of a Junior Research Group "Digital Platforms"

Head of a Junior Research Group „Economics of Public Procurement“

Picture Credits: press release of 27 September 2018: iStock.com/btgbtg, press release of 24 September 2018: iStock.com/OhmZ, press release of 20 September 2018: Sebastian Semmer/ZEW, press release of 17 September 2018: iStock.com/muratsenel, press release of 13 September 2018: iStock.com/instamatics, press release of 13 September2018: iStock.com/ZWEID, press release of 08 September 2018: Campus Verlag, press release of 08 September 2018: iStock.com/PhonlamaiPhoto, press release of 07 September 2018: iStock.com/oatawa, press release of 07 September 2018: iStock.com/rcoss, press release of 07 September 2018: iStock.com/PhonlamaiPhoto, news article of 07 September 2018: Niklas Gaus, press release of 06 September 2018: iStock.com/gollykim, news article of 04 September 2018: Universität zu Köln
 
All further pictures: ©ZEW