Newsletter May 2016

2016 is a crucial year for the future of the European Union. On June 23 the UK will vote on whether to remain in the EU. If the hotly debated "Brexit" were to occur, it would be a historical milestone, as no member state has ever left the EU before. What will happen if Britain decides to turn its back on Europe? ZEW economist Friedrich Heinemann discusses the potential consequences for the UK as well as for the EU.

Living standards in Europe vary considerably both within and between the EU Member States. What measures can be taken to counteract these discrepancies on a European and on a national level? Numerous suggestions have been made as to how sustainable, stable growth might be achieved in the eurozone. Would all of these solutions prove to be successful? Which instruments might be implemented in order to achieve effective fiscal and economic governance within the eurozone?

In many areas, digital markets and platforms are becoming evermore important. What are the mechanisms behind them and how are they influencing competition and the labour market? These are the questions being addressed in three new SEEK research projects, begun in April 2016.

Whilst the UN World Climate Conference progresses in Bonn, the fifth Mannheim Energy Conference began today at the Centre for European Economic Research (ZEW). Both events bring international experts from the fields of science, industry and politics together to discuss current questions and problems in the field of energy economics. ZEW President Professor Achim Wambach has taken this opportunity to comment on the current situation in Europe in regards to energy supply.

Despite the challenging, competitive environment, the Mannheim Centre for European Economic Research (ZEW) has again performed well in the business year 2015. This is illustrated by the high proportion of third-party funding in the institute's overall budget (46 per cent), and by the more than 200 scientific projects which have been conducted in the past year of business. It is in particular on an international level, that the research institute has been able to expand its strong position and network. 21 per cent of the third-party funding received, for example, was assigned to ZEW by the European Union. This is a significant achievement, given the fact that ZEW had already performed outstanding work on behalf of the EU in previous years, which is illustrated by the institute’s excellent ranking amongst other economic research institutes in the German Research Foundation’s (DFG) "Förderatlas 2015" (Funding Atlas 2015).

On today's summit in London, the world's governments are conferring on how to effectively fight global corruption. According to Professor Andreas Peichl, head of the Research Group “International Distribution and Redistribution” at the Mannheim Centre for European Economic Research (ZEW), politicians lack consistency in a crucial matter – namely in tackling tax havens within the Commonwealth.

Since the beginning of March 2016, the Federal Cartel Office has been investigating one of the giants of the digital economy on suspicion of misuse of market power – Facebook. Indeed, since the end of 2010, the European Commission has been looking into Google’s suspected anti-competitive practices. So will a stop finally be put to the anti-competitive behaviours of large internet corporations? This at least is what some commentators are hoping. Is competition policy even capable of adequately addressing the growing market power of large corporations in the digital economy? In order to answer these and further questions, one must consider the particular characteristics of digital markets.

The Centre for European Economic Research (ZEW) hosts the third international annual MaTax conference on taxation research on October 4 and 5, 2016. The conference is organised by the Leibniz ScienceCampus MannheimTaxation (MaTax), a joint initiative of the University of Mannheim and the Centre for European Economic Research (ZEW). We invite submissions on all topics broadly related to tax research, including papers from economics, law, political science, and other disciplines as well as interdisciplinary contributions. The conference focuses particularly on applied and empirical papers. Please send your paper or extended abstract to MaTax@zew.de no later than June 30, 2016.

On September 1 and 2, 2016, the Centre for European Economic Research (ZEW) hosts the fifth Mannheim Workshop on Empirical Tax Research in Mannheim. The aim of the German-language workshop is to bring together researchers from the field of corporate taxation, and to initiate the presentation and discussion of the latest research findings. We encourage the submission of papers which address questions regarding the effects of taxation decisions on businesses, on personnel, or on other market participants on the basis of empirical research methods. We particularly welcome submissions in German using data from sources such as surveys, experiments or secondary data gained from annual financial statements or taxation figures, for empirical investigation. Interested researchers are invited to submit their paper as a PDF file to steuerforschung2016@zew.de no later than July 1, 2016.

Junior professor. Dr. Susanne Steffes, Deputy of the ZEW Research Department "Labour Markets, Human Resources, and Social Policy", has been offered a junior professorship for empirical personnel economics at the University of Cologne. The junior professorship is in the Corporate Development area of the Management, Economics and Social Sciences Faculty. The appointment, made in cooperation with the University of Cologne, is for ZEW a further step towards linking the research carried out at universities with research carried out at other institutes.

Steffes' research interests include labour quality and how it is affected by instruments of personnel management. She is currently focussing on the effects of long-term personnel management on employee loyalty, the organisation and impact of flexible work, and the effects of instruments for staff development and equal opportunities on career progression.

Dr. Marija Penava and Ozana Nadoveza are visiting researchers in ZEW's Research Department "Environmental and Resource Economics, Environmental Management" from March 16 to July 15, 2016. Dr. Penava is Assistant Professor in the Department of Macroeconomics and Economic Development at the University of Zagreb. Her research interests lie in the fields of industrial organisation and applied macroeconomics. Ms. Nadoveza is a research assistant at the same faculty and is primarily interested in fiscal policy as well as environmental and agricultural economic issues. The research stay of the two scientists is part of an EU project. During their stay, they develop a computable general equilibrium model for Croatia for prospective evaluation of fiscal and environmental policies together with ZEW researchers.

Morteza Mazaheri is a visiting researcher in ZEW's Research Department "Environmental and Resource Economics, Environmental Management", from February 2 to July 31, 2016. Mazaheri is a doctoral researcher at the Allameh Tabataba’i University in Tehran. His research interests lie in the fields of energy and environmental economics. During his stay at ZEW, Mazaheri is carrying out research into the effects of an energy subsidy reform on income distribution in Iran.

Businesses holding considerable amounts of capital benefit significantly more from investments made in research and development (R&D) than firms with less capital. As a result of R&D activities, businesses with large amounts of capital increase their long-term value by an average of 11.6 per cent, whilst businesses holding less capital increase business value by only 2.3 per cent. This is the finding of a study carried out by the Centre for European Economic Research (ZEW) concerning 1,200 German businesses from five high-tech branches of the manufacturing industry, namely, the chemicals sector, mechanical engineering, electrical engineering, vehicle manufacture and the manufacture of technical and medical instruments. The study period covered the years 1993 to 2008.

Economic expectations for Central and Eastern Europe including Turkey (CEE region) have improved in May 2016. In the current survey the ZEW-Erste Group Bank Economic Sentiment Indicator for the CEE region has increased by 13.0 points to a level of 4.6 points. Among the individual countries, the indicators for the Czech Republic (up by 29.8 points) and Hungary (up by 26.9 points) have seen the largest increases.

The ZEW-CS Indicator for the economic sentiment in Switzerland has increased by 6.0 points to a reading of 17.5 points in May 2016. By this improvement, economic expectations have reached their highest assessment balance since October 2015. The economic situation of Switzerland currently stands at exactly zero points. The ZEW-CS Indicator reflects the expectations of the surveyed financial market experts regarding the economic development in Switzerland on a six-month time horizon. It is calculated on a monthly basis by the Mannheim Centre for European Economic Research (ZEW) in cooperation with Credit Suisse (CS), Zurich.

The ZEW Indicator of Economic Sentiment for Germany has declined slightly in May 2016. The index has decreased by 4.8 points compared to the previous month, now standing at 6.4 points (long-term average: 24.4 points)."The strong growth of the German economy in the first quarter of 2016 appears to have surprised the financial market experts. However, they seem not to expect the economic situation to improve at the same pace going forward. Uncertainties regarding developments such as a possible Brexit currently inhibit a more optimistic outlook," says Professor Achim Wambach, PhD, President of ZEW.

Three megadeals closed in the US within the past year ensured that the global transaction volume for merger and acquisition activities in the oil and gas sector remained high. With a global transaction volume of 151 billion euros, 2014 has been a record-breaking year; with 148 billion euros, however, the year 2015 remains only close behind. With deal volumes of 20, 18 and 16 billion euros respectively, the three megadeals executed in the US made up for more than a third of the total global transaction volume in 2015. Indeed, these transactions were the third, fourth and fifth largest transactions ever recorded in the American market. These are the results of recent studies accomplished by the Centre for European Economic Research (ZEW), based on the Zephyr database of Bureau van Dijk (BvD).

Expectations regarding the development of the Chinese economy have slightly improved in the current survey period (19/04 – 03/05/2016). Rising to a level of 9.4 points, the CEP Indicator, which reflects the expectations of international financial market experts regarding China’s macroeconomic development over the coming twelve months, has exceeded its long-term average of 6.2 points for the first time in many months.

German property companies' tendency to engage in increasingly large acquisitions seems to have come to an at least temporary end. In February 2016, a majority of the shareholders of the Frankfurt-based property company Deutsche Wohnen voted against a takeover offer from the market leader Vonovia, based in Bochum (formerly Deutsche Annington). The takeover of the second largest property company would have been the largest transaction of all time in the German property market, and would have seen further expansion of the market leader Vonovia. These are the findings of studies carried out by the Centre for European Economic Research (ZEW) on the basis of the Zephyr database of Bureau van Dijk (BvD).

Venture capital (VC) is no mass product to finance young businesses. The type and volume of a VC offer must always be considered in view of the whole range of financing options available in a federal state. If there are good financing options for start-ups, as is the case in Baden-Württemberg, a lack of risk capital can be partially compensated for. A new study carried out by the Centre for European Economic Research (ZEW) on behalf of the L-Bank is the first study to comprehensively analyse the supply of venture capital in the State of Baden-Württemberg.

The executive directors of German companies located in China expect to see continued weak economic growth in the world's second largest national economy in the second quarter of 2016. They consider the likelihood of an economic slowdown occurring within the coming twelve months to be slightly higher than it was in the previous quarter, with the indicator now at 37, as opposed to 35 per cent. An improvement in economic dynamism, however, is considered less likely, with the indicator now at 21 per cent (previous quarter: 23 per cent). This is the outcome of the latest ZEW-PwC China Economic Barometer for the second quarter of 2016, which surveyed executives from German companies in China.

The number of mergers and acquisitions (M&A) taking place between Russian companies and companies located in countries included in the Organisation for Economic Co-Operation and Development (OECD) have come to an almost complete standstill as a result of the latest political events surrounding the crisis in Crimea. In 2015, only 43 M&A transactions took place between Western and Russian businesses, fewer than ever since data collection began. These are the findings of calculations by the Centre for European Economic Research (ZEW) based on the Zephyr database of Bureau van Dijk (BvD).

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

Sebastian Blesse; Thushyanthan Baskaran
Do Municipal Mergers Reduce Costs? Evidence from a German Federal State

Christiane Bradler; Susanne Neckermann; Arne Jonas Warnke
Incentivizing Creativity: A Large-Scale Experiment with Tournaments and Gifts

Paul Hünermund; Dirk Czarnitzki
Estimating the Local Average Treatment Effect of R&D Subsidies in a Pan-European Programme

Riaz Ahmed
Social Infrastructure and Productivity of Manufacturing Firms – Evidence from Pakistan

Christian Rammer; Bettina Peters
Investitionsschwäche oder Strukturverschiebung der Investitionstätigkeit? Zur Rolle immaterieller Investitionen für die Wettbewerbsfähigkeit von Unternehmen
(Investment Weakness or Structural Shift in Investment Activities? On the Role of Intangible Investment for the Competitiveness of Enterprises)

Holger Bonin (2016)
Gewinne der Integration, Berufliche Qualifikation und Integrationstempo entscheiden über die langfristigen fiskalischen Kosten der Aufnahme Geflüchteter
(Profits of Integration, Skills and Speed of Integration Key to Fiscal Costs of Humanitarian Migration for Germany)

Benchmark Study: Tax Attractiveness for Digital Business

Public Sector Reform - How the EU Budget is Used to Encourage it

Speaker: Prof. Dr. Sascha Steffen (ZEW), Niall Bohan (European Commission, DG Financial Stability Financial Services and Capital Markets Union (FISMA)), Rolf Strauch, PhD (European Stability Mechanism (ESM)), Natacha Valla, PhD (CEPII - leading French think tank in international economics)
Moderation: Laura Noonan (Financial Times London)
Location of the event: Representation of the State of Baden-Württemberg to the European Union, Rue Belliard 60-62, B-1040 Brussels

Speaker: Frederik Eidam (University of Mannheim)
Location of the event: ZEW, Mannheim

Speaker: Prof. Daniel Waldenström, PhD (University of Uppsala)
Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Speaker: Prof. Kai Liu (University of Cambridge)
Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Speaker: Prof. Dr. Sabine Pfeiffer (University of Hohenheim)
Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Location of the event: ZEW, Mannheim

Picture Credits: Press Release of May 25, 2016: ©iStock.com/ George Clerk, Press Release of May 27, 2016: ©iStock.com/ KeithBinns, Press Release of May 30, 2016: @fotolia.com/ Kristina Greke
All further pictures: ©ZEW