Newsletter December 2019

Dear Readers,
an eventful year is coming to a close. With this e-mail, you are receiving the last issue of the ZEW Newsletter English edition in 2019. We would like to take this opportunity to thank your for your sustained interest in news from ZEW and hope that you will find interesting news in this last issue for 2019. We wish you and your loved ones a pleasant festive season and a prosperous, healthy 2020!
 
Best wishes,
the ZEW Newsletter editorial team

Scientists from ZEW Mannheim will once again be attending the ASSA Annual Meeting held in the United States in 2020. Taking place from 3 to 5 January in San Diego, the 2020 edition of the event is set to welcome over 13,000 participants. This makes the ASSA Annual Meeting the most important conference in the world for economists. The conference is jointly organised by the American Economic Association (AEA) and the Allied Social Science Association (ASSA).

This year, the eleventh Real Estate and Capital Markets Network (ReCapNet) conference took place at ZEW Mannheim on 14 and 15 November. Around 40 international researchers discussed current findings on the subject of real estate asset pricing. Keynote speeches and presentations of research papers focused on questions relating to pricing and the risks of real estate investments.

The EU is not just the number one market for German companies – it is also a space of unrestricted mobility for its people, no matter whether they are employees, students, tourists or senior citizens. For a long time, the vast majority of people in the EU did not question that the European integration process should be driven forward. Even though this view still prevails, the various crises of the past years – the financial and debt crisis, the refugee crisis, Brexit, the climate crisis – have raised many questions. One of the questions many people are asking is whether the current European rulebook truly fits the bill of managing the abundance of new challenges. The fact remains that many of these challenges cannot be solved by national policy approaches alone, but instead require European approaches. This is where our research at ZEW comes into play. On our new theme page on “European integration”, you will find information about our economic research results on Europe and the European integration process. The page summarises our central research findings and gives an overview of our key research areas:
 
• European fiscal institutions
• MannheimTaxation: Europe’s tax system of the future
• Growth, productivity and innovation in Europe
 
In addition, the theme page offers insights into current issues, publications and events in the area of European integration.

On 9 December, the Parliamentary State Secretary to the Federal Minister for Economic Affairs and Energy, Christian Hirte, presented the award for the 2019 nation-wide student competition YES! to the winning team from Weinheim, which was mentored by ZEW Mannheim. With their project “Greenpay – A private incentive system for a sustainable future”, the high school students of the Werner-Heisenberg-Gymnasium won first place in the competition organised by the Joachim Herz Stiftung and the ZBW – Leibniz Information Centre for Economics. They were mentored by Carina Fugger, a researcher in ZEW’s “Environmental and Resource Economics, Environmental Management” Department.

We are on the verge of a new decade, bringing with it major structural changes such as demographic change, digitalisation, and climate change, which the economy, politics, and society will have to cope with in equal measure in the coming years – all while the economy and world trade are weakening. There are, however, ways to tackle these challenges. How this is to be done was outlined by the chairman of the German Council of Economic Experts and President of the RWI - Leibniz Institute for Economic Research, Professor Christoph M. Schmidt, at ZEW Mannheim.

The fourth quarter of 2019 saw the German Real Estate Financing Index (DIFI) of ZEW and JLL deteriorate again slightly by 4.4 points to minus 15.2 points, the reason being the clearly negative assessment of the financing situation in the past six months despite an improved assessment of financing expectations. Experts remain sceptical about economic developments and global uncertainties such as Brexit and various ongoing trade disputes.

In Germany, the buildings sector ranks high in terms of its amount of both final energy consumption and greenhouse gas emissions. The aim is to reduce its CO₂ emissions from the current 117 million tonnes to 72 million tonnes by 2030, and to virtually zero by 2050. In order to achieve these goals, the German government has recently adopted a climate package that combines subsidy programmes with command and control (CAC) regulation, CO₂ pricing and information provision. In this interview, ZEW environmental economist Kathrine von Graevenitz, PhD, discusses the effectiveness of these measures.

ZEW Mannheim is pleased to announce that the annual ZEW Public Finance Conference on advances in Local Public Economics will take place in Mannheim on 7 and 8 May 2020. Submissions relating to the focus of this year’s conference are particularly welcome, though we also encourage submissions from all other areas of public economics and political economy. Please submit your paper via the conference management website no later than 15 February 2020. No conference fee will be charged for participants presenting a paper.

For the second time, the ZEW Sponsors’ Association for Science and Practice has awarded two science prizes, honouring outstanding scientific performances and economic policy advising projects at ZEW Mannheim. The prizes each come with a €5,000 endowment and were handed over by Dr. Georg Müller, chairman of the ZEW Sponsors’ Association and CEO at MVV Energie.

At the tenth International Creative Media Award (ICMA), the ZEW Media Design team received two awards for the 2018 edition of the ZEW Annual Report regarding outstanding individual achievements in the category “Annual Reports of Nonprofit Organizations, Associations, and Institutions” and the subcategory “Infographics”. This year saw 427 submissions from 26 countries worldwide.

Ge Yin was a visiting researcher in ZEW’s Department “Economics of Innovation and Industrial Dynamics” from 4 November to 6 December 2019. She is a doctoral researcher at the National School of Development (NSD) at Peking University in China. Furthermore, she visited Harvard Kennedy School at Harvard University in Cambridge, United States, for one year. Her research interests are on innovation economics and development economics, with a particular focus on topics concerning patent quality. During her visit, she worked with Dr. Philipp Böing and Professor Dr. Bettina Peters on a joint project to identify the impact of research and development (R&D) and patents on productivity and markups in the Chinese economy.
 
 

Professor Marianne Saam was a visiting researcher in ZEW’s Research Department “Digital Economy” from 25 November to 6 December 2019. She is a professor for innovation economics and policy at the Center for Entrepreneurship, Innovation and Transformation (CEIT) of Ruhr-University Bochum. Her research interests include economic growth, innovation, digital economy and structural change. From 2005 to 2017, she was a researcher in the ZEW Research Department “Digital Economy”. During her stay, she engaged in a fruitful exchange on current research in the field of innovation and digitalisation with ZEW researchers.
 

In the most recent survey for December (2–10 December 2019), the expectations regarding the Chinese economy worsened. The CEP Indicator, which reflects the expectations of international financial market experts regarding China’s macroeconomic development over the coming twelve months, is currently at minus 8.9 points, 5.0 points below previous month’s reading (November 2019: minus 3.9 points).

The debt brake, anchored in the German Basic Law, is increasingly being made responsible for hindering public investment and is thus being called into question. However, financial market experts do not see the debt brake as the main obstacle to higher investment, but rather the fact that there is too much bureaucracy. This is the result of a special question featured in the most recent ZEW Financial Market Survey conducted with 198 financial market experts. The survey was carried out by ZEW Mannheim in December 2019.

At its first meeting under the recently appointed ECB President Christine Lagarde, the ECB Governing Council decided to make no further changes to its monetary policy. This leaves the deposit rate at its current level of minus 0.5 per cent. Furthermore, the net purchase of assets with a monthly volume of 20 billion euros, which were taken up again in November 2019, will be continued. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at ZEW Mannheim, comments on this matter.

European countries regularly invite tenders to allocate its funds for the construction of new wind energy plants. Often enough, however, there is a lack of applicants interested in investing. Owing to the absence of competitors, companies that place high-priced bids emerge as the winners of these auctions, a fact which drives up costs unnecessarily. In order to prevent this, the European Commission is currently considering the implementation of a regulation which is already in use for certain auctions in Germany. Under this regulation, the number of plants to receive funding is capped ex post if the total number of bids is low.

However, in the current low-supply environment, this would weaken competition even further. What is more, a decline in the number of bidders would delay the expansion of renewables.

The ZEW Indicator of Economic Sentiment for Germany has again risen sharply in December 2019, now being valued at 10.7 points. This corresponds to a 12.8-point increase compared to the previous month and a 33.5-point increase compared to the October reading. This is the indicator’s highest value since February 2018. The assessment of the economic situation in Germany has also improved in the current December survey, with the corresponding indicator climbing to a level of minus 19.9 points, 4.8 points higher than in November.

Last year, the EU Commission proposed Europe-wide directives for the taxation of digital companies. Capital markets reacted vigorously, causing the market value of many digital companies to plummet in the short term to the tune of billions. In the long term, the proposed digital taxation directives could harm the profitability and competitiveness of digital enterprises. These are the findings of a study conducted by ZEW Mannheim together with the University of Mannheim.

At its most recent general assembly, the ZEW Sponsors’ Association for Science and Practice re-elected Dr. Georg Müller, chief executive at MVV Energie AG, as its chairman. Treasurer Claudia Diem, board member at BW-Bank, and Dr. Ralf Krieger, board member at Freudenberg SE, were re-elected as well. Besides reconfirming these members in their position, the Sponsors’ Association’s general assembly agreed to expand the programme offered to its members.

The UN Climate Change Conference (COP25) in Madrid is in full swing. Its central goal: More ambitious climate commitments for a maximum number of states so as to increase the chances of meeting the 2015 Paris Agreement target of limiting global warming to a maximum of two degrees. One of the Paris Agreement’s key tools is a dynamic system of incentives called “ratcheting”. There are, however, doubts as to its effectiveness. As a laboratory experiment by researchers from ZEW Mannheim and the Leipzig University of Applied Sciences (HTWK Leipzig) shows, this system of incentives could even prove counterproductive.

The level of digitalisation in German information economy companies is considerably higher than that of companies in the manufacturing sector. Many of the firms in the information economy already perceive their range of offerings, their business processes as well as their innovation activities to be highly digitised. This is the result of a special assessment published in the current Business Survey in the Information Economy, for which ZEW Mannheim surveyed around 1,500 companies in the German information economy and the German manufacturing sector.

The federal programme “Soziale Teilhabe am Arbeitsmarkt” (“Social Inclusion in the Labour Market”) has significantly improved the well-being and social integration of long-term unemployed persons in Germany taking part in this programme. Particularly those who had been unemployed for a very long time and suffered from health problems benefited the most. The programme’s most prominent effects were seen in the participants’ subjective life satisfaction.

When it comes to the use of digital technologies, the German construction industry is still lagging behind other industries at home and internationally. So far, the construction industry has invested little in digitalisation projects, often limiting itself to the use of basic digital solutions such as electronic invoicing or CAD applications (used by 38.5 and 36.2 per cent of companies in the construction industry including planning), while construction-specific technologies such as 3D scanners and virtual reality are rarely used (2.8 and 7.5 per cent of companies, respectively).

The five-year term of office of the new European Commission begins on 1 December 2019 under Ursula von der Leyen. Professor Friedrich Heinemann, head of the ZEW Research Department “Corporate Taxation and Public Finance”, comments on this matter.

Following the German Bundestag’s adoption at the beginning of November of the bill on tax incentives for research and development (R&D) proposed by the federal government, the Bundesrat now also approved the new Research Allowance Act. The law will come into effect on 1 January 2020. Dr. Georg Licht, head of the ZEW Research Department “Economics of Innovation and Industrial Dynamics”, comments on this matter.

An equity investment with lifecycle rebalancing would be well suited as a standard product for funded retirement provision. This is the result of an expert report by ZEW Mannheim for the Federation of German Consumer Organisations (Verbraucherzentrale Bundesverband e.V.). Investing in shares for old-age provision is worthwhile albeit riskier than investing in bonds. Financial crises, however, can lead to significant losses, especially if they occur very close to the time of retirement. What’s known as a share portfolio with lifecycle rebalancing, which gradually reduces the equity component in the years prior to retirement, is therefore recommended.

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This issue contains a Focus on M&A with the following articles:

Francesco Decarolis, Maria Leonardo Giuffrida, Elisabetta Iossa, Vincenzo Mollisi, and Giancarlo Spagnolo
Bureaucratic Competence and Procurement Outcomes

Josué Ortega and Erel Sega-Halevi
Obvious Manipulations in Cake-Cutting

Armenak Antinyan and Zareh Asatryan
Nudging for Tax Compliance: A Meta-Analysis

Sebastian Blesse and Friedrich Heinemann
Citizens’ Trade-offs in State Merger Decisions: Evidence from a Randomized Survey Experiment

Adriano de Leverano
Collusion Through Market Sharing Agreements: Evidence from Quebec’s Road Paving Market

Carlo Gallier, Martin Kesternich, and Bodo Sturm
Klimaabkommen von Paris: Die vereinbarten dynamischen Anreize wirken kontraproduktiv (Paris Agreement: System of Dynamic Incentives Proves Counterproductive)

Irene Bertschek, Thomas Niebel, and Jörg Ohnemus
Zukunft Bau: Beitrag der Digitalisierung zur Produktivität in der Baubranche (Future Building: On the Contribution of Digitisation to Productivity in the Building Sector)

Integration of Migrants and Attitudes Towards the Welfare State

Speaker: Peter Altmaier (Federal Minister for Economic Affairs and Energy)
Location of the event: ZEW, Mannheim

Speaker: Prof. Achim Wambach, PhD (ZEW)
Location of the event: ZEW, Mannheim

Speaker: Prof. Dr. Sabina Jeschke (Deutsche Bahn AG)
Location of the event: ZEW, Mannheim

Podium: Prof. Dr. Friedrich Heinemann (ZEW), Prof. Dr. Thomas König (Chair of Political Science at the University of Mannheim), and Prof. Catherine de Vries, PhD (Università Bocconi, Milan, Italy)
Moderation: Jennifer Rankin (The Guardian, London, United Kingdom)
Location: Representation of the State of Baden-Württemberg to the European Union, Brussels

Picture Credits: news article from 18.12.2019: iStock.com/mvp64, press release from 12.12.2019: Anna Logue Fotografie/ZEW, news article from 11.12.2019: YES! – Young Economic Summit, press release from 11.12.2019: iStock.com/Dar1930, press release from 09.12.2019: iStock.com/gollykim, news article from 5.12.2019: JLL and ZEW, news article from 05.12.2019: Erich Dichiser EDM, press release from 05.12.2019: Erich Dichiser EDM, press release from 05.12.2019: iStock.com/MarioGuti, press release from 04.12.2019: iStock.com/PeopleImages, press release from 03.12.2019: iStock.com/Fotomada, press release from 30.11.2019: Anna Logue Fotografie/ZEW, press release from 29.11.2019: Anna Logue Fotografie/ZEW, press release from 22.11.2019: iStock.com/Nikada
 
All further pictures: ©ZEW