Newsletter May 2021

Why are female talents not always allocated in the best possible way on the international labour market? How should consumer goods be optimally taxed in the face of externalities? How does tax avoidance occur? These and other questions were addressed at the annual ZEW Public Finance Conference, jointly organised by ZEW Mannheim and the Collaborative Research Center SFB 884 “Political Economy of Reforms” of the University of Mannheim on 6 and 7 May 2021. For the second time, around 200 researchers from all over the world came together digitally, resulting in a very international programme. This year’s main topic was “Behavioural Public Economics”.

Last year, the COVID-19 pandemic has turned the world upside down. The virus presented us with unprecedented challenges in all areas of our lives and required rapid and massive government intervention. ZEW Mannheim provided scientific impetus to address these challenges, for example, by pointing out the effects of school closures, identifying ways to speed up the production of vaccines and investigating the impact of the ‘Querdenken’ protests on infection rates. The newly published German version of the ZEW Annual Report 2020 provides an interesting overview of this – an English version will be available soon.

The ZEW Sponsors’ Association of Science and Practice has launched its own website (in German only), where users can quickly and easily find out about the Association’s goals and activities. Its members actively support the work of ZEW and benefit from exclusive offers. Anyone interested in becoming a member can find all the information they need on the website.

The German weekly business magazine WirtschaftsWoche ranks two researchers from ZEW Mannheim in their list of outstanding economists under the age of 40. According to WirtschaftsWoche, Professor Vitali Gretschko and Dr. Simon Reif are among those who are actively shaping the future by working on groundbreaking topics and providing valuable impulses for Germany.

The coronavirus pandemic is largely the result of an information problem. If we identified everyone who was infected, it would be easier to prevent viral transmission. Unfortunately, Germany has failed to prioritise the one measure that could close the information gap: testing.

The economic experts are unimpressed by the weakness in growth witnessed again at the beginning of the year. This is the result of the business cycle tableaus by ZEW Mannheim and the German daily newspaper, Börsen-Zeitung. Although Germany’s gross domestic product (GDP) declined by 1.7 per cent in the first quarter of 2021 compared to the previous quarter, the GDP forecasts for 2021/22 remain virtually unchanged. For 2021, the forecast is slightly higher at 3.6 per cent, while for 2022 the median forecast remains at 4.0 per cent. The experts are therefore not revising their expectation of strong economic growth, but merely postponing it.

How can gender inequality be minimised? Jutta Allmendinger, president of the WZB Berlin Social Science Center and professor of educational sociology and labour market research at the Humboldt University Berlin, has been dealing with this question for over three decades. At the fourth #ZEWBookTalk on 5 May 2021, she not only provided interesting insights into her new book, but also discussed with ZEW President Professor Achim Wambach the so-called Gender Lifetime Earnings Gap, why a pandemic promotes the traditional role distribution and which measures counteract gender inequality.

The COVID-19 crisis resulted in all European countries having to take on large amounts of new debt to mitigate the impact of the pandemic on the health system and the economy and to support recovery from the deep recession. As many countries had already been heavily indebted before, their scope to shoulder the high pandemic-related debt on their own was limited. Europe responded with comprehensive aid measures. At the end of 2020, the EU not only adopted the new Multiannual Financial Framework, but also launched the largest aid programme financed from the EU budget in its history, the 750-billion-euro fund Next Generation EU.

But one central question remains: How should the high national debt in the eurozone be dealt with after the end of the coronavirus pandemic? What are the possible solutions and how realistic are they?

The question whether primary school pupils should be assigned to secondary school tracks based on binding recommendations is a subject of heated debate in Germany. The legal requirements for the transition from primary school to secondary school in Germany differ considerably between the federal states.

The Federal Constitutional Court has rejected new challenges to the European Central Bank’s PSPP bond-buying programme. Referring to its ruling of May 2020, the court now considers its demand for an examination of the adequacy and proportionality of the PSPP to be fulfilled. Professor Friedrich Heinemann, research department head and public finance expert at ZEW Mannheim, comments on this matter.

Following the collapse of Greensill Bank, financial market experts believe there is a considerable need to regulate deposit platforms and reform banks’ deposit insurance. The majority of respondents, however, do not expect that deposit platforms will take action and keep banks with excessively risky business models off their platforms unless they are obliged to do so. Therefore, they should be required to provide more information on the associated risks to their customers, according to the experts. This is the result of a special question included in the ZEW Financial Market Survey in May 2021 among 188 financial market experts.

General practitioners are expected to play a key role in advancing the vaccine rollout in Germany. As the vaccination coverage of the population increases, additional efforts by physicians will be necessary to advance the vaccine rollout and ultimately achieve herd immunity. Doctors who administer COVID-19 jabs therefore need flexible and needs-based reimbursement. A recent ZEW policy brief proposes a flexible reimbursement system that efficiently provides and distributes funds to achieve high vaccination prevalence.

Binding secondary school type recommendations have an impact on the performance and well-being of pupils in primary school. If school recommendations are binding, the measured academic competences have been shown to improve in the fourth year. At the same time, however, pupils experience less joy of learning and their anxiety about their marks and their futures increases. These are the results of a recent study by ZEW Mannheim and the WZB Berlin Social Science Center.

Due to the suspended obligation to file for insolvency, the number of bankruptcies has fallen to a recordlow in 2020 despite poor business prospects. There is now a threat of a renewed rise in insolvencies in the coming months, mainly in the service and trade sectors. Smaller and older businesses as well as sole entrepreneurs will also record significantly more insolvencies again as the insolvency filing obligation is reinstated. These are the findings of a study conducted by ZEW Mannheim in cooperation with Creditreform, which examines the characteristics of insolvent companies and entrepreneurs before and after the COVID-19 crisis in Germany.

The ZEW Indicator of Economic Sentiment for Germany increased in the current May 2021 survey, climbing 13.7 points to a new reading of 84.4 points. This is the highest value so far since the beginning of the COVID-19 pandemic. The last time the indicator had reached a higher level was in February 2000. The assessment of the economic situation in Germany improved by 8.7 points compared to the previous month, and currently stands at minus 40.1 points. The assessment of the economic situation in Germany thus improved very significantly in May.

Numerous regulations and tax changes are making income tax returns increasingly complex and non-transparent. Reports of other people’s uncertainty about declaring their taxable income can undermine taxpayers’ individual tax morale. They become more lenient towards tax evasion as the tax problems of others become more understandable. This effect is even stronger for older people and those with a more left-wing political orientation, according to a study by ZEW Mannheim. For the study, more than 4,000 German citizens were interviewed in a representative survey.

Many countries have seen a rapid surge in public debt levels due to the coronavirus pandemic. It comes therefore as little surprise that corporate taxation has become a focus of interest among policymakers as an alternative source of income to bridge these massive financing gaps in public budgets. While previous discussions have mainly focused on how to prevent a global decrease in corporate tax rates as economies try to increase their attractiveness as a business location, the recent shift in tax policy in the US and the UK have steered the discussion into a new direction.

With both the UK and the US taking steps to raise company taxes, the question of whether businesses should be required to share the responsibility of covering COVID-19-related deficits through higher taxes could also become more relevant in Germany.

Regional economic development pays off: it secures employment in structurally weak areas and reduces regional inequality – at a lower cost than other policy measures such as increasing unemployment benefits. If, on the other hand, the subsidy is reduced, employment falls. This is the result of a recent study by ZEW Mannheim in cooperation with the University of Mannheim, which examines subsidies under the German policy measure to improve regional economic structures, “Verbesserung der regionalen Wirtschaftsstruktur” (GRW), from 1997 to 2017. The ZEW study is based on data from the Institute for Employment Research (IAB) and the Federal Statistical Office.

The coronavirus crisis is hitting companies hard. This also affects M&A deals. The number of mergers and acquisitions (M&A) involving German firms has fallen sharply due to the COVID-19 pandemic. A similar trend can be observed in M&A transactions at the international level. The number of mergers and acquisitions by and with companies based in North America, China or Western Europe decreased significantly as well. This is the result of a recent analysis by ZEW Mannheim based on the Zephyr database of Bureau van Dijk, a Moody’s Analytics Company.

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

Christoph Spengel, Daniel Klein, Christopher Ludwig, Jessica Müller, Raphael Müller, Stefan Weck, and Sarah Winter
EU Should Focus more on Indirect Taxes Instead of Proposals for a Digital Levy

Julian Oliver Dörr, Georg Licht, and Simona Christine Murmann
Corporate Insolvencies in Times of COVID-19

Annika Havlik, Friedrich Heinemann, Samuel Helbig, and Justus Nover
Dispelling the Shadow of Fiscal Dominance? Fiscal and Monetary Announcement Effects for Euro Area Sovereign Spreads in the Corona Pandemic

Reiner Manstetten, Andreas Kuhlmann, Malte Faber, and Marc Frick
Groundwork for Social-Ecological Transformations: The Social Contract, Global Governance and the Meaning of Time

Olof Ejermo, Katrin Hussinger, Basheer Kalash, and Torben Schubert
Innovation in Malmö After the Öresund Bridge

Theresa Michlbauer and Thomas Zwick
Precocious Inventors: Early Patenting Success and Lifetime Inventive Performance

Sebastian Blesse
Are Your Tax Problems an Opportunity Not to Pay Taxes? Evidence From a Randomized Survey Experiment

Jan Abrell, Mirjam Kosch, and Sebastian Rausch
How Effective Is Carbon Pricing? – A Machine Learning Approach to Policy Evaluation

Sebastian Siegloch, Nils Wehrhöfer, and Tobias Etzel
Direct, Spillover and Welfare Effects of Regional Firm Subsidies

This issue contains a focus on Europe with the following articles:

Vitali Gretschko and Marion Ott
Ein flexibles Vergütungskonzept für Mediziner hilft, Herdenimmunität gegen COVID-19 zu erreichen (A Flexible Reimbursement System for Doctors Helps to Achieve Herd Immunity Against COVID-19)

Bernhard Ganglmair, Alexander Kann, and Ilona Tsanko
Verbraucherpreisaufschläge in Deutschland. Ungleichgewicht zwischen Unternehmen und Verbraucher und Verbraucherinnen: Analyse der Marktmachtentwicklung und der Verbraucherpreisaufschläge (Consumer Price Markups in Germany. Imbalance Between Businesses and Consumers: Analysis of Market Power Development and Consumer Price Markups)

Federal State Index for Family Businesses – Feasibility Study

Incentives and Economics of Data Sharing (IEDS)

Short Expert Report on Germany’s Tax Competitiveness in Light of Current Tax Policy Demands

Study to Design a Future Share of Public Spending

In order to support the nationwide containment measures against the coronavirus, ZEW is examining to what extent the events listed here can take place virtually. Individual dates may be postponed. The current status of the events can be found in the ZEW Events Calendar. If you have any questions, please don’t hesitate to contact our event team at event@zew.de.

Speaker: Alexander Rohlf (Mercator Research Institute on Global Commons and Climate Change (MCC) gGmbH, Berlin)
Location of the event: Online

Speaker: Raquel Fernández (New York University, USA)
Location of the event: Online

Speaker: Johannes Johnen (Université catholique de Louvain, Ottignies-Louvain-la-Neuve, Belgium)
Location of the event: Online

Speaker: Matthew O. Jackson (Stanford University, USA)
Location of the event: Online

Speaker: Ayşegül Şahin (The University of Texas at Austin, USA)
Location of the event: Online

Speaker: Bruno Martorano (Maastricht University, The Netherlands)
Location of the event: Online

Speakers: Hanna Halaburda (Leonard N. Stern School of Business, New York University, USA) and Zsolt Katona (University of California, Berkeley, USA)
Location of the event: Online

Speaker: Joshua Gans (University of Toronto, Canada)
Location of the event: Online

Location of the event: Online

Speaker: Gregory Martin (Stanford University, USA)
Location of the event: Online

Speaker: Arne Wittig (Former General Counsel of Thyssenkrupp and Deutsche Bank)
Location of the event: Online

Speaker: Yan Chen (University of Michigan, Ann Arbor, USA)
Location of the event: Online

Speaker: Tim DeStefano (Harvard Business School, Boston, USA)
Location of the event: Online

Picture Credits: press release of 18.05.2021: Anna Logue Fotografie, press release of 17.05.2021: iStock.com/StefaNikolic, press release of 17.05.2021: iStock.com/Imgorthand, press release of 14.05.2021: iStock.com/trgowanlock, news article of 14.05.2021: Anna Logue Fotografie/ZEW, press release of 07.05.2021: iStock.com/Pra-chid, news article of 05.05.2021: Anna Logue Fotografie/ZEW, press release of 03.05.2021: iStock.com/YuriArcurs
All further pictures: ©ZEW