Explaining liberalization commitments in financial services trade

The paper examines the determinants of market access commitments in international financial services trade in the General Agreement on Trade in Services (GATS). Based on a theoretical model, it empirically investigates the role of domestic political economy forces, international bargaining considerations, and the state of complementary policy. The empirical results confirm the relevance of the model in explaining banking and (to a somewhat lesser degree) securities services liberalization commitments. The findings imply that those who seek greater access to developing country markets for financial services must do more to counter protectionism at home in areas of export interest for developing countries. JEL no. D78, F13, G20     

Sunk costs of exporting and the role of experience in international trade

This paper estimates the importance of destination‐specific sunk costs of exporting and investigates the role of firms' previous experience in international trade for the decision to export to a market. While destination‐specific sunk costs are important, firms' experience in international trade can help to overcome these costs more easily. In particular, import experience from a market is found to facilitate exporting to this country and export experience from other markets can increase the probability of exporting to a country. This latter effect turns out to be conditional on the characteristics and number of markets served by a firm.     

Der deutsche Leistungsbilanzüberschuss — Fluch oder Segen?

Germany has one of the highest current account surpluses in the world. This is criticised by its global trading partners and is subject to the European Macroeconomic Imbalance Procedure. The authors interpret this phenomenon quite disparately. Some state that the surplus is not the result of continuously and structurally slower imports relative to export growth. Instead, two periods of weak domestic demand have left lasting traces. This should not result in programmes to stimulate the demand side. Others, however, find that Germany should identify ways to increase its domestic demand, especially its public and private investment, in order to reduce its surplus. It is hard to exactly quantify and target an appropriate level of the current account, and thus political action should focus directly on the distortions and misallocations that potentially result from an imbalance. By 2020, however, the German surplus is likely to decrease due to demographic developments, the housing boom and slowing globalisation. Since the rotation of fixed income assets out of Europe (“Euroglut”) is likely to continue, the outlook for the future value of the euro is therefore even more bearish.     

Central Banks: Confronting the Hard Truths Discovered and Tough Choices Ahead

Central banking has faced new levels of complexity since the onset of the financial crisis. Central banks might have saved the world economy from plunging even further, but their unconventional actions created risks that require continued vigilance. This paper presents six “hard truths” that must remain at the forefront of central banking policy for the indefinite future. They imply new and largely unexplored risks and require central banks to take important measures to protect from their realization.     

The Hubris of Hybrids

In the pages of this journal, a fruitful debate has evolved on the ethical legitimacy of fractional-reserve banking. In this article, we respond to the new arguments raised by Evans (J Bus Ethics, 2014) as we clarify our (Bagus et al. in J Bus Ethics 128:197–206, 2015a) position on the unethical and illegitimate nature of fractional-reserve banking. Fractional-reserve banking is not a recent financial innovation (unlike, e.g., money market mutual funds) but represents a long-standing legal aberration. The co-mingling of two mutually exclusive financial contracts, deposit and loan, confounds the contracting parties’ purposes, intents, rights, and obligations. As a result, it creates unsolvable legal difficulties and ethical dilemmas. While these problems are most evident in the case of a bank run, they also arise when trying to answer the simple question of “who owns a deposit?”     

Alleviating managerial dilemmas in human‐capital‐intensive firms through incentives: Evidence from M&A legal advisors

Research summary: We examine how human‐capital‐intensive firms deploy their human assets and how firm‐specific human capital interacts with incentives to influence this deployment. Our empirical context is the UK M&A legal market, where micro‐data enable us to observe the allocation of lawyers to M&A mandates under different incentive regimes. We find that law firms actively equalize the workload among their lawyers to seek efficiency gains, while “stretching” lawyers with high firm‐specific capital to a greater extent. However, lawyers with high firm‐specific capital also appear to influence the staffing process in their favor, leading to unbalanced allocations and less sharing of projects and clients. Paradoxically, law firms may adopt a seniority‐based rent‐sharing system that weakens individual incentives to mitigate the impact of incentive conflicts on resource deployment. Managerial summary: The study highlights the dilemmas when professional service firms allocate their key individuals to incoming projects, and the role that monetary incentives play in aggravating or alleviating these dilemmas. In the context of UK M&A law firms, we find that partners have a tendency to be attached to too many projects and not to share enough work, which is exacerbated when individual monetary incentives are stronger. Firms adopting a seniority based incentive system (lockstep system) are able to alleviate this effect. This implies that there is a trade‐off between rewarding personal performance versus balancing workloads and fostering collaboration among professionals. Copyright © 2015 John Wiley & Sons, Ltd.     

Künstliche Intelligenz und der Faktor Arbeit

Artificial Intelligence (AI) and its potential impact on the demand for human labour has become a fashionable topic — particularly among economic policy advisors. However, most papers that warn about high substitution rates of conventional jobs use questionable data and methodologies. Future economic policy advice ought to include a company perspective — and discover that disruption will be much more gradual and less dramatic than proclaimed by the current topical papers. As this AI revolution is just at its very beginning, economic policy makers are advised to accompany and support digital change instead of actively intervening in digital value chains with taxes and/or subsidies.     

Wie sollte das Steuersystem in Deutschland reformiert werden?

Some authors focus on the fact that Germany shows one of the highest tax burdens among the OECD countries. Based on their analysis, they suggest approaches to reduce the tax burden in particular for lower and medium incomes. These tax reliefs are possible, and would not compromise new public investment. But decreases in personal income tax rates mainly relieve higher income earners and are accompanied by high tax losses if the top tax rates are not increased. Alternatives are relief for social contributions or VAT. Other researchers do not look at the tax burden this way: as the income tax burden in Germany is not high from a historical perspective or by international standards, there is no case for massive tax cuts, as this would jeopardise the government’s ability to act and fail to correct past shifts of the tax burden at the expense of households with low incomes. Any tax cuts should be targeted at the bottom half of the income distribution without creating any revenue shortfalls. Instead, the government would be well advised to increase its efforts to overcome the public investment backlog and ensure a well functioning civil service. Furthermore, sustainability oriented tax reforms should focus on a shift of the tax burden from taxes on labour towards environmental and wealth based taxes.