Financial Stability in European Banking: The Role of Common Factors

In this paper, I investigate the development and determinants of CDS spreads for 18 major European banks between December 2001 and January 2004 applying factor analysis to daily data. Two clear-cut conclusions can be drawn. First, the dominating first common factor that explains 88 percent of all variation in the system, impacts on all banks in a similar direction. This suggests a strong market integration. However the size of the response of each bank’s CDS spread to the first common factor differs substantially, probably reflecting differences in individual bank’s exposure and riskiness. Second, the first common factor appears significantly related to the European P/E ratio and the European-wide 2-year nominal interest rate. This finding suggests that the common factor may be interpreted as a general indicator of market conditions. JEL Classification Numbers: G12, G15, G21, C30     

With which countries do tax havens share information?

In recent years tax havens and offshore financial centres have come under increasing political pressure to cooperate with other countries in matters of taxation and efforts to crowd back tax evasion and avoidance. As a result many tax havens have signed tax information exchange agreements (TIEAs). In order to comply with OECD standards tax havens are obliged to sign at least 12 TIEAs with other countries. This paper investigates how tax havens have chosen their partner countries. We ask whether they have signed TIEAs with countries to which they have strong economic links or whether they have systematically avoided doing this, so that information exchange remains ineffective. We analyse 565 TIEAs signed by tax havens in the years 2008–2011 and find that on average tax havens have signed more TIEAs with countries to which they have stronger economic links. Our analysis thus suggests that tax havens do not systematically undermine tax information exchange by signing TIEAs with irrelevant countries. However, this does not mean that they exchange information with all important partner countries.     

The impact of transport-and transaction-cost reductions on food markets in developing countries: evidence for tempered expectations for Burkina Faso

Reductions in transport and transaction costs are expected to have a major effect on the functioning of food markets in developing countries. For Burkina Faso, this is a relevant issue as it may have important consequences for the food markets in urban and rural deficit areas. A partial equilibrium model is presented to analyze the short-term effects of reduced costs on price formation, inter-regional cereal trade, and farmers' and traders' storage strategies. Our results show that the high expectations with regard to the direct effects of cost reductions on food prices and food availability require some nuance. The effects of a reduction of transport costs will be small. Moreover, also the unintended negative consequences on the competitive position of farmers and traders in other regions that do not profit from road construction should be taken into account. Finally, it is concluded that only if transport and transaction costs are reduced simultaneously, will both the consumers and farmers benefit significantly.     

Is a flat tax reform feasible in a grown-up democracy of Western Europe? A simulation study for Germany

The success of the flat rate income tax in eastern Europe suggests that this concept could also be a model for countries of western Europe. The present paper uses a simulation model to analyze the effects of revenue neutral flat rate tax reforms on equity and efficiency for the case of Germany. We find that a flat rate tax with a low tax rate and a low basic allowance yields positive static welfare effects amounting to approximately 1.8% of income tax revenue but increases income inequality. The increase in income inequality can be avoided by combining a higher tax rate with a higher basic allowance. But in this case, the efficiency gains vanish. We conclude that due to their limited efficiency effects and their problematic distributional impact, flat tax reforms are unlikely to spill over to the grown-up democracies of western Europe.      

?konomische Grundfragen der Klimaanpassung

The option of climate adaptation is becoming more and more important in climate change policy. A large number of countries has already initiated a process of adaptation by drafting strategies or catalogues of measures. Hence there is an urgent need to support this process at the scientific level. The discipline of economics has a key role to play in this context. Against this background, this paper scrutinises the fundamental economic questions challenging the adaptation policy which is broadly supported. It outlines how economics may contribute to a successful adaptation process concerning the objectives of adaptation policies, appropriate instruments, the role of both spontaneous and planned adaptation as well as possible assessment tools for evaluation of adaptation policies.     

Non-manipulable domains for the Borda count

Summary. We characterize the preference domains on which the Borda count satisfies Arrows independence of irrelevant alternatives condition. Under a weak richness condition, these domains are obtained by fixing one preference ordering and including all its cyclic permutations (Condorcet cycles). We then ask on which domains the Borda count is non-manipulable. It turns out that it is non-manipulable on a broader class of domains when combined with appropriately chosen tie-breaking rules. On the other hand, we also prove that the rich domains on which the Borda count is non-manipulable for all possible tie-breaking rules are again the cyclic permutation domains.Received: 24 November 2003, Revised: 12 December 2004, JEL Classification Numbers: D71. Correspondence to: Clemens PuppeThe third author gratefully acknowledges the financial support from the Deutsche Forschungsgemeinschaft (DFG), Graduiertenkolleg 629 at the University of Bonn and from the Hungarian Scientific Research Fund (OTKA F 043496).     

Direct finance in the Dutch Golden Age†

This article analyses private credit operations in Amsterdam in the seventeenth century to explain the absence of deposit banks. The financial system was highly segmented and a combination of declining business margins and narrow interest rate spreads cut the scope for deposit taking. Moreover, merchants had easy access to credit in the form of short‐term loans which could be easily rolled over, or replaced at will. This technique worked well because a market developed providing key functions to control risk and price loans accordingly.