EU Enlargement, Migration and the New Constitution

The paper deals with the effects of migration resulting fromEU Eastern enlargement on the welfare states of Western Europe.Although migration is good in principle, as it yields gainsfrom trade and specialization for all countries involved, itdoes so only if it meets with flexible labour markets and ifit is not artificially induced by gifts of the welfare state.This is not the present state of affairs in Western Europe.In addition to measures that make labour markets more flexible,the introduction of delayed integration of working migrantsand the home country principle for nonworking migrants is arational reaction of the state. The proposed new EU constitution,which contains far-reaching rules for a European social union,should be amended accordingly. (JEL E2, F2, H0, J3, J6)     

Eurowinners and Eurolosers: The distribution of seigniorage wealth in EMU

The European Monetary Union (EMU) will involve socialization of the existing seigniorage wealth of the national central banks. This socialization will create windfall gains for countries with relatively low monetary bases such as France and the UK and it will be disadvantageous for countries like Germany, Austria, Spain or the Netherlands which will suffer per capita wealth losses of between 406 and 182 ecus. The paper quantifies the gains and losses in seigniorage wealth under alternative membership and bank regulation scenarios.     

On the controllability of continuous-time macroeconomic models

Summary (Abstract) It is argued in this paper that an independent control of target variables over time in continuous dynamic macroeconomic systems may not be achievable even though Aoki's well-known rank test for target path controllability is satisfied. It is shown that in many dynamical systems impulse controls are needed to steer the targets along arbitrarily given time paths. Such controls are not admissible from the macroeconomic point of view. By means of the structure algorithm by Silverman and Payne (1971) conditions for target path controllability that depend on the choice of the admissible spaces for the target and the instrument variables, are derived.The author is grateful to Professor Dr. Helmut Kuhn, Göttingen, and two anonymous referees for valuable comments on an earlier draft of this paper.     

The impact of Basel III on financial (in)stability: an agent-based credit network approach

The Basel III accord reacts to the events of the recent financial crisis with a combination of revised micro- and new macroprudential regulatory instruments to address various dimensions of systemic risk. This approach of cumulating requirements bears the risk of individual measures negating or even conflicting with each other which might lessen their desired effects on financial stability. We provide an analysis of the impact of Basel III’s main components on financial stability in a stock-flow consistent agent-based computational economic model. We find that the positive joint impact of the microprudential instruments is considerably larger than the sum of the individual contributions to stability, i.e. the standalone impacts are non-additive. However, except for the buffers, the macroprudential overlay’s impact is either marginal or even destabilizing. Despite its simplicity, the leverage ratio performs poorly, especially when associated drawbacks are explicitly taken into account. Surcharges on SIBs seem to rather contribute to financial regulations complexity than to the resilience of the system.     

Migration and Social Replacement Incomes: How to Protect Low-Income Workers in the Industrialized Countries Against the Forces of Globalization and Market Integration

This paper discusses how an industrialized country could defend the living standard of its unskilled workers against the wage competition from immigrants. It shows that fixing social replacement incomes implies migration into unemployment. Defending wages with replacement incomes brings about first order efficiency losses that approximate the budget cost of the government. By contrast, wage subsidies involve much smaller welfare losses. While the exclusion of migrants from a national wage replacement program does not avoid the distortions in labor migration, the (temporary) exclusion of migrants from a national wage subsidy program makes it possible to reach the first best migration pattern despite the preservation of the welfare state.JEL Code: F15, F22, I38, H5, J61     

Social insurance,incentives and risk taking

From the perspective of parents, redistributive taxation can be seen as social insurance for their children, for which no private alternative exists. Because private insurance comes too late during a person's life, it cannot cover the same risks as social insurance. Empirically, 85% of social insurance covers risks for which no private insurance would have been available. Redistributive taxation can be efficiency enhancing, because it creates safety and because it stimulates income generating risk taking. However, it also brings about detrimental moral hazard effects. Both the enhancement of risk taking and the moral hazard effects tend to increase the inequality in the economy, and, under constant returns to risk taking, this increase is likely to be strong enough even to make the net-of-tax income distribution more unequal. Optimal redistributive taxation will either imply that the pie becomes bigger when there is less inquality in pre-tax incomes or that more redistribution creates more post-tax inequality.The author gratefully acknowledges reserach assistance by Claudio Thum and useful comments by two anonymous referees. The paper is a broadened and non-technical discussion that draws on previous writings by the author on the subject. See in particular Sinn (1995).     

Public policies against global warming: a supply side approach

The countries that have ratified the Kyoto Protocol have pledged to limit global warming by reducing the demand for fossil fuels. But what about supply? If suppliers do not react, demand reductions by a subset of countries are ineffective. They simply depress the world price of carbon and induce the environmental sinners to consume what the Kyoto countries have economized on. Even worse, if suppliers feel threatened by a gradual greening of economic policies in the Kyoto countries that would damage their future prices; they will extract their stocks more rapidly, thus accelerating global warming. The paper discusses the remaining policy options against global warming from an intertemporal supply-side perspective.