Ifo Annual Report 2015

Annual Report 2015

Presented at the 67th Ifo Annual Meeting on 28 April 2016 Published in 2016 for the Ifo Institute Poschingerstr. 5, 81679 Munich, Postbox 860460, 81631 Munich, Germany Phone: +49/(0)89/9224-0, Fax: +49/(0)89/985369 Internet: http://www.cesifo-group.de; email: [email protected] ISSN: 2194-928X

Editor: Marga Jennewein Translations: Lisa Giani Contini Printing: Ifo Institute Ifo Annual Report 2015

Page

The Goals and Tasks of the Ifo Institute ...... 7

Report of the Executive Board ...... 10

Research and Service Departments

Ifo Center for Public Finance and Political Economy ...... 25

Ifo Center for Labour Market Research and Family Economics ...... 29

Ifo Center for the Economics of Education ...... 33

Ifo Center for Industrial Organisation and New Technologies ...... 48

Ifo Center for Energy, Climate and Exhaustible Resources ...... 60

Ifo Center for International Economics ...... 67

Ifo Center for Business Cycle Analysis and Surveys ...... 79

Ifo Center for International Institutional Comparisons and Migration Research ...... 90

Ifo Center of Excellence for Migration and Integration Research – CEMIR ...... 94

Library ...... 98

Press, Publications, Conferences ...... 99

Dresden Branch ...... 109

Munich Society for the Promotion of Economic Research – CESifo GmbH ...... 123

Conferences, Publications and External Relations of the Ifo Institute ...... 129

Personnel, Finances and Organisational Bodies

Personnel Development ...... 133

Financial Development ...... 139

Organisation of the Ifo Institute ...... 142

3 Ifo Annual Report 2015

The Ifo Institute 2015

The Goals and Tasks of the Ifo Institute

Since its foundation in January 1949 Ifo has provided meet the highest academic standards and contributes both information and research, hence its name Ifo = to policy advice and the economic-policy debate. It is Information and Forschung (research). Its legal form committed to providing services for research and the is that of a registered, non-profi t association. The Ifo general public. In addition, Ifo intensively promotes Institute is one of Europe’s leading economic research junior researchers in economics. institutes and is also the most frequently cited institute in the media. A cooperation agreement links Ifo Research at the Ifo Institute is guided by setting social- closely with the University of Munich (LMU), and in ly recognised goals. These targets include maintaining 2002 Ifo was offi cially proclaimed an “Institute at the the performance levels of the social market economy, Goal of economic stability University of Munich”. rising to the demographic challenges ahead, ensuring informs Ifo’s research the stability of the economy and the fi nancial system, The Center for Economic Studies (CES) of the LMU, surviving global competition against a background of the Ifo Institute and the Munich Society for the Pro- growing technological change and protecting the en- motion of Economics – CESifo GmbH pool their re- vironment. sources within the CESifo Group to form an international research alliance. The group aims to enrich Like all other Leibniz institutions, the Ifo Institute is the public debate based on excellent theoretical and subject to tough evaluations that are conducted once empirical economics research, to support economic every seven years by the Leibniz Association Senate. policy-making decisions with high-quality policy ad- As in past evaluations, the Ifo Institute also performed vice, and to provide the public with highly-regarded excellently in its latest evaluation, which was com- economic information like the Ifo Business Climate pleted with the Statement of the Leibniz Association Index. The research activities of the CESifo Group dated 17 July 2013. are closely related to extensive contributions in terms of teaching and promoting junior economists, which In this statement the Leibniz Senate established that involves close cooperation between the Ifo Institute the Ifo Institute had very successfully achieved its and the LMU. At the heart of the CESifo Group is the mandate of conducting: “applied policy-oriented eco- CESifo researcher network, which consists of former nomic research, providing research results, data and CES guest researchers. information to interested individuals from academia, business, politics and the general public.” It found that Leibniz Senate describes As a member of the Leibniz Association the Ifo Institute the Ifo Institute makes: “signifi cant research contribu- Ifo as a leading economic is an institution that receives public funding from the tions that are internationally recognised and acts as research institute federal and state governments on the basis of Article an important bridge between academic research and 91b of the German Constitution. On 1 September 2011 policy advisory work […] The amount of research, the name of the Ifo Institute was modifi ed by means of service and advisory work done has developed excel- a change to its Articles of Association. Since then its of- lently. The Ifo Institute is now one of Europe’s leading fi cial name has been: Ifo Institute – Leibniz Institute for economic research institutes.” Economic Research at the University of Munich. The Leibniz Senate and the international group of ex- Ifo is an independent institution that makes its ser- perts commissioned by it attest the institute’s excel- vices available to all groups of society regardless of lent performance at all levels and in all fi elds of work – their political orientation. It is a European think tank from research and policy advisory work to services, the that serves as a bridge between academic research promotion of junior researchers and infrastructure. The and practical politics. It concentrates on applied, work done in the Ifo Institute’s eight research depart- policy-oriented economic research with the goal ments was evaluated as very good overall, and as ex- of achieving greater stability, growth and societal co- cellent in some cases. The quantity and quality of the hesion. The research of the Ifo Institute increasingly institute’s publications has improved further since the deals with European and global issues. It strives to last evaluation and is now excellent.

7 Ifo Annual Report 2015 The Goals and Tasks

Ifo’s 8 research centers – Public Finance and Political The report (2013) of the Leibniz Senate group of Economy, Labour Market Research and Family Econom- experts states: “As part of its policy advisory work, ics, The Economics of Education, Industrial Organisation Ifo participates very actively in public debates over and New Technologies, Energy, Climate and Exhaust- the best economic policy ideas and concepts. With ible Resources, International Economics, International its research results and policy recommendations, it is Institutional Comparisons and Migration Research and helping to develop reform ideas and make Germany Business Cycle analysis and Surveys – cover research fi t for the future.” Ifo’s policy work is also refl ected in topics that are also highly relevant for policy advice. The a large number of expert reports commissioned by Ifo Dresden branch, founded in 1993, works in areas public and private sector clients on topical economic that are of special interest to the Free State of Saxony, policy issues. Ifo was among the institutes to submit a from which it receives its funding. successful bid for the joint economic forecast tender, issued for the fi rst time at a European level in 2007; In its international activities the Ifo Institute cooper- and bid successfully again in the 2010 and 2013 ten- ates very closely with CESifo GmbH and the CESifo ders. The Ifo Institute also makes its expertise avail- researcher network supervised by the latter. As the able to the public sector institutions of other coun- Leibniz Senate confi rmed in its Statement of 17 July tries – especially in those states that do not belong 2013, CESifo GmbH has an important role to play to the OECD. in the cooperation between the Ifo Institute and the CESifo raises Ifo’s Center for Economic Studies (CES) at the LMU. The In addition to its research and policy advice, the Ifo international profi le cooperation with CESifo is an important element in Institute also provides the public with data, informa- the international profi le of the scientifi c research con- tion and other services. This takes place especially in ducted by Ifo and the LMU. connection with its project-related and its regular surveys of national and international business. Every Ifo’s junior research staff also benefi t tremendously month, the Ifo Business Climate Index, an established from the network effects within the CESifo Group. leading indicator of the business cycle derived from Ifo employs 40 doctoral students, most of which par- the Ifo Business Survey, is awaited with great antici- ticipate in the institute’s graduate programme and pation by the media, investors, and business leaders. are also members of the Munich Graduate School of The results of the Ifo World Economic Survey, the Economics (MGSE) at the University of Munich. Ifo’s Institute’s quarterly poll of international economic doctoral programme is particularly attractive thanks activity in 120 countries, are published in the CESifo to the fact that it combines academic research with World Economic Survey, a journal launched in 2002. the institute’s practical, policy-orientation. Since its launch in 1999, the Database for Institutional Comparisons in Europe (DICE), which currently con- The scientifi c research carried out at the Ifo Institute tains around 3,800 tables, graphs and short reports, is subject to the “Rules of good scientifi c practice” has grown signifi cantly and enriched the range of ser- drafted by the German Research Foundation (DFG), vices provided by the Ifo Institute. Since the beginning as well as to the gender equality standards estab- of 2003 the results of these institutionally oriented lished by it. The Ifo Institute is seeking to gradually studies and comparative presentations of institutional Ifo addresses the under- address the existing under-representation of women regulations have been published in the quarterly jour- representation of female among its researchers through its particularly inten- nal, CESifo DICE Report. academics sive support of young female academics. Ifo also offers a broad range of services via the inter- Politics and the general public benefi t from the close net, which are available in German and English, and link between the Ifo Institute and the university, as publishes several journals and book series. Interna- this link reinforces the institute’s academic perfor- tional publications, together with other activities con- mance and fi rst-class research is the foundation for ducted by the CESifo Group, are becoming increas- the policy work that the institute sees as its core task. ingly important.

Ifo Annual Report 2015 8 The Goals and Tasks

Every year the CESifo Group organises a number of for International Research on Economic Tendency international conferences at the Ifo Institute, and has Surveys), the EENEE (European Expert Network of become the third largest research network in eco- Educational Economists) and EUROCONSTRUCT. nomics worldwide with over 1,200 researchers in 41 countries. The CESifo Working Papers written by The Ifo Institute cooperates closely with external Ifo cooperates closely with members of this research network again took top economists and other established experts to assure external economists places among all economic research institutions in a the quality of its research. This particularly applies to worldwide comparison of downloads from the web- its 52 research professors and 6 research affi liates, site of the Social Science Research Network. research associates and senior research associates (status: 31 December 2015) and to nearly 50 guest Ifo’s work is characterised by its cooperation with uni- professors annually from all over the world, with versities and renowned researchers in Germany and whom Ifo researchers collaborate on joint projects. abroad. Its cooperation with the University of Mu- The Scientifi c Advisory Board and the User Advisory nich occupies a special place in Ifo’s work. Ifo and the Board play a particularly important role. Both bodies LMU jointly created the “Economics & Business Data assist the Institute in its planning, as well as evaluating Center” (EBDC), whose main task is to supply a con- its performance, and therefore help to maintain the tinuously updated data set of German companies to scientifi c quality of the Ifo Institute’s services. The Ifo feed new areas of research in economics and business Institute is very grateful to the external researchers administration. The EBDC provides researchers with who are involved in the CESifo Group and members corporate data, a combination of Ifo survey data and of its advisory bodies. other corporate data sources, and is the main contact and coordinator for scientifi c databases at the enterprise level. In December 2013 a Research Data Cen- ter branch of the Bavarian Federal Statistics Offi ce was opened in the EBDC. Researcher can now access federal statistics survey data on the EBDC premises.

Another expression of the close cooperation between Ifo and LMU is the joint appointment of department head positions at the Ifo Institute. This applies not only to the president, but also to all Ifo directors of the research centers. A total of eight endowed professorships are available to this end. In addition to these jointly appointed professors, other Ifo Institute researchers are also active in terms of teaching, in some cases as visiting professors with ﬁ xed-term tenures.

Cooperation with other partners – in particular the Universities of Augsburg, Dresden, Konstanz, Mün- ster, Passau, Regensburg – enriches the work of the Institute. In addition, the Ifo Institute conducts research in collaboration with a great number of economists from university and non-university entities. This has resulted in informal international research networks in the individual Ifo departments and for the Institute as a whole, including CIRET (Centre

9 Ifo Annual Report 2015 Report of the Executive Board

An era draws to a close: 2015 was the last full calen- Prof. Clemens Fuest as the new President of the Ifo dar year of Prof. Hans-Werner Sinn’s presidency of Institute with effect as of 1 April 2016. Ifo’s new Presi- the Ifo Institute, which ended on 31st March 2016, dent will also take over the chair for Economics and as did his chair at the University of Munich and his Public Finance at the economics faculty of the Univer- directorship of the Center of Economic Studies sity of Munich, previously held by Prof. Sinn, as well as (CES) due to Prof. Sinn’s retirement. By the time the presidency of CESifo GmbH, which coordinates he turned 68 Sinn had served the Ifo Institute for one of the world’s largest international networks of Prof. Sinn retires 17 years, CESifo GmbH for 25 years and had been a economists. professor at the economics faculty of the University of Munich for 32 years. Sinn taught at various facul- Mr Wacker publicly announced the Administrative ties in Germany and abroad for 83 semesters. On Council’s decision at the 2015 Ifo Annual Meeting. 22nd January 2016 Sinn’s retirement was marked by According to Mr Wacker, Prof. Fuest: “an excellent an international scientifi c symposium and a special and internationally very well-connected economist ceremony in the Great Hall of the University of Mu- and economic policy thought leader, is the ideal per- nich, as well as a gala dinner in the Kaisersaal of the son to succeed Prof. Hans-Werner Sinn as President Residenz. The farewell ceremony was attended by of the Ifo Institute”. The Deputy Bavarian Minister a large number of politicians, leading business fi g- President and State Minister Ilse Aigner congratu- ures and academics from all over the world. Speak- lated the Ifo Institute on its choice of new President: ers at the event included German Federal Minister “In Prof. Clemens Fuest the Ifo Institute has found a Schäuble, Bavarian Minister President Seehofer, Ba- worthy successor to Prof. Hans-Werner Sinn, under varian State Minister Aigner and Bundesbank Presi- whose leadership the Ifo Institute became one of dent Weidmann, as well as academics from Israel, Europe’s leading think tanks in the fi eld of econom- the USA and Europe. Several Nobel prize winners ics. The appointment of Prof. Fuest as Ifo President and many of Sinn’s contemporaries paid tribute to will further reinforce Munich’s position as an inter- his achievements in a book published by Gabriel Fel- national hub for the discussion of economics and bermayr, Meinhard Knoche and Ludger Wößmann economic policy.” entitled: “Hans-Werner Sinn and 25 Years of Ger- man Economic Policy” (Hanser Verlag, 2016), which At the Annual Meeting the Advisory Council Chair- was presented to Sinn on 22 January 2016 at the end man also stated that Ifo Executive Board Member of the ceremony. Sinn will remain active at the Ifo Prof. Meinhard Knoche had agreed, at the request Institute as a retired professor. of the Administrative Council and funding bodies, to extend his term-in-offi ce beyond the legal re- The search for Sinn’s successor via a joint appoint- tirement age. According to the resolution passed ment procedure conducted by the University of Mu- by the Administrative Council, Meinhard Knoche Prof. Fuest appointed nich and the Ifo Institute was successfully completed will remain a member of Ifo’s Executive Board and as successor during the reporting year. To this end, the Ifo Insti- extend his term of offi ce beyond the legal retire- tute’s Administrative Council took th initiative back as ment age. In line with the Advisory Council’s reso- early as 2014 by charging a coordination group, led by lution, Meinhard Knoche will remain an Executive its Chairman Peter-Alexander Wacker, with the task Board member until 31 August 2017. This will en- of preparing the offi cial appointment and/or selec- sure a smooth transition for the Ifo Institute’s new tion procedure for the future president in compliance President. with German civil service regulations; and in particular to identify potential successors to Prof. Sinn. The There were no changes to Ifo’s research depart- University of Munich’s Presidential Board also set up ment heads in 2015. Interim Directors continued a high-ranking, international selection committee to to lead the Ifo Centers for Industrial Organisation fi nd a successor for Prof. Sinn. In its meeting on 20 and New Technologies, as well as for Business Cy- May 2015 Ifo’s Administrative Council designated cle Analysis and Surveys in 2015, whose previous

Ifo Annual Report 2015 10 Report of the Board

heads resigned in 2014. This will enable the new Ifo Table 1: Publications in Peer-Reviewed Journals President to have a say in the appointment of these from 2005 to 2015 two positions. The procedures for jointly appoint- 2005a 2006a 2007a 2008a 2009a 2010a 2011a 2012a 2013a 2014a 2015b Articles in peer- 83 ing new department heads for the Ifo Centers for reviewed journals 52 33 60 81 53 44 55 68 63 57 (56) Industrial Organisation and New Technologies, and Of which are in categories A+ to B 41 Business Cycle Analysis and Surveys, which are both (as of 2009) 15 19 24 31 32 22 (28)

a b linked to chairs at the University of Munich, have Articles published in 2015. Articles published or accepted for publication in 2015 (published articles in brackets). now been launched. The aim is to permanently fi ll both department head positions by the winter term of 2016. The slight decline in the number of articles published in peer-reviewed journals is due to the fact that the Leading academics from the Ifo Institute receive number of researchers employed at the Ifo Institute offers from domestic and foreign universities ev- fell slightly in the 2012–2015 period. ery year. In 2015 Prof. Oliver Falck, Interim Direc- tor of the Ifo Center for Industrial Organisation Moreover, the number of articles published in and New Technologies, refused an offer from the peer-reviewed journals is not the only criteria for Christian Albrecht University of Kiel. Dr. Steffen measuring publication success. The second crite- Henzel, a researcher at the Ifo Center for Business rion is the degree to which researchers succeed in Publications in Cycle Analysis and Surveys, accepted an offer from publishing in high-ranking journals. Table 1 shows high-ranking journals the Hochschule für angewandte Wissenschaften in that a high share of articles was once again accept- Munich. ed for publication in peer-reviewed journals in the categories A+ to B. In 2015 28 out of 56 articles, or The Scientifi c Advisory Council continued its ongoing exactly half of all articles appeared in high-ranking evaluation of the Ifo Institute and assessed the perfor- journals. mance and development outlook of four research departments within the Ifo Institute. The council plans Several of these articles were accepted for publication to conclude its evaluation of the second half of Ifo’s by category A journals, including: eight research departments in 2017. – Volker Meier, Helmut Rainer, “Pigou Meets Ramsey: Gender-Based Taxation with Non-Cooperative Now let us consider the results achieved in research, Couples”, in: European Economic Review; the promotion of junior economists, policy advisory work and academic services in 2015 in greater detail. – Rahel Aichele, Gabriel Felbermayr, “Kyoto and Carbon Leakage”, in: Review of Economics and Research and the Promotion of Junior Statistics; Economists – Volker Meier (with I. Schiopu), “Optimal Higher The Leibniz Association continues to measure the Education Enrollment & Productivity Externalities”, performance of its institutes by the excellence of in: Journal of Public Economics; their research results and their relevance to political – Panu Poutvaara (with M. Elinder, H. Jordahl), “Pro- and social developments. That is why the quality of mises, Policies & Pocketbook Voting”, in: European its scientifi c research is crucial to the Ifo Institute. Economic Review; The latter is mainly evaluated using articles published by Ifo researchers in international, peer-reviewed – Simon Wiederhold, Ludger Wößmann (with E. A. journals. Hanushek, G. Schwerdt), “Returns to Skills around the World”, in: European Economic Review; The number of articles published by Ifo researchers – Suphi Sen, “Corporate Governance, Environmental in international, peer-reviewed journals remains Regulations, and Technological Change”, in: Euro- very high. pean Economic Review;

11 Ifo Annual Report 2015 Report of the Board

– Gabriel Felbermayr (together with B. Jung, M. Larch), directly linked to the competences of its people, or a “The Welfare Consequences of Import Tariffs: A nation’s “knowledge capital”. Economic policy aimed at Quantitative Perspective”, in: Journal of International securing long-term prosperity therefore primarily has Economics; to improve the education level of a nation’s population. – Helmut Rainer (with D. Anderberg, J. Wadsworth, Since the last changeover of the Executive Board back T. Wilson), “Unemployment & Domestic Violence”, in the 1990s eleven monographies from such tandem in: Economic Journal (to be published); projects have been published by the MIT Press.

– Martin Schlotter (with S. Bauernschuster), “Public Prof. Sinn also wrote a highly-regarded academic Child Care and Mothers’ Labour Supply”, in: monography in 2015 entitled “Der Euro: Von der Journal of Public Economics; Friedensidee zum Zankapfel” (“The Euro: From – Johannes Steinbrecher (with M. Efi ng, H. Hau, Peace Project to Bone of Contention”) published P. Kampkötter), “Incentive Pay & Bank Risk-Taking”, by the Hanser Verlag. This is a translation of: “The in: Journal of International Economics; Euro Trap. On Bursting Bubbles, Budgets and Beliefs,” – Christa Hainz, Ludger Wößmann (with S. Becker, published in English by the Oxford University Press K. Boeckh), “The Empire is Dead, Long Live the in 2014. This book explores the roots of the Euro- Empire!”, in: Economic Journal (to be published); pean crisis and the ECB’s role of a bailout authority that signifi cantly oversteps its mandate by burdening – Timo Hener, Helmut Rainer (with S. Bauern- the Eurozone’s taxpayers with huge liabilities without schuster), “Children of a (Policy) Revolution: The the approval of its parliaments. In addition to a num- Introduction of Universal Child Care and its Effects ber of smaller monographies during his time at the on Fertility”, Journal of the European Economic Ifo Institute, Prof. Sinn authored four larger academic Association (to be published); monographies on different topics. These books were – Erik Hornung, “Railroads and growth in Prussia”, not only published in German, but were also pub- Journal of the European Economic Association; lished in English by international academic publishers with peer-review systems, and in some cases in other The rising number of publications in high-ranking countries too (Can Germany Be Saved, The Green journals clearly shows the progress made by the Ifo Paradox, Casino Capitalism, The Euro Trap.) Institute since the changeover in its Executive Board in the 1990s. Prior to this date such publications by Ifo The Ifo Institute’s academic monographies published Institute researchers were practically non-existent. by the MIT Press also include the CESifo Seminar Se- ries. This series features the results of joint projects The Ifo Institute’s fl agship scientifi c publications also with CESifo researchers and acknowledged external include publications in a book series published by experts, which numbered fi ve books in 2015. A total MIT Press. These “tandem projects” are typically co- of 48 books have been published since the launch of written books by researchers from the Ifo Institute or the series on 2003. the Center for Economic Studies and members of the CESifo researcher network. The aim of this CESifo An important preliminary stage to the publication Book Series is to offer an overview of the latest devel- of articles in international, peer-reviewed journals CESifo book series offers opments in research in an area that is relevant to the is presentations at international conferences with topical analysis current policy debate. “The Knowledge Capital of Na- a peer review procedure. At such conferences re- tions”, co-authored by Ludger Wößmann, Director of searchers receive feedback on their paper from inter- the Ifo Center for the Economics of Education and Ifo national specialist colleagues that they can use in the research professor Eric Hanushek, Stanford University, subsequent publication process. In 2015 Ifo research- was published in this series in 2015. This monography, ers gave 146 such conference speeches. Prior to the which attracted a great deal of attention internation- changeover in President in 1999 there were practi- ally, shows that the long-term growth of economies is cally no such presentations in the Ifo Institute.

Ifo Annual Report 2015 12 Report of the Board

The publication successes enjoyed by Ifo research- mann was ranked seventh in the top ten. Four other ers are also reﬂ ected in the scientiﬁ c rankings of Ifo department heads also feature in the top 150 the RePEc Network (RePEc – Research Papers in economists in this rating (see Table 3) namely Gabriel Economics) and in the ranking of economists by the Felbermayr (31), Niklas Potrafke (78), Panu Poutvaara Handelsblatt. (79), and Oliver Falck (92).

In the RePEc ranking of international scientifi c cita- Table 3: Individual Researchers Active at German tions of institutes based in Germany, Munich-based Research Institutes and Faculties in the RePEc economists once again occupied top rankings in re- Ranking of February 2016 (up to rank 150) cent months. In February 2016, the last reporting Ranking Person * Institution Average ranking month for which data is available before the end of 1 Hans-Werner Sinn Ifo Institute 4.16 2 Klaus M. Schmidt LMU 4.49 Prof. Sinn’s term in offi ce, the Ifo Institute was ranked 3 Urs Fischbacher University of Constance 5.25 above all other German economics research institutes 4 Armin Falk University of Bonn 6.23 and faculties, and was just ahead of the far bigger DIW 5 Klaus Zimmermann IZA, University of Bonn 7.27 7.93 in Berlin. In the RePEc ranking of institutes based in 6 Marcel Fratzscher DIW, Berlin 7 Ludger Wößmann Ifo Institute 7.96 Germany only the ECB’s research department, the 8 Martin Hellwig MPI, Bonn 8.13 IZA Network and the CESifo network, which mainly 9 Roman Inderst University of Frankfurt/Main 11.98 13.03 consists of foreign researchers, ranked ahead of the Ifo 10 Axel Dreher University of Göttingen 23 Dennis Snower IfW, Kiel 26.77 Institute. This information once again shows that the 29 Clemens Fuest ZEW, Mannheim 35.67 Ifo Institute scaled the heights of economics research 30 Christoph M. Schmidt RWI, Essen 37.34 37.71 in Germany under Prof. Sinn’s presidency. 31 Gabriel Felbermayr Ifo Institute 34 Reint E. Gropp IWH, Halle 39.84 78 Niklas Potrafke Ifo Institute 94.08 Table 2: Economic Research Institutes and 79 Panu Poutvaara Ifo Institute 94.09 Economics Faculties in the RePEc-Ranking in 92 Oliver Falck Ifo Institute 108.34 February 2016 145 Timo Wollmershäuser Ifo Institute 176.14 * Bold: Presidents of the respective economics institutes, Italics: Department heads at Ranking Institution Average Ranking the Ifo Institute (Status: February 2016). 1 Ifo Institute, Munich* 4.45 1 DIW, Berlin* 4.45 The Handelsblatt-Ranking, which is not based on 3 LMU, Munich 5.59 citations, but on publications in peer-reviewed jour- 4 University of Frankfurt/Main 7.18 nals (excluding anthologies and monographies), did 5 University of Bonn 7.84 not only cover economics research institutes in 2015, 6 ZEW, Mannheim 8.84 but also featured universities. In the 2015 ranking of 7 Economics Faculty, University 9.46 economics faculties in German-speaking countries of Mannheim cited most frequently in peer-reviewed journals, the 8 Deutsche Bundesbank 10.89 University of Munich topped the ranking for the fi rst 9 Economics department, 11.44 time. “At no other university in Germany, Austria or University of Constance Switzerland did economists publish so many relevant LMU tops ranking for the 10 IfW, Kiel 12.13 specialist articles as at the University of Munich”, re- fi r s t t i m e 16 RWI, Essen 23.22 ported the Handelsblatt. The universities of Bonn 30 IWH, Halle 40.69 and Zurich ranked second and third. The Ifo Institute *Although the DIW has the same average ranking as the Ifo Institute after made a major contribution to this success since its rounding off, it is listed below the Ifo Institute in the RePEc. department heads and other Ifo researchers hold chairs and interim professorships at the University In the corresponding RePEc ranking of scientifi c ci- of Munich and are thus members of the university’s tations of individual researchers Ifo researchers also economics faculty, meaning that their academic out- ranked very highly. Hans-Werner Sinn was ranked put benefi ts the faculty. Academics from the Ifo Insti- fi rst among German economists and Ludger Wöß- tute achieved excellent individual results in the 2015

13 Ifo Annual Report 2015 Report of the Board

Handelsblatt Ranking: in the category “Life’s work” search professors, bringing the total of 52 external Hans-Werner Sinn was ranked tenth. In the category researchers involved with the Ifo Institute up to 52 on of best research achievements over the last fi ve years 31 December 2015. Niklas Potrafke ranked 17, Gabriel Felbermayr ranked 26 and Ludger Wößmann ranked 57. In the ranking Another increasingly important component of in- of leading economists under the age of 40 Gabriel ternational networking is systematic support for re- Felbermayr (fourth place) and Niklas Potrafke (fi fth search stays by Ifo researchers, especially abroad. place) featured among the top performers. In 2015 these research stays primarily took place at the following top universities in the USA and Canada: The publication performance of Ifo researchers also University of Berkeley (2), Harvard University (1), depends on its successful acquisition of research New York University (1), Irvine and Davis University projects awarded by competitive tender. Third-party (1), University of California Davis (2), Mc Gill Univer- funding obtained in this way creates greater leeway for sity (1), Simon Fraser University (1). Guest research basic theoretical research and, at the same time, makes stays also took place at several European universities it possible to analyse basic policy-oriented questions. (London School of Economics, University of Oxford, This particularly applies to research funding supplied University College London, Universities in Brescia, by the German Research Association and to grants Amsterdam, Uppsala, Lausanne, Prague, Bayreuth, provided by the Leibniz Association via competitive Augsburg, Regensburg and Freiberg). The VATT Insti- tenders. The Ifo Institute was once again very success- tute for Economic Research, the Institutet för Näring- Ifo proves successful with ful in terms of Leibniz tenders in 2015. The Ifo Center slivsforskning and the CEPII Paris also hosted guest Leibniz tenders for Labour Market Research and Family Economics research stays. Such visits signifi cantly improve the started work on the Leibniz project entitled: “Eco- scientifi c performance of Ifo’s research departments, nomic uncertainty and the family” (EcUFam) in 2015. since researchers given a leave of absence generally Moreover, in the 2016 Leibniz competitive tendering use it to consolidate their academic expertise and procedure the Leibniz Senate approved a tender by pave the way for new joint projects with co-authors. the Ifo Center for International Economics entitled: “QuanTAGG – Quantitative Tools for the Analysis of The large number of expert events organised by the Global Governance Issues”. The same applies to the CESifo Group itself also creates the ideal conditions project by the Potsdam Institute for Climate Impact for Ifo researchers to cooperate and network with Research (PIK), in which the Ifo Center for Interna- economists from around the world. In 2015 the CE- tional Economics is involved as a cooperation partner. Sifo Group organised 23 international scientifi c conferences, which were largely held in the conference Ifo’s strong support of trips to international expert rooms of the Ifo Institute. In addition to these events, conferences with peer-review procedures (described the annual Venice Summer Institute jointly organised in this report) and its acquisition of research fund- with Venice International University also took place in ing via competitive tenders form the cornerstones 2015. The event featured workshops on: “The Eco- of the Ifo Institute’s strategy to provide ideal frame- nomics of Entrepreneurship: Bringing Entrepreneur- work conditions for research and advanced scientifi c ship Back into Economics”, “Rethinking the Need for qualifi cation. A second central pillar of this strategy a Fiscal Union in the Eurozone”, “New Developments is the international cooperation and networking of in Global Sourcing”, “The World Trade Organization its researchers. This is primarily achieved by involv- and Economic Development” and “International Cur- Focus on international ing guest researchers and research professors in the rency Exposure”. These conferences and workshops cooperation and Ifo Institute’s work. There were 43 guest researcher mainly aim to promote scientifi c exchanges between networking stays at the Ifo Institute in 2015. Benjamin Born (Uni- the members of the CESifo researcher network, but versity of Bonn), Marc- Andreas Mündler (University also offer Ifo researchers the opportunity to exchange of California, San Diego) and Wolfgang Keller (Uni- academic ideas, especially with the members of the versity of Colorado, Boulder) also became new re- CESifo research network. This network expanded to

Ifo Annual Report 2015 14 Report of the Board

include 1,219 members from 41 countries by the end awarded a prize for outstanding academic achieve- of 2015. It is the biggest and most successful network ment in the fi eld of empirical economics research to of its kind worldwide. Oliver Falck, Interim Director of the Ifo Center for Industrial Economics and New Technologies, for his One of the framework conditions that promotes the article published in 2014 in the American Economic ongoing development of Ifo researchers in academic Review entitled: “E-lections: Voting Behaviour and terms is the opportunity to take up interim professor- the Internet”, co-authored with Stephan Heblich and ships, guest professorships and other teaching activi- Robert Gold. Instead of the prizes usually awarded by ties, especially at universities with which the Ifo Insti- the Ifo Institute for special achievements in managing Four awards for special tute has links via cooperation contracts. Oliver Falck, commissioned projects, four prizes for special achieve- achievement Christian Holzner, Volker Meier and Timo Wollmer- ment were awarded. The fi rst prize went to Horst shäuser also held temporary professorships at the Uni- Penzkofer, a researcher at the Ifo Center for Industrial versity of Munich in 2015. Christa Hainz accepted a Organisation and New Technologies, for his numer- guest professorship at the University of Augsburg and ous expert reports on the impact of trade fairs com- Francesco Cinnirella took an interim professorship at missioned by the German Messewirtschaft. The sec- the University of Bayreuth. In addition, Ifo research- ond special prize went to the project team consisting ers gave 93 classes representing a total of 192 hours of Prof. Ludger Wößmann, Ulrike Baldi-Cohrs, Marc per week each semester, as well as supervising 71 doc- Piopiunik, Jens Ruhose and Ruth Maria Schüler from toral, bachelor and master theses, 60 dissertations and the Ifo Center for the Economics of Education for their 20 post-doctoral habilitations. continuous supervision of the “European Expert Net- work on the Economics of Education” (EENEE) since Research is closely linked to the promotion of junior 2003 on behalf of the European Commission. Another economists, which has constituted a core area of the team prize was awarded to all members of the CESifo Ifo Institute’s academic reorientation since the comple- GmbH team for their valuable support in organising tion of its partial restructuring in 2002. This is a task of prestigious international events over the past 16 years. wider importance, since only a few Ifo doctoral stu- The fourth special prize went to the former doctoral dents have the opportunity to continue their academic student Erik Hornung for his paper: “Immigration and Doctoral student picks career at Ifo after completing their doctorate. The Ifo the Diffusion of Technology: The Huguenot Diaspora up prize Institute was able to employ such a high number of in Prussia”, which was published in the American Eco- doctoral students in the reporting year (46 on the ref- nomic Review 104(1), 2014. erence date of 31 December 2015) thanks to generous third-party funding obtained via its successful scientifi c The magazine Capital also featured Niklas Potrafke, tendering. Sponsors who fi nanced Ifo doctoral student Director of the Ifo Center for Public Finance and Po- positions in 2015 included Deutsche Telekom, the Kern litical Economy in its “Young Elite” ranking for the sec- Family Foundation, the European Union, the Federal ond year in succession. Ministry for Education and Research, the Leibniz As- sociation and the German Research Association Contributions to Policy Advice and the Policy Debate Overall a total of 9 doctoral students completed their The Ifo Institute conducts policy-oriented scientifi c re- theses over the course of 2015: Christian Grimme, search with a view to delivering contributions aimed Atanas Hristov, Juha Itkonen, Ilpo Kauppinen, Robert at solving economic problems. It also aims to reinforce Lehmann, Markus Reischmann, Jens Ruhose, Johannes the foundations on which politicians and business lead- Steinbrecher and Christian Thater. ers base their decisions on the one hand; and to improve the quality of information available to members As part of the Ifo Institute’s 66th Annual Meeting sev- of the general public interested in economic policy on eral prizes were awarded. The Society for the Promo- the other. The Ifo Institute was once again heavily in- tion of Economic Research (Friends of the Ifo Institute) volved in policy advice and the policy debate in 2015.

15 Ifo Annual Report 2015 Report of the Board

This partly took the form of Ifo producing a number of Controls”, “Europe’s Shadow Budget”, “Why the Tax- commissioned expert reports. The results of these payer is on the Hook”, “Europe’s Easy Money End- reports were not only presented to the clients that game”, “Stop the Splinter Unions”, “Why the ECB QE commissioned them, but – like all other Ifo Institute May not Mean a Safe Retirement”, “Varoufakis’s Great publications – they were also presented to the public Game”, “Carte Blanche for ECB Gives Cause for Con- via conferences and publications. The projects are cern”, “Why “Grexit” Could Be Good for Greece” and documented in the department sections of this year’s “Do Not Perpetuate the Dutch Disease in Europe: annual report. The following list features just a few Lessons from German Reunifi cation for a European Commissioned reports examples of commissioned reports that paved the Fiscal Union”. The article by Hans-Werner Sinn en- in 2015 way for policy advisory work in 2015: titled: “The Greek Tragedy”, which was published as – 20 years of Austria in the EU – challenges and a special issue of both the ifo Schnelldienst (in German) blueprints for action in the future (Federal Ministry and of the CESifo Forum (in English) attracted a great for Scientifi c Research and Economics of the deal of attention both nationwide and internationally. Republic of Austria) – Short and long-term policy requirements to achieve During his term in offi ce at the Ifo Institute Prof. Sinn sustainable economic and employment growth in wrote 17 smaller monographies on topical economic Croatia (Croatian Statehood Foundation, Zagreb) policy issues, which were primarily published as special issues of ifo Schnelldienst and CESifo Forum. – The impact of the demographic transformation on They helped to enrich the public debate with factual Germany as an immigration country (Friedrich information from academia. The last of these monog- Ebert Foundation) raphies was the study entitled: “The Greek Tragedy”, – The employment effects of legal thresholdson French which was published during the Greece crisis in 2015 and German companies (French government) and attracted a great deal of national and interna- – The impact of demographic developments on tional attention. the eastern German residential real estate market (German Federal Ministry for Economic Affairs The European Economic Advisory Group at CESifo and Energy) (EEAG), a body of experts supported by CESifo that assesses economic developments in Europe, looked – New trade rules for China? Opportunities and risks at the situation in the Eurozone in its annual report. for the EU (European Parliament) The report published in February 2015 entitled: – Establishment of the net employment effect “Blurring the borders” also looked at the topics of arising from a change in the rules on foreign export migration in Europe and European energy supply. The supplies in the German government’s export 14th EEAG report shows how the welfare state’s discredit guarantees torting effect on migration can be avoided without – The implications of market liberalisation of foreign endangering freedom of movement; and outlines a trade for business, growth and employment in forward-looking European energy policy that is based Germany (German Federal Ministry for Education on market economy principles, takes global warming and Research) into account and can still react to geopolitical risks. In 2015 the EEAG consisted of six economists from Moreover, the Ifo Institute highlighted key issues in the fi ve countries and was chaired by John Driffi l from policy debate with numerous publications. The book Birkbeck College, University of London. The group Ifo publications cover key written by Hans-Werner Sinn and published by the was founded in 2001 by Prof. Sinn, who has played an policy issues Hanser Verlag entitled: “Der Euro: Von der Frieden- active part in every report produced since. sidee zum Zankapfel” attracted just as much public attention as his “Ifo Viewpoints”, which are brief com- Articles published in the Ifo Institute’s periodica are mentaries on topical issues. In 2015 these viewpoints regularly cited in the public debate. In 2015 Ifo pub- covered the following topics: “The Case for Capital lished 24 issues of the ifo Schnelldienst, and a special is-

Ifo Annual Report 2015 16 Report of the Board

sue of the ifo Schnelldenst, twelve issues of ifo Konjunk- German Federal Minister for Economic Affairs and turperspektiven, six issues of ifo Dresden berichtet, as Energy, was the keynote speaker and gave a speech well as four issues of CESifo Forum, and a special issue on: “Economic policy and policy advice in the wake of of CESifo Forum, four CESifo DICE Report and CESifo German reunifi cation.” His speech was followed by a World Economic Survey respectively. Three ifo Forsc- discussion with Prof. Sinn chaired by Marc Beise, Chief hungsberichte and three ifo Dresden Studien and six Economics Editor of the Süddeutsche Zeitung, which ifo Beiträge zur Wirtschaftsforschung were published focused on: “Economic policy and policy advice: a as monographies, while 14 issues appeared in the dialogue.” In the debate that followed Hans-Werner Ifo Working Papers series. Moreover, the Ifo Institute Sinn discussed basic issues of economic policy and also produces the scientifi c quarterly CESifo Economic policy advice in Germany with Prof. Harold James, Studies, which is published by the Oxford University Princeton University, former Minister President Prof. Press. In addition, 539 issues appeared in the CESifo Georg Milbradt, as well as the former Chairman of supervised series CESifo Working Papers. This series the German Council of Economic Experts Prof. Wolf- features articles by members of the CESifo research gang Wiegard. network. On the day before the Ifo Annual Meeting the eco- In 2015 three Ifo researchers were appointed to pub- nomics faculty of the University of Munich and the lic bodies: Prof. Helmut Rainer, Director of the Ifo Ifo Institute jointly organised a symposium entitled: Center for Labour Market Research and Family Eco- “Developments in economic policy in the Federal nomics, was appointed a member of the expert com- Republic of Germany.” This symposium was held in mission for the German Federal government’s second honour of Prof. Hans Möller, who would have cel- report on equality. The commission is supposed to ebrated his 100th birthday in 2015. Möller was Hans- identify the policy measures that can be taken to en- Werner Sinn‘s predecessor at the University of Mu- Symposium held for Hans sure a level playing fi eld for men and women both in nich’s economics faculty and his work focused on the Möller the workplace and in the home. theory of economic policy and practical policy advisory work. The welcoming speech was given by Prof. The Bavarian State Government appointed Prof. J.-Matthias Graf von der Schulenburg. The keynote Karen Pittel, Director of the Ifo Center for Energy, speeches were given by Prof. Knut Borchardt, Profes- Climate and Exhaustible Resources, as a member of sor (emeritus) of economic history and economics at the Bavarian Climate Council. The body aims to pro- the University of Munich and Prof. Claudia M. Buch, vide important impulses for the future orientation of Vice-President of the Deutsche Bundesbank. Prof. the country’s climate policy. Karen Pittel’s nomination Sinn, who gave his inaugural lecture 30 years previ- to the climate council was designed to strengthen the ously to the very day, gave the laudatory speech. climate council’s economic competences. Another highlight was the Munich Economic Summit, Finally, Prof. Joachim Ragnitz, Deputy Managing Direc- which took place for the 14th time in 2015. The event tor of the Dresden Branch of the Ifo, was appointed was jointly organised by the CESifo Group together as academic representative for the government of the with the BMW Foundation Herbert Quandt and was Free State of Saxony on the Commission to evaluate supported by leading European newspaper publish- expenditure, personnel resources and equipment in ers and companies. This event brings personalities Saxony. from the academic world and decision-makers from business and politics together to discuss key issues of The Ifo Institute also enriched the economic policy economic development in Europe and the world. As debate with its events in 2015. It is worth highlight- part of the 2015 summit entitled: “Competitiveness ing the Ifo Annual Meeting, which – as in previous and Innovation: The Quest for Best” three core ques- years – was organized in cooperation with the Uni- tions were analysed: what have been the positive and versity of Munich in its Great Hall. Sigmar Gabriel, negative experiences on the path to European com-

17 Ifo Annual Report 2015 Report of the Board

petitiveness? How can Europe strengthen its culture cally justifi ed? Are the special and exceptional regu- of innovation in business and society? How can busi- lations for energy-intensive industries designed in nesses, the state, society and the individual, cooper- such a way as to ensure competitiveness and create ate best to promote both economic competitiveness incentives for innovation? and social innovation? The speakers at the summit in- High-profi le speakers cluded the French Prime Minister Manuel Valls, Vice- Over the course of 2015 the Ifo Institute invited attended 2015 Summit President of the EU Commission in Brussels Valdis politicians from Berlin to two “parliamentary Dombrovskis and Günther H. Oettinger, EU Com- breakfasts” in the Bavarian Representation in Ber- missioner for the Digital Economy and Society, and lin. These breakfast events were launched in 2014 Ifo’s President, who, as usual, gave the introductory at the initiative of the former SPD (democrat) party speech at the event. member Ludwig Stiegler. At the breakfasts Hans- Werner Sinn discussed demographic trends and mi- A total of 18 “Munich Seminars” were held in 2015. gration in the welfare state with German members The seminars have been jointly organised by CESifo of parliament. and the Süddeutsche Zeitung since 2001. These seminars – chaired by Prof. Sinn and Marc Beise The Ifo Institute organised two events to commemo- (previously Nikolaus Piper) from the Süddeutsche rate the 25th anniversary of German reunifi cation: Zeitung – offered renowned speakers from busi- Ifo Dresden and the Akademie für politische Bildung ness, academia and politics an opportunity to speak Tutzing organised a seminar lasting several days in on topical economic issues, which also attracted a September 2015, which primarily looked at the do- great deal of media attention. It is particularly worth mestic and foreign policy implications of German highlighting the seminar by Jens Weidmann, President reunifi cation, as well as current social phenomena of the Deutsche Bundesbank, entitled: “On the role in Eastern Germany. A symposium organised by Ifo of fi nancial stability for monetary policy,” as well as Dresden and held in Dresden in October 2015 also the special Munich Seminar organised in coopera- attracted a great deal of public attention. tion with the Carl Hanser Verlag featuring the former Greek Finance Minister Professor Yanis Varoufakis. The Bavarian Chamber of Crafts and Industry and Yanis Varoufakis spoke on the situation in Greece and the Ifo Institute once again organised a joint sym- the future of Europe. Hans-Werner Sinn also gave a posium last year. The topic of the 2015 event was speech that was followed by a discussion. Extensive “Immigration and securing skilled personnel – po- reports on all of the speeches were published in the tential and the need for action”. The “Ifo Industry Süddeutsche Zeitung. Colloquium”, organised in cooperation with the Chamber of Commerce and Industry for Munich and To stimulate a high-level discussion of the energy Upper Bavaria, which focuses on analysing current turnaround’s implications for Germany as a busi- economic events, was one of the highlights in 2015. ness location, the Council of Experts for Environ- Further details of the colloquium are available in the mental Issues and the Ifo Institute jointly organised section on the Ifo Center for Industrial Organisation Ifo co-organises energy the symposium entitled: “The energy turnaround and New Technologies. turnaround event and its implications for Germany as a business location”, which was held on 13 May 2015 in the Ba- On 5 November 2015 the Ifo Institute and the Eu- varian Representation in Berlin. The symposium ropean Union’s Committee of the Regions organised focused on the question of whether the energy the “Ifo Brussels International Economic Forum – turnaround will burden Germany as a business loca- BrIEF” for the eighth year in succession. The title of tion; or whether it, quite on the contrary, will trigger the conference, chaired by Prof. Sin and General Sec- a third industrial revolution? How can the German retary of the Committee of the Regions Jiří Buriánek energy turnaround be designed in an effi cient and was: “Is Europe back on a Growth Track with its En- “industry-compatible” way and can it be economi- ergy Union and in Promoting Innovation?”

Ifo Annual Report 2015 18 Report of the Board

Hans-Werner Sinn’s traditional public lecture given ine Zeitung and Die Welt. Both of the former chair- shortly before the Christmas holidays once again at- men of the German Council of Experts Wolfgang tracted an audience of hundreds to the LMU’s Große Franz and Wolfgang Wiegard co-authored an article Aula, meaning that some guests had to be accommo- that attracted a great deal of attention. They de- dated in a neighbouring lecture hall where the lecture scribed Sinn in the Frankfurter Allgemeine Zeitung as was broadcast live. Sinn’s ﬁ nal lecture was entitled: the: “most innovative and inﬂ uential economist that “A review of half a century”. Beginning with the fall Germany has seen in the last two or three decades.” of the Wall, whose construction Sinn opposed at the age of 13, he reviewed key events in German and Table 4: Economic Research Institutes / Faculties in European economic history. He closed his lecture by FAZ Ranking for 2015 differentiating between the consumptive and invest- Ranking Institution Points ment phases of economic policy, and between politi- 1 Hans-Werner Sinn 517 cians’ responsibility ethics and ideological ethics. 15 Ludger Wößmann 75 Media resonance is a key indicator of the relevance 26 Gabriel Felbermayr 37 of Ifo’s work for politics and society. According to 34 Niklas Potrafke 27 Media Tenor, Ifo was the most frequently cited eco- 48 Klaus Wohlrabe 19 nomics research institute in the reporting year and 51 Joachim Ragnitz 19 Hans-Werner Sinn was the most frequently cited German economist, not only by other academics, as 56 Timo Wollmershäuser 16 mentioned above, but also by the media. 98 Steffen Henzel 5

Ifo researchers achieved very good results in terms of both their research and media resonance in the 2015 Aware of this campaign and in spite of it, the German Frankfurter Allgemeine Zeitung (FAZ) Ranking of Association of University Professors and Lecturers the most infl uential economists active at universities (DHV in German) elected Prof. Hans-Werner as “Uni- and research institutes. Hans-Werner Sinn once again versity Professor of the Year”. DHV President, Profes- ranked as Germany’s most infl uential economist in sor Dr. Bernhard Kempen, explained the decision as the FAZ Ranking after topping the ranking in 2014 follows: “Our colleague Mr Sinn is an academic who (cf. Table 4). According to the German daily: “No serves rationality alone and does not bow to political other economics researcher has such a huge overall preferences. As Germany’s most frequently cited econ- impact in the media, politics and research.” As shown omist, he is an opinion-maker in the political debate.” by Table 4, other Ifo researchers were also excellently placed in the 2015 FAZ Ranking. Scientifi c Services The Ifo Institute is not only a service provider for aca- In January 2015 a campaign to discredit Hans-Wer- demics, but also provides social groups interested in ner Sinn was waged in the German business daily economic questions with economic data and other Handelsblatt. Three leading fi gures from the DIW information on current economic policy develop- were involved in the campaign: Bert Rürup (Chairman ments, as well as offering objective orientation in of the DIW’s Board of Trustees), Marcel Fratzscher economic policy issues. (President of the DIW) and Claudia Kemfert (DIW department head). The Handelsblatt devoted a total Like last year, a survey was also conducted with a of 13 pages to the topic, including its cover featur- view to publishing the Ifo Education Barometer. The ing the headline: “The False Prophet.” However, this basis of the second Ifo Education Barometer was an initiative triggered a wave of harsh responses from opinion poll of 4,203 survey participants conducted in academics and journalists who defended Sinn, which May 2015, who constitute a representative sample of were primarily published in the Frankfurter Allgeme- the adult population in Germany.

19 Ifo Annual Report 2015 Report of the Board

The Economic & Business Data Center (EBDC) suc- ries of events entitled the: “Ifo Workshops for Qual- cessfully extended its databases and service offerings ity Journalism.” Building on the experience of the pilot in 2015. This primarily applied to the newly estab- workshop successfully conducted in November 2014, lished EBDC archive in 2014, with which internal and the fi rst event in this series was held in November external researchers can safely store their research 2015. There are plans to enhance it in the years ahead data that serve as the basis for published research with further special training offerings for journalists. results. This archive was further expanded in 2015. The importance of the internet and web-based and The Database for Institutional Comparisons in Eu- social media in the provision of economic information rope (DICE) also remained very popular in 2015. is growing constantly. The Ifo Institute has been moni- It currently features almost 3,800 entries in the fol- toring this development for years and is constantly lowing thematic areas: company sector and fi nancial adapting its use of the media on an ongoing basis. The markets, education and innovation, energy and the CESifo Group is a pioneer in supplying self-produced environment, infrastructure, labour market and mi- video recordings that can be viewed by interested gration, public sector, social policy and social values. members of the general public both via the media li- Visual Storytelling The interactive graphic application Visual Storytelling brary, which is part of the CESifo Group website, and extended was extended to cover additional areas of regulation. via YouTube. The livestreaming of events via the inter- New videos (“How to get the best out of the DICE net saw strong growth in 2015. This is now not only Database” and “Learn the basics of DICE Visual Sto- happening thanks to the CESifo Group’s own website, rytelling”) explain how the database works to facili- but also via embedding live players in other websites. tate the country-comparative analysis of institutional The Ifo Institute has also been present on the social regulations, statutory stipulations and their applica- networks Xing and LinkedIn since 2015 to promote tion by users. the global networking of Ifo staff and former Ifo Insti- tute staff with guest and associate researchers. It also Ifo’s range of academically-based services was ex- uses social networks to regularly inform the public of panded by two products in the reporting year: the new jobs at the institute and further possibilities for aim of the Ifo Migration Monitor developed by the academic cooperation. Ifo Center for International Institutional Comparison and Migration Research and available via the internet Development of the Ifo Institute as an portal of the CESifo Group is to provide up-to-date Organisation information on both regular immigration fl ows and Beyond optimising its use of digital media, the Ifo asylum seekers in the European Union. In addition, Institute wishes to systematically expand its con- the Ifo Center for International Economics built up ceptional and methodical foundations of knowledge Ifo launches new database the Ifo GAME database (Geological and Meteoro- transfer – and especially its products, processes and logical Events) and also integrated it into Ifo’s web- instruments – in order to use the Ifo Institute’s exper- site. The database contains microdata from 1970 to tise and its working results for the benefi t of socially 2014, especially information on geological and meteo- relevant groups even more intensively than to date. rological events like earthquakes, eruptions, storms, Above all, Ifo aims to tap new knowledge transfer po- extreme temperatures, fl oods and droughts, and thus tential and, against the background of rapid changes offers a unique dataset for economic analysis. in communication technology and the changing communication behaviour, to adapt the transfer of the The signature of a cooperation agreement between CESifo Group’s expertise and working results to the the Bayerische Rundfunk (BR), the Deutsche Journali- new framework conditions. stenschule (DJS) and the Ifo Institute formed the legal basis for a close cooperation between these institu- To this end, a knowledge transfer concept oriented tions to promote further journalistic training. The towards the Ifo Institute’s future challenges will be focus of this cooperation is the newly introduced se- developed as part of a project entitled: “The devel-

Ifo Annual Report 2015 20 Report of the Board

opment, implementation and professionalisation of invited, as well as the par ticipation in summer schools, knowledge transfer concepts” funded by the German which enabled several Ifo doctoral students to deep- Federal Ministry for Education and Research for the en the expertise required for their further qualifi ca- time period from June 2015 to May 2018. With the tion. Doctoral students also have the opportunity to support of external partners, the effectiveness and participate in accompanying training measures. effi ciency of the Ifo Institute’s knowledge transfer will be systematically lifted to a new level. The fi rst stage An intensive continuous learning programme was im- of the project will establish the transfer services that plemented in the non-scientifi c fi eld. A total of 166 are already implemented. This review will be followed advanced training measures were approved last year, by an analysis of the strengths and weaknesses of ex- 132 of which were carried out within the year. Experi- Advanced training isting transfer services. The next step will be to iden- ence shows that a large share of the training measures measures tify additional information requirements on the part requested tend to be IT-related, whereby the focus of socially relevant groups and to determine poten- is on training courses to satisfy the requirements of tial for improvement and realise this potential using individual staff members. In addition, there were also selected tools. Project work will focus on the target courses for doctoral students and young economists groups of politics/public administration, business, on self-assertion and confl ict resolution, as well as training/education, science /research, mass media (in- communication and presentation training in the re- cluding the promotion of journalistic education and porting year. This programme was complemented by further training) and the general public. In addition to individual courses that covered the challenges created the usage analysis, focal points of project work in 2015 by individual roles. were the development of concrete measures, especially for knowledge transfer to schools and strength- The concentration of the whole organisation of the ening cooperation with the media. Ifo Institute on excellence in all areas of the Institute is the basic philosophy of Ifo’s management system, In 2015 the Ifo Institute continued to work on increas- which is certifi ed according to DIN ISO 9001 and ing its attractiveness as an employer for policy-ori- whose functionality is audited annually by external ented research economists in order to attract out- auditors in so-called surveillance audits. In the surveil- standing researchers from Germany and abroad and lance audit conducted in March 2015 the external au- to ensure their loyalty to Ifo. This was also part of ditors praised Ifo’s management system as exemplary its drive to gradually increase the number of foreign for a non-university research institution. researchers, or German researchers who hold a position abroad or studied there, which totalled 24 Ifo A special feature of this certifi ed quality management researchers on the reference date of 31 December system is that it includes the gender equality policy 2015 (2014: 21). In other words, on the date cited of the Ifo Institute and the rules of this policy. Com- above, 24% (2014: 22.1%) of scientifi c staff were for- pliance with these rules was tested in the context of eigners or Germans who worked or studied at a for- an external audit and fully approved. In the reporting eign university prior to joining Ifo. year efforts to shape working conditions in the Ifo Ifo achieves better gender Institute with a view to achieving a more balanced balance Creating an ideal environment for top research in- gender structure among academic staff paid off. The volves intensive scientifi c further qualifi cation. The share of female doctoral students rose to almost half development of this qualifi cation was presented in (2015: 47.8%; previous year 37.5%; respective refer- the context of research. The fact that Ifo research- ence dates: 31 December). ers were able to make several foreign research stays in 2015, particularly at top US universities, was ex- Personnel capacity expanded compared to 2014: on tremely important. Further key focus points once the reference date of 31 December 2015 the total again included speeches at international, peer-re- number of staff employed by Ifo rose by 7 to 197. viewed events (146), to which Ifo researchers were This increase was primarily due to the recruitment

21 Ifo Annual Report 2015 of additional doctoral students. The total number of law, the Ifo Institute received public funding totalling academic staff employed in the research departments 10,493 thousand euros in the reporting year. Of this (researchers, doctoral students and experts) rose by sum 10,178 thousand euros was spent on ongoing four. Two extra employees were recruited in the area costs and 315 thousand euros was used for invest- of infrastructure. ments. The Ifo Institute also had a reserve of 500,000 thousand euros, which was carried forward from the Although the number of researchers in the research previous year. Thanks to savings, especially in the area departments fell by one person, fi ve doctoral stu- of personnel costs, and to high revenues from com- dents joined them by the reference date of 31 De- missioned projects, the institute was able to set aside cember 2015. The number of specialists remained 850,000 euros in public funding as a reserve carried stable at 21 persons. As in 2014, 20 clerks and as- forward to 2016. sistants were employed in the research departments. The Ifo Institute employed a total of 53 staff in its The services provided by the Ifo Institute in its infrastructure on the reference date cited above, of various areas of activity – research, policy advisory which twelve had management responsibilities (and a work, promotion of junior economists, service and remuneration level of TV-L E 13 and upwards). As on infrastructure – further reinforced its position as the same reference date in 2014, three trainees were one of Europe’s leading think-tanks. The Executive employed by the institute. Board would like to thank all of Ifo’s staff and the members of its various bodies and councils for their Developments in fi nances in the reporting year are competent and unfl agging commitment to the insti- presented in detail in the Financial Development Sec- tute in recent years. Their contribution has driven tion. Here are the key points: the Ifo Institute’s fi nan- Ifo’s development, helping to make the institute cial situation remains solid. The Institute posted an what it is today. annual surplus of 187 thousand euros in 2015. This sum will be channelled into earmarked reserves, in- We are sure that the Ifo Institute will continue along creased the reserves to 2,069 thousand euros by this path under the presidency of Prof. Clemens Fuest 31 December 2015. As part of joint research funding and wish him every success for the future. by the German federal government and the Länder according to article 91b of German constitutional Munich, March 2016

The Executive Board

Prof. Dr. Dr. h.c. mult. Hans-Werner Sinn (President) Prof. Meinhard Knoche Research and Service Departments

Ifo Center for Public Finance and Political Economy

The research activities of the Ifo Center for Public Tax Revenue Forecast Finance and Political Economy focus on fi scal policy, November 2015 the development of public budgets under conditions revenue growth rate in billion euros of tax revenue in % of high mobility at national and local levels and po- 850 15 litical economy. Its research includes model-based 750 10 and empirical analyses, including an examination of international experiences. More specifi cally, the de- 650 5 partment focuses on public debt in Germany and 550 0 Europe, the assessment of fi scal and taxation policy, 450 -5 fi scal federalism and local fi nances. There is a special forecast of WGTF emphasis on the motives behind policy decision- 350 -10 makers’ actions from a public choice and political 250 -15 economics point of view. 1991 1995 1999 2003 2007 2011 2015 2019 Source: Working Group on Tax Revenue Forecasting (WGTF). The federal budget is analysed within the framework of short-term developments, as well as with regard to its long-term sustainability and trends in public debt. In the wake of the global public debt crisis, the depart- Projects Completed in 2015 ment is increasingly involved in sustainability analyses. Against this background its research contributes to Short- and Long-Term Policy Requirements public debate over the reform of the German taxa- to Strengthen Sustainable Growth and tion and transfer system by providing commentary Employment in Croatia and scientifi c analyses. M. Reischmann, M. Riem for the Croatian Statehood Foundation, September 2014 to December 2015. As a member of the working group on tax revenue estimates at the Federal Ministry of Finance, the Ifo The department’s part of the project focused on Institute contributes its expertise to the offi cial fore- public debt and the sustainability of fi scal policy. casts of German tax revenues. This work is based Generally, weaknesses in the respective areas on economic forecasts drawn up on a regular basis, were identifi ed and analysed, which subsequently which, in turn, are based on survey data collected by enabled the formulation of concrete policy advice. the Ifo Institute and complementary data from of- Public debt in Croatia soared after the outbreak of Croatia’s public debt fi cial statistics. By participating in the bi-annual joint the fi nancial crisis in 2009 and two thirds of pub- soared in 2009 forecast prepared by selected economic research lic debt is denominated in euros. Large contingent institutes, as well as in the report of the European liabilities stem from government guarantees for Economic Advisory Group at CESifo (EEAG), the de- public enterprises. Decreasing revenues due to low partment contributes to the analysis and forecasting economic activity and higher expenditure have re- of public fi nances in Germany, Western Europe and sulted in large government defi cits in recent years. the world. Its analysis of budgetary trends is fl anked Government spending on social security benefi ts by research on forecasting fi scal policy and the im- (mainly the pension and health system) and public pact of budgetary rules on the development of public employee salaries in particular are endangering the spending. sustainability of the government budget. This project identifi ed saving potential on the expenditure side, elaborated strategies to increase revenues, and provided a detailed overview of Croatia’s public debt structure.

25 Ifo Annual Report 2015 Ifo Center for Public Finance and Political Economy

How Much Do Large Family Firms straints, a fi rm’s business situation and expectations Contribute to German Tax Revenues? and various other investment climate indicators was N. Potrafke, B. Kauder, M. Krause, M. Reischmann, empirically tested. C. Schinke in cooperation with Ifo research professor T. Büttner, University of Erlangen-Nürnberg, Empirical Studies on Public Debt and Fiscal W. Scheffl er, University of Erlangen-Nürnberg, for Transfers the Stiftung Familienunternehmen, June 2015 to De- M. Reischmann, completed doctoral project, pub- cember 2015. lication of results in Journal of Comparative Econom- ics (forthcoming); Journal of Money, Credit and Bank- This project estimated how much Germany’s 500 ing, 2015; Economic Modelling, 2014; Perspektiven der largest family fi rms contribute to German tax rev- Wirtschaftspolitik, 2014. enues. It investigated the amount of taxes on profi ts paid by the 500 largest German family fi rms between This doctoral project consisted of research into Focus on family fi rms’ 2008 and 2013. Taxes on profi ts include business tax, public debt and fi scal transfers. It examined whether taxes corporate tax, income tax, capital returns tax and the fi scal policies pursued by the US and German the solidarity surcharge. The taxes paid are disclosed state governments are sustainable, and showed in fi rms’ profi t and loss statements. Data was con- that the results of fi scal sustainability tests depend solidated at the corporate level, taxes paid abroad on whether fi scal transfers are taken into account. were deducted and the income tax paid by partners By exploiting a new dataset on the municipal fi s- of non-incorporated fi rms was estimated based on a cal equalization scheme in a German state, this re- new survey of such companies. search explored whether the municipalities’ voting behaviour in state elections infl uenced discretionary IMPULS-Stiftung: Frame Conditions for grants by the federal state to municipalities. Gov- More Capital Investment? ernments can use “creative accounting” measures to N. Potrafke, B. Kauder, M. Krause, M. Riem in coop- hide defi cits and sugarcoat the budget balance. This eration with Ifo research professor T. Büttner, Uni- project described instances of creative accounting in versity of Erlangen-Nürnberg, A. Hönig, University of OECD countries and examined whether electoral Erlangen-Nürnberg, for the IMPULS-Stiftung, January motives infl uenced the latter. In Germany, govern- 2015 to October 2015. ments can hide borrowing by creating off-budget special funds. This project discussed the extent to This project looked at the factors infl uencing private which the new German debt brake limits and the investment in Germany and identifi es constraints on borrowing of special funds explain how the debt private investment stemming from framework condi- brake can be circumvented. tions defi ned by the German government. The main part of the study consists of an empirical analysis of how these framework conditions affect corporate Current Projects investment. Based on our empirical results, we ex- Policy proposals to boast amined potential economic policy measures and de- Tax Revenue Forecast / Income Tax II investment rived concrete economic policy recommendations C. Breuer in cooperation with H. Gebhardt, to improve the investment climate in Germany. This Rheinisch-Westfälisches Institut für Wirtschafts- research was based on a new, fi rm-level dataset, forschung (RWI), Essen, Kristina van Deuverden, Ger- exclusively available at the Ifo Institute, which com- man Institute for Economic Research (DIW), Berlin, bines the fi nancial accounts of German companies J. Boysen-Hogrefe, Kiel Institute for the World Econ- with data from Ifo’s Investment Surveys. Building on omy (IfW), Kiel, Götz Zeddies, Halle Institute for a theoretical analysis of investment decisions, the Economic Research (IWH), Halle, for the German relation between investments, the cost of capital Federal Ministry of Finance, November 2015 to (especially taxes), labour costs, capital market con- March 2016.

Ifo Annual Report 2015 26 Ifo Center for Public Finance and Political Economy

Property and entrepreneurial income in Germany’s come tax microsimulation model, which checks and, national accounts are used as an indicator for as- if necessary, improves upon many aspects of the pro- sessed income tax. On behalf of the German Min- cedure adopted in research project fe 16/13. Finally, istry of Finance a brief report was drafted as part of the results will be compiled and analysed in terms of Improving tax revenue the research project fe 16/13 that explored various increasing the accuracy of tax revenue forecasting to forecasting methodical procedures for empirically estimating the see whether a better projection rule for income tax revenue elasticity of assessed income tax compared revenue can be formulated. to property and entrepreneurial income and presented initial results. The short study analysed only Economic Effectiveness of Economic Stimu- individual aspects and the methodical approaches lus Packages in 2008 and 2009 could not be interconnected. In this follow-up study a N. Potrafke, T.O. Berg, A, Hristov, B. Kauder, M. Reis- more comprehensive methodical and empirical analy- chmann, M. Riem, C. Schinke for the Fritz Thyssen sis will be conducted to deduce the revenue elasticity Foundation, July 2013 to July 2016. of assessed income tax compared to property and entrepreneurial income that interlocks the various The Ifo Center for Public Finance and Political Econ- methodical approaches, and specifi cally provides a omy in cooperation with the Ifo Center for Business reliable identifi cation of lag structures. Cycle Analysis and Surveys is examining the economic effectiveness of the economic stimulus packages in The fi rst part of the research project more closely Germany in the years 2008 and 2009. The German examines the property and entrepreneurial income government launched two important economy stim- as the basis for the projection indicator for assessed ulus packages to counteract the negative infl uence of income tax by the Working Group on Tax Revenue the strongest recession since 1950. This project aims How fi scal policy measures Forecasting. The study investigates the difference to identify the effects of these fi scal policy measures impact the economy between property and entrepreneurial income of on the German economy. the income tax statistics and the German national accounts. This research is structured in two pillars: the fi rst pillar examines how fi scal policy measures infl uence The second to the fourth part of the research proj- the German business cycle and discusses the role of ect analyses the relationship between assessed in- business confi dence as a transmission channel for fi s- come tax and property and entrepreneurial income. cal policy measures. The second pillar examines the The research project fe 16/13 already showed that effectiveness of fi scal aid for additional investment in ad hoc short-term models based on receipt fi gures German municipalities and states. It also investigates or payment statistics can deliver good forecasting whether state governments strategically infl uence fi s- results compared to the usual practice of estimat- cal forecasts before elections. ing receipts. Additional modelling work could offer a systematic advantage. Accordingly the second part of Economic Policy, Public Finance and Firm the research project will develop further short-term Behaviour models. M. Riem, ongoing doctoral project.

It follows that the third part of this study uses econo- This doctoral project analyses various issues in the metric models to investigate the relationship be- realm of public fi nance, political economy and fi rm tween property and entrepreneurial income and in- behaviour. Special emphasis lies on empirical studies come tax revenues that take this criticism on board. investigating the relationship between the economic- The main aim will be to determine a reliable lag political framework and fi rm behaviour. Studies in- structure based on existing or additional approach- clude in-depth analyses of inheritance and gift fl ows, es. The fourth part of the study will be an empirical the interaction of politics and economics and how analysis on the revenue elasticity using the RWI in- partisanship infl uences economic policy advice.

27 Ifo Annual Report 2015 Ifo Center for Public Finance and Political Economy

Public Finance, Political Economy, and Inequality C. Schinke, ongoing doctoral project.

This project deals with various issues in the realm of empirical public fi nance and political economy. Spe- cial emphasis lies on investigating the determinants of income/wealth inequality. Studies include in-depth analyses of inheritance and gift fl ows, whether partisanship infl uences income inequality, how partisanship infl uences economic policy advice, etc.

Public Finance, Political Economy and Fiscal Federalism M. Krause, ongoing doctoral project.

This doctoral project combines research topics from the areas of public fi nance and political economy. More specifi cally, it analyses fi scal federalism schemes at local and municipal levels and possible reforms of current regulations. The project also examines the political determinants that infl uence the budget composition of the German states.

Political Economy, Financial Markets, Monetary Policy K. Jäger, ongoing doctoral project.

This doctoral project deals with the intersection of political economy and monetary policy. Amongst other things, the dissertation aims to investigate how the deregulation of banking reserve requirements contributes to monetary stability, and to reveal the political-institutional origins of foreign reserve accumulation that has taken place since the Asian Financial Crisis.

Ifo Annual Report 2015 28 Ifo Center for Labour Market Research and Family Economics

The Center’s research focus is on labour market and bution, the formulation of staffi ng policy and interna- family economics. Basic questions of the social welfare tional trade. Search and matching models are mainly state, the labour market and demographic change are used to model labour market frictions. The center key fi elds of societal action and pose major challenges also conducts research into questions of optimal in- to policymakers. Thanks to demographic change – the come taxation. ageing and shrinking of the (active) population – to- morrow’s labour market and social security system Its labour market research also focuses on the eco- will inevitably look different to today’s. Demand for nomic aspects of migration and integration issues. The qualifi ed staff will continue to grow and ensuring that department investigates the determinants of the suc- more women, seniors and immigrants participate in cessful economic and social integration of migrants, Focus on economic and the labour market will be crucial to meeting that de- the impact of immigration on employment and wage social integration of mand. Family-friendly and age-appropriate jobs will distribution, as well as the effects of globalisation on migrants play an ever greater role in the future, with a special employment and equal pay. focus on the compatibility of family and jobs. Policy drafts in these areas heavily infl uence decision-making Within its main research area of family economics, by households, families and individuals. The impact the centre focuses on the effects of selected social of macroeconomic developments on family-relevant and family policy instruments on families. Family policy decisions is also of particular interest. To better un- measures can have a wide and varied range of effects derstand the interplay of family-relevant decisions and on families. They set different incentives and infl uence policy measures, framework conditions in labour mar- the decisions and attitudes of families in different ways. kets and macroeconomic developments, the center’s Research into family economics mainly concerns the researchers examine a broad spectrum of application effects of family policy measures on the compatibil- oriented topics from the labour and family economics ity of family life and a career, on fertility decisions by markets. couples and on the development of children.

The center attaches great importance to combining In the area of family and career compatibility, the theoretical analysis with microeconometric valida- center’s research examines parents’ decisions over tion. Policymakers are often interested in how cer- whether to accept jobs. Their reactions depend on Policy measures to tain policy measures causally affect previously defi ned the type of family policy measure considered. If the improve family and career target variables. In terms of methodology, another measure in question is infrastructural – such as the compatibility focus of the center is therefore micro-econometric expansion of publicly-funded childcare for toddlers, evaluation studies, whereby the causal effects of so- for example – parents, and primarily mothers, tend to cial, family and labour market policy measures on the react by working longer hours. If, on the other hand, interface of family and labour market economics are higher monetary benefi ts are paid to families, moth- identifi ed using quasi-experimental methods. This ers tend to work less. Alternative treatments of fami- not only provides policy decision-makers with valu- lies in income law also provide different incentives to able information on the effects of policy measures, work. Another key research area assesses the impact but the methods used to obtain this information are of policy measures to improve the compatibility of also at the cutting edge of empirical labour market family and a career on child development. research. Against a background of demographic change, the In the fi eld of labour market economics a research department analyses the impact of infrastructural group focuses on the theoretical analysis of search and monetary state family benefi ts on parental fertil- and matching processes in labour markets, with a ity decisions. In this context research also explores focus on frictions and institutions. This research in- the implications of economic uncertainty – stemming vestigates the impact of frictions and institutions on from limited employment contracts – on decisions by the rate of unemployment, its duration, wage distri- young couples to start a family.

29 Ifo Annual Report 2015 Ifo Center for Labour Market Research and Family Economics

Preconditions for Founding a Family term employment and fertility, as well as negative im- Requisite conditions prior to birth of first child pact on mental health. Women who start their career A. Secure financial basis B. Compatibility with career with a limited-term contract tend to postpone enter- % 90 ing motherhood. Ten years after labour market entry 80 76.9 77.9 76.9 74.8 these women tend to have fewer children than those 70 67.8 64.6 64.2 64.0 who start their career with a permanent contract. This 60 50 pattern is particularly pronounced for women without 40 a university degree. However, if men enter the labour 30 market with a temporary job, neither their family plan- 20 ning nor their mental health status is affected. Thus, 10 men deal far better with the pressure and uncertainty 0 Men Women Men Women induced by a temporary ﬁ rst job. A potential explana-

Unlimited contract Fixed-term contract tion for these fi ndings is the increased likelihood of Note: Childless men and women, 24–29 years old. repeated spells in temporary employment if a woman Source: Pairfam 2009; calculations by the Ifo Institute. starts her career with a limited-term contract. This negative path dependence implies high levels of stress In its family economics research the centre also ex- and uncertainty; and ultimately impedes family forma- Analysis of marital plores the causes and consequences of marital and fa- tion and reduces mental well-being. instability milial instability. Economic factors infl uencing divorce rates are taken into consideration, the impact of their parents’ separation on children is examined, and the Current Projects policy mechanisms for infl uencing the stability of marital relations are evaluated. Moreover, attitudes to Economic Uncertainty and the Family the role of women in family and professional life and (EcUFam) with regard to the division of work within families are N. Danzer, H. Rainer, B. Schulz, W. Auer, T. Hener investigated. Further analysis looks at the impact of supported by the Leibniz Association, July 2015 to changes on unemployment rates and the frequency June 2018. of domestic violence against women. Can changes in fertility decisions by couples be attributed to demand-induced changes in labour mar- Projects Completed in 2015 ket opportunities? Are people more likely to marry in recessions or in booms? Does youth unemploy- Uncertainty in the Labour Market: How ment affect intergenerational relations? To improve Does Fixed-term Employment Affect the our understanding of the relationship between busi- Fertility and Mental Health of Younger ness cycles and family-related decisions in Europe, Ifo People? establishes the working group EcUFam (Economic N. Danzer, W. Auer for the Institute for Structural Uncertainty and the Family). Research on the extent Research, August 2014 to February 2015. and importance of economic uncertainty as induced by poor macroeconomic conditions for key family Starting a career with a limited-term contract has outcomes including fertility, marriage and divorce, unintended consequences for young professionals: intergenerational relationships, gender-role attitudes The impact of limited-term limited-term employment and the inherent economic and infant health will be conducted deploying a vari- contracts uncertainty that it entails has negative effects on fam- ety of methods and datasets. The working group is ily formation and the mental health conditions of the located at Ifo, but both the scope of its research as individuals concerned. Empirical analyses based on the well as its scientifi c network will be European, with German Socio-Economic Panel (SOEP) from 1996 to project partners and supporting institutions in Italy, 2012 show a negative relationship between limited- Sweden and the United Kingdom.

Ifo Annual Report 2015 30 Ifo Center for Labour Market Research and Family Economics

Monetary and non-monetary beneﬁ ts of a Essays on Family and Labour Economics doctoral degree N. Danzer, ongoing habilitation project, publication H. Rainer, W. Auer, A. Fichtl, T. Hener, M. Piopiunik, of partial results in Ifo Working Paper No. 169, 2013; funded by Institute for Innovation and Technology, No. 190, 2014; CESifo Working Paper No. 4488, 2013; Berlin, June 2015 to January 2016. No. 4855, 2014.

Education pays off. Higher education entails higher in- Demographic change constitutes a major challenge for come and lower unemployment risk for individuals. the labour market and the social security system. This Moreover, non-monetary benefi ts like higher life or job habilitation project explores the interactions between satisfaction as well as positive returns for society may labour market and demographic developments. On be generated by investments in postgraduate education. the one hand the project investigates the importance Relations between Benefi ts for society include increases in welfare levels of different forms of economic uncertainty (atypical the labour market and in terms of stronger social cohesion or greater political employment, unemployment and the risk of unem- demographics participation, for example. The study focuses on doc- ployment over the course of an economic cycle) in toral students and analyses their monetary and non- couples’ decisions regarding the size of their family. In monetary returns on an individual basis and for society this context different potential impact channels are in general. also analysed more closely. On the other hand, the project also looks at the question of how far policy re- Firstly, this feasibility study delivers a review of the reforms designed to support the compatibility of a family search fi ndings of both international and national em- and a career and to reduce job insecurities directly im- pirical studies on the returns on a doctoral degree. It pact not only labour market decisions by parents, but analyses the empirical methods applied and the data also indirectly infl uence the development of children. sources exploited. Secondly, the German datasets available are evaluated regarding their information, The Economics of Labour Markets and the sample sizes, and representativeness. Finally, we out- Family line a modelling approach to quantify the monetary T. Hener, ongoing habilitation project, publication of and non-monetary returns on a doctoral degree for partial results in CESifo Working Paper No. 4776, 2014; individuals and for the society. No. 5313, 2015; ifo Schnelldienst 67(10), 2014; 67(24), 2014; CESifo DICE Report 12(1), 2014 ; Journal of the Optimal Immigration Policies in Europe: European Economic Association, forthcoming; Journal of From Confl icting Interests to Mutual Gains the Royal Statistical Society: Series A, forthcoming; Re- H. Rainer, J. Saurer, supported by the Leibniz Associa- view of Economics of the Household, forthcoming. tion, January 2012 to December 2015, publication of partial results in CESifo Working Paper Nr. 4959, 2014. Decisions made by households, families and individuals are pivotal to demographic development issues The Ifo Center of Excellence for Migration and In- like ageing societies and low birth rates. This habilita- tegration Research (CEMIR) combines expert and tion project is concerned with the interplay of family specialist knowledge from various research insti- and labour market policies, macroeconomic develop- tutes, several countries and different economic fi elds ment and microeconomic decisions. The project uses Focus on interplay of (see chapter on International Institutional Compari- a life-cycle perspective to create a complete picture. family and labour market sons and Migration Research). In the framework of Sub-projects investigate the interplay of assortative policies CEMIR the Ifo Center for Labour Market Research matching in marriage markets and education using in- and Family Economics mainly focuses on the impact ternational micro data. It also weighs the importance of immigration on employment and investigates the of family and labour market policies in the decision to determinants of the successful economic and social start a family. The early life circumstances of children integration of immigrants. form the focus of studies on the impact of macroeconomic shocks and early childhood education.

31 Ifo Annual Report 2015 Ifo Center for Labour Market Research and Family Economics

Effects of Day Nursery Rates on Birth Rates Per investigates the effect of the sudden growth in an Year of Mother’s Age ethnic group on both the labour market situation of 0.12 local inhabitants and on their electoral behaviour. On 0.11 90% confidence interval the other hand, the doctoral project looks at the in- 0.10 tegration behaviour of migrants. The use of almost 0.09 experimental identiﬁ cation strategies should make it 0.08

0.07 possible to reveal real causal relations. The analyses

0.06 are based on micro data sets like Mikrozensus, SOEP, 0.05 ALLBUS and NEPS. 0.04 0.03 Essays on Assortative Matching in Labour 0.02 and Marriage Markets 0.01 17 19 21 23 25 27 29 31 33 35 37 39 41 43 B. Schulz, ongoing doctoral project, publication of age partial results in Ifo Working Paper No. 199, 2015. Regression results from fixed-effects model per year of mother’s age, taking into account the control variables in the base regression. Source: German State Statistics Offi ces, German Federal Statistics This dissertation project analyses labor and marriage Offi ce; calculations by the Ifo Institute. market models with search frictions and two sided heterogeneity both theoretically and empirically. The Public Finance, Globalisation and Labour focus lies on assortative matching, that is, the exis- Markets tence of an optimal matching partner driven by com- C. Holzner, ongoing habilitation project, publication plementarities in production, which has important im- of partial results in Journal of Macroeconomics, 2010; plications both for the stationary equilibrium and the CESifo Economic Studies, 2010; Zeitschrift für Arbeits- model’s dynamics. A labour market model with assor- marktForschung 46 (2), 2013. CESifo Working Paper tative matching can explain certain empirical regulari- No. 3597, 2011; No. 3522, 2011; No. 3472, 2011; ties in the labour market more effectively than models No. 5275, 2015; No. 5245, 2015. with representative agents. The empirical part of the dissertation examines the prevalence of complemen- Labour markets are not perfectly competitive, but are tarities and assortative matching in the labour market governed by all kinds of frictions. Search and matching using structural econometrics and register data. Ad- theory therefore concentrates on information imper- ditionally, a comparable model with heterogeneous fections and associated mobility frictions. The habilita- agents is constructed for the marriage market. It al- Frictions in labour markets tion project aims to understand the freedom enjoyed lows for the analysis of fl uctuating marriage and di- by fi rms in designing labour contracts, the infl uence of vorce rates in the light of economic uncertainty. different wage mechanisms, and the impact of trade liberalization in an imperfect labour market. The exis- Essays on Economic Uncertainty and the tence of frictions can also justify government interven- Family tion in the labour market. The project therefore also F. Siuda, ongoing doctoral project, since 1 October looks at how far the current income tax system can be 2015, in the framework of the project “Economic justifi ed by labour market frictions. Uncertainty and the Family” (EcUFam), supported by the Leibniz Association, July 2015 to June 2018. Essays on the Economics of Migration J. Saurer, ongoing doctoral project, publication of par- Essays on Economic Uncertainty and the tial results in CESifo Working Paper No. 4959, 2014. Family P. Reich, ongoing doctoral project, since 1 Septem- In the framework of a doctoral project two differ- ber 2015, in the framework of the project “Economic ent aspects of migration are investigated at a mi- Uncertainty and the Family” (EcUFam), supported by croeconometric level. On the one hand, the project the Leibniz Association, July 2015 to June 2018.

Ifo Annual Report 2015 32 Ifo Center for the Economics of Education

Modern growth economics identifi es the generation and social participation in a society that is evolving of knowledge as a primary determinant of long-term at an increasingly rapid pace. In 2015, as part of an economic growth. Knowledge generation includes FP7 project funded by the European Commission, the both the development of individual competencies and center used international data on adult competencies the generation of new knowledge that advances the to estimate the fi nancial returns on skills, or the la- Assessing the fi nancial world’s technological frontiers. However, little can bour-market rewards for higher competencies in the returns on skills be learned from such general macroeconomic inform of higher earnings. Moreover, the center started sights for concrete policy-making at the micro level. a research project on the importance of school-leav- The research programme followed by the Ifo Center ing grades to the hiring decisions of fi rms based on a for the Economics of Education therefore asks which survey of human resource managers. It also focuses kind of knowledge matters most for prosperity, what on the dual vocational education system, a key pil- determines knowledge generation, and what kind of lar of human capital formation in German-speaking policy can contribute to promoting the generation of countries, combined with the relative importance of knowledge? The center thus analyses how education vocational and general education for productivity. policies can advance the knowledge base of highly- Furthermore, the center investigates the opportuni- qualifi ed future workers and the innovative capacity of ties and limitations of adult education, training and the economy. To understand which policies work, the life-long learning. center primarily employs microeconometric methods that allow for quasi-experimental evaluation – tech- Education and Long-Term Development: niques that are increasingly proving indispensable in Economic Growth and Prosperity a wide variety of contexts, but are rarely used in this Beyond its individual impact, education is also crucial crucial area in Germany. to the prosperity of society at large and economic development in the long run. One focus in this area is Education systems generate the human capital of a on the role that education in the form of the results well-educated workforce that is of crucial importance of international achievement tests plays for economic for the global competitiveness of modern economies growth and social cohesion today. Another focus is exposed to an ever-changing world. In the long run, on a historical perspective, looking at questions like, only continuous advances in knowledge allow econo- for example, how the diffusion of education before Education and prosperity: mies to escape worldwide low-wage competition. and during industrialization changed historical de- a historical perspective Moreover, education is a crucial determinant of eq- velopment. In addition, the historical perspective is uity and participation in society. By investigating which combined with the modern perspective by assessing policies infl uence the development of human capital, the long-term effects of historical circumstances on the Ifo Center for the Economics of Education ex- economic development today. This year, a project fi - plores public policies for growth and cohesion in a nanced by the Kern Family Foundation analysed the changing world. Specifi cally, the center’s research is role of human capital in determining differences in structured into four areas that address political and economic development across US states. other determinants of education on the one hand and its effects on individual and societal prosperity Determinants of Education: Culture, on the other. Resources and Institutions Given the central importance of education for the Education and Individual Outcomes: Labour prosperity of individuals and societies, the third re- Markets and Lifecycles search area studies the determinants of educational The fi rst research area analyses the importance of performance. A particular focus is placed on three education for individual opportunities in the labour groups of determinants: families, values, and norms market and in everyday life, focusing on individuals (culture), resources spent on education, and the insti- and their employment lifecycles. It studies the role tutional framework of the education system. The re- of competencies and skills for individual employability search that analyses these determinants often draws

33 Ifo Annual Report 2015 Ifo Center for the Economics of Education

on rich micro data from various international student Education is an important foundation for competitive- achievement tests. In 2015, the center contributed to ness in the labour market. Since this is not only true for the National Education Panel (NEPS) which collects generations of future workers who are still in school, longitudinal data on education processes in Germany. but also for those who are in their 30s, 40s and 50s Current research also focuses on such topics as the today, lifelong learning is essential to continued em- integration of children with migration backgrounds in ployability. However, little was known about the skills the education system, the effectiveness of teachers, that adults actually have and how these affect – at the and e-learning. individual level – wages, job mobility, and the risk of unemployment as well as – at the macro level – an Governance of Education: Effi ciency and economy’s innovativeness and growth prospects. This Equity project attempted to shed light on these questions. The fourth research area focuses on how political governance of education systems affects educational To answer these questions, the project drew heavily success and equity. Central elements of the gover- on the Programme for the International Assessment nance of education systems studied in this area include of Adult Competencies (PIAAC) survey conducted autonomy, exam systems, competition, and tracking. by the OECD in 24 countries. PIAAC was designed to The area also studies the feasibility of governance measure key information processing skills that individu- structure reforms and their acceptability among the als need to advance in their jobs and participate in so- population. In 2015, the results of the fi rst Ifo Educa- ciety. Simon Wiederhold and Ludger Woessmann, in Results of fi rst tion Barometer were presented – an opinion survey cooperation with the Ifo Research Professors Eric A. Ifo Education Barometer on education policy in Germany conducted by the Hanushek (Stanford University) and Guido Schwerdt published center and funded by the Leibniz Association under (University of Konstanz), measured how labour mar- its competitive funding scheme. Furthermore, the kets reward skills. They estimated the returns to skills center coordinates the European Expert Network as the increase in hourly wages when skills increase by on Economics of Education (EENEE), a Europe-wide one out of fi ve profi ciency levels in PIAAC. The results think tank funded by the European Commission. Ulti- showed that higher cognitive skills are systematically re- mately, the evaluation of policies with (quasi-) experi- lated to higher wages in all countries. The effect size mental methods aims to bring evidence-based policy of the returns is economically important: on average, advice into the political decision-making process. an increase in numeracy skills by one out of fi ve profi - ciency levels in PIAAC is associated with an increase in wages by 18 percent across countries. But perhaps the Projects Completed in 2015 most striking fi nding from the international analysis was the substantial variation in returns to skills across coun- LLLight’in’Europe: Lifelong Learning, In- tries. Estimated returns to skills in the countries with the novation, Growth & Human Capital Tracks highest returns (the United States, Ireland, and Germa- in Europe ny) were roughly twice as large as in the countries with S. Wiederhold, L. Wößmann, part of a consortium the lowest returns (Sweden, the Czech Republic, and funded by the European Union under the FP7 frame- Norway). Eight countries, including all Nordic countries, work programme, October 2012 to September 2015, had returns between 12 and 15 percent, whereas six publication of results in European Economic Review countries were above 21 percent with the largest re- 73, 2015 (also published as: NBER Working Paper No. turn being 28 percent in the United States. 19762, 2013); four Analytical Reports for the Euro- pean Commission in 2015; methods data analyses – Other LLLight’in’Europe research dealt with the Journal for Quantitative Methods and Survey Methodol- measurement of skill mismatch between occupa- ogy 8(2), 2014; ifo Schnelldienst 66 (22), 2013; DSW tions. Together with Anja Perry (GESIS Mannheim) Journal 8(4), 2013; dis.kurs 20(4), 2013; Freie Bildung und Daniela Ackermann-Piek (GESIS Mannheim und und Erziehung 90(1), 2014. University of Mannheim), Simon Wiederhold used in-

Ifo Annual Report 2015 34 Ifo Center for the Economics of Education

dividual skill data from the PIAAC survey to improve only how important human capital is in explaining existing measures of skill mismatch, which are typi- income differences across states, but also what evi- cally based on self-reports. dence says about the gains that can be expected from improved schools. In joint work with Ljubica Nedelkoska and Frank Nef- fke (both Harvard University), Simon Wiederhold in- This project developed new estimates of the hu- Effects of human capital vestigated the role of skills in explaining the costs of man capital stock of workers in each state. These on state income and its job displacement. The authors found that displacement estimates, which combine school attainment and growth increases occupational switching and skill mismatch, pri- achievement for workers, formed the basis of an in- marily because displaced workers move to less skill-de- vestigation into how human capital affects aggregate manding occupations. The negative earning effects as- state income and income growth. sociated with displacement were mostly driven by these moves, while workers moving to more skill-demanding Developing the combined measures of human capital occupations had similar earning losses as stayers. is diffi cult. While information on the school attainment of the labour force is readily available from cen- LLLight’in’Europe also offered a comprehensive, open sus data, details of its achievements are not. Regular online course (MOOC) entitled “Solution and In- student testing in each state gives information on novation Skills.” With this online-course, the partner workers who live in the same state in which they universities took up the topic of innovation and par- were educated, but this information is insuffi cient due ticipants learned how to develop and implement new to extensive migration across states and signifi cant ideas. Besides the Ifo institute, researchers from such immigration from abroad. Moreover, past analysis institutions as the Harvard Business School, the MIT suggests that both internal migration and interna- Media Lab, the Harvard Kennedy School, and the Uni- tional immigration are highly selective. Understand- versity of Luxembourg helped to develop the course. ing the state distribution of skills can be investigated by tracing workers back to their place of education. The main project results delivered by the Ifo Institute This research integrated information on the quality of were published in four Analytical Reports, which can education in the state or country of schooling with be accessed on the LLLight’in’Europe website (www. the distribution of workers in the labour market of lllightineurope.com). All results from the project were each state in order to estimate the quality of work- discussed with policy-makers, practitioners, and re- ers. Considering varied migration patterns by level of searchers at the LLLight’in’Europe Final Conference education also made it possible to control for the se- held in September 2015 in Brussels. lectivity of migration.

The ﬁ rst component of the analysis pursued an ac- US State Human Capital counting exercise to understand how much of the L. Wößmann, J. Ruhose, S. Link, M. Piopiunik, very large difference in incomes of states can be ex- G. Schwerdt in cooperation with Ifo research pro- plained by human capital differences as opposed to fessor E. Hanushek, Stanford University, for the Kern other factors like capital stocks. The basic idea was to Family Foundation, September 2012 to April 2015. use existing research into how various inputs affected main part of the project published as NBER Working outcomes and income in order to estimate the im- Paper No. 21295, 2015. pact of different factors on the incomes of states. We used the new human capital measures in such devel- States unquestioningly believe that developing the opment accounting analyses calibrated with standard Human capital differences achievement and skills of their youngsters is a top production parameters. Our ﬁ ndings revealed that and GDP policymaking priority, but existing evidence on the differences in human capital account for 20 –35 per- economic implications of improving education for cent of the current variation in per-capita GDP among states lacks clarity. The project team evaluated not states, with roughly even contributions by school at-

35 Ifo Annual Report 2015 Ifo Center for the Economics of Education

tainment and cognitive skills. In some ways this ﬁ gure The cross-state growth models provided a clear pic- was surprisingly high, because both labour and capital ture of the importance of school improvement for are free to move across states – and thus to tend to economic outcomes. As seen in Figure 1, enhanced equalize rewards to workers of different skills. Simi- student achievement yields gains in state economic lar results emerged from growth accounting analyses. growth – and the impact is quite substantial. In this related analysis, we investigated how much of the growth in income seen in the United States came We considered a range of improvement policies and from human capital. Looking at growth between 1970 then estimated the economic impact of each measure and 2007, we found that human capital improvements for the state in question. The various scenarios included: explained a similar portion of the growth as in the – Increasing average achievement by ¼ standard prior analysis of state income differences. deviation.

The second major component of the work was its – Bringing each state up to the best state (Minnesota). consideration of the implications for educational re- – Bringing each state up to the best in the geographic Focus on educational form. To this end, we ﬁ rst estimated models of state division. reforms economic growth that parallel cross-country growth – Bringing all students in a state up to the NAEP models. This estimation built on the development of basic level. measures of the human capital stock from the prior accounting analysis. The cross-state growth models were – Scenario I with single state improvement. virtually identical to the results from the cross-country growth models. As a result, we were able to rely on Calculating the economic impact was straightfor- the extensive analysis of causality from the interna- ward. We were able to estimate the expected tional analyses to support the use of these models for growth of a state into the future with the current lev- projecting the economic impact of school reform. el of skills of workers, and this path was compared to the path that would be achieved with better schools Test Scores and Economic Growth across US States (according to the previous scenarios). The estimated

Conditional GDP per capita growth, 1970–2010 in % impact used the previously estimated state growth 3.0 models and projects GDP per capita. GDP gains ND were subsequently discounted, so that near term CT VA LA SD gains were given more weight than gains in the more 2.5 MA MD TX NE NJ NY distant future. CO NH MN GAOR NC RI KS WA AL UT TN IL IA 2.0 CA MS OK AR PA WI The economic impact varied considerably, based HI IN ME NM SC KY MOFL VT on differences in the current economic and human OH MT WV NV ID AZ capital positions of each state. For example, gains in 1.5 MI economic outcomes from bringing all students up to basic skills were relatively low in North Dakota 1.0 and Massachusetts, where the fewest low-perform- 450 460 470 480 490 500 510 Conditional average test score ing students are currently found, and rather high in Alabama and California, where the greatest number Notes: Added-variable plot of a regression of the average annual rate of growth (in percent) of real GDP per capita in 1970 –2010 on the of low-performing students are found. But even in initial level of (log) real GDP per capita in 1970, average test scores North Dakota and Massachusetts, the present value adjusted for interstate migrants by education and for international of gains (over the lifetime of somebody born today) migrants by the 90th percentile in country of birth in 1970, average would amount to 70 percent of current state GDP. years of schooling in 1970, and (log) real physical capital per worker in 1970 (mean of the unconditional variables added to each axis). For the states farthest from having all at basic levels, Source: E. Hanushek, J. Ruhose and L. Wößmann, Economic Gains it would amount to over three times their current for US States from Educational Reform, 2015, mimeo. state GDP.

Ifo Annual Report 2015 36 Ifo Center for the Economics of Education

The conclusion is that there are enormous economic families, namely those families that do not speak the gains to be had from improvement of schools. The language of the testing country at home, are disadvan- largest gains come from a coordinated improvement taged in early tracking systems. This project pooled in performance – since states are all linked by ﬂ ows all available international achievement tests (PISA, of people over time. But even ignoring the impact of TIMSS, and PIRLS) and compared the migrant-native migration, it is clear that each state can promote a achievement gap in test scores between primary and better economic future for its citizens through edu- secondary schools. The identiﬁ cation strategy made cational reform. use of the fact that no country has tracked students in primary schools and that some countries have Microeconometric Analyses of the Economic tracked students in secondary schools. Consequences of Selective Migration J. Ruhose, completed doctoral project, publications as The third and the fourth studies covered the effect ifo Beitrag zur Wirtschaftsforschung No. 61, Ifo Institute, of immigration on the host societies along two di- How immigration affects Munich 2015, and of partial results in CESifo Working mensions: native income mobility and crime. The host societies Paper No. 4992, 2014; No. 5248, 2015; No. 5303, 2015. third study looked at the impact of immigration on the intergenerational income mobility of natives in US This dissertation aimed to deepen understanding of metropolitan areas. A priori, it was unclear whether migrants’ performance in host societies and their im- immigration should increase or decrease the impor- pact on native citizens. Given the large increase in the tance of socioeconomic background to the success of migrant population of many developed countries, it is native children. The study documented that the pres- important to know both how migrants integrate into ence of migrants mitigates the importance of family host countries and how immigration affects natives. background by nudging children to invest more in ed- This thesis began by documenting that migration is a ucation, which provides them with the wherewithal highly selective process and that selective migration to choose occupations that are complementary to has important implications for labour force quality. the skills and occupations of migrants.

The main part of the doctoral project consisted of The fourth study investigated the impact of immigra- four self-contained studies. The fi rst study quantifi ed tion on crime. To explore this relationship for Ger- non-pecuniary migration costs incurred due to selec- many, we looked at the infl ow of ethnic German im- tive migration along cultural traits within Germany. migrants after the fall of the Iron Curtain. Using the This project proxied cultural distance between Ger- administrative allocation of ethnic Germans across man counties with their historical dialect distance. German Länder as a quasi-natural experiment, we This information was merged with administrative so- found that ethnic Germans substantially increased cial security panel data to calculate the wage that is crime rates in their assigned counties, whereas the demanded for moving to a culturally different county. current perception in the literature is that the average The results gave a lower-boundary estimate of psy- migrant does not substantially increase crime. Howev- chic migration costs, which are economically substan- er, by looking at a group of immigrants with low occu- tial. That shows that internal migrants in Germany pational and language skills, but who were granted im- need to be compensated for overcoming cultural mediate citizenship upon arrival in Germany, we found barriers in migration. that migrants can increase the crime rate substantially. Relations between Our research also revealed that pre-existing regional migrants and crime The second study focused on the school system as economic conditions matter in the migrant-crime re- a tool for integrating migrants. It is documented that lationship. Here we found, for instance that counties comprehensive schooling, or the abolition of early with low unemployment rates prior to the assignment between-school tracking based on ability, might not of ethnic Germans did not experience an increase in be an appropriate way to foster the integration of crime. Thus, integrating migrants quickly into the la- migrants. However, children from the least integrated bour market is a good crime prevention strategy.

37 Ifo Annual Report 2015 Ifo Center for the Economics of Education

Current Projects The German population, for instance, supports the introduction of free pre-school education, of com- The Political Economy of Education Policy: pulsory quality standards in preschool, of nation- Insights from a Public Opinion Survey wide standardised tests in Math and German for L. Wößmann, P. Lergetporer, F. Kugler, L. Oestreich, certain school grades, of nationwide compulsory K. Werner, funded by the Leibniz Association, January quality standards in pre-school, and of standardised 2014 to December 2017, publication of fi rst results in nationwide fi nal examinations for all school types. ifo Schnelldienst 67(18), 2014, ifo Schnelldienst 68(17), Furthermore, the German public generally supports 2015; Harvard Kennedy School PEPG Working Paper the introduction of all-day schools. Importantly, No. 15-02, 2015 however, a survey experiment shows that public support depends on the length of the schooldays. Empirical research has produced many insights into The majorities of respondents in those random sub- how education policies could be altered to improve groups who were asked about the introduction of educational outcomes. But political actors are fre- all-day schools until 3 pm respectively 4 pm support Political resistance to quently reluctant to carry out reforms supported by this policy proposal (61 and 56 percent). In contrast, reform high-quality research. One important reason for this only a plurality of respondents (47 percent) in an- discrepancy between evidence and action could be other random group supports all-day schools until that political actors are responsive to the opinions 5 pm. Furthermore, the majority of respondents of voters and of well-organised interest groups. A supports the abolition of the Betreuungsgeld (a sound grasp of the electorate’s opinions on educa- subsidy paid to parents who do not take advantage tion policy and its malleability, through information of public child care), free primary school choice for campaigns, for example is therefore crucial to under- parents and a lifting the constitutional prohibition of standing education policies and outcomes. cooperation between the federal government and the federal states in the fi eld of education. Interest- The aim of this project is to better understand the ingly, the opinion of parents on education policies public opinion on a broad range of topics in educa- resembles the opinion of the rest of the German tion policy. We conduct therefore, conduct three public on most issues. waves of a representative opinion survey of the adult German population on education policy each year Close cooperation with the “Program on Education from 2014 to 2016. In order to study the causal ef- Policy and Governance” (PEPG) at Harvard Univer- Information and public fect of information provision on public opinion, we sity and the University of Bern, which conduct similar opinion administer “survey experiments” in which a randomly surveys in the US and Switzerland, respectively, con- selected subgroup of respondents is provided with stitutes another key aspect of the project. In 2015, a certain pieces of information before answering a fi rst study comparing public opinion in the US and question common to all respondents. Comparing the Germany was published. answers of both subgroups allows us to quantify the causal effect of the respective information on pub- As part of the project, a workshop on “Public Opin- lic opinion. The second survey wave was conducted ion and the Political Economy of Education” was held in May 2015 and focused on parents of children of jointly with PEPG on May 8, 2015 at the Ifo Institute. compulsory school age. In order to make represen- Additionally, in line with the subject of the project tative statements about the opinion of parents, we the Ifo Center for the Economics of Education orga- also sampled over 1,000 parents of children aged nized the content of this year’s Forum on Educational 6 to fi fteen years on top of the representative master Policy of the Leibniz Education Research Network. sample of more than 3,000 respondents. The event took place on October 1st, 2015, in Berlin on the subject “Acceptance and realization of edu- The results show a remarkable willingness to reform cational reforms: How we can exploit potentials in the educational system among the German public. education”.

Ifo Annual Report 2015 38 Ifo Center for the Economics of Education

Should Germany Introduce Full-time Schools? EENEE performs the following concrete tasks: pre-

Clear majority in favour of full-time schools until 3 or 4 pm – paring analytical reports, writing policy briefs, provid- opposition increases for schools until 5 pm ing guidance and advice on concrete questions of the Commission in the ﬁ eld of the economics of educa- School until 3 pm School until 4 pm tion that emerge occasionally on an ad-hoc basis,

10% offering support with conferences and meetings on 22% 14% 21% the economics of education, maintaining a website on 19% Economics of Education in Europe (www.education- 22% economics.org), mapping experts and organisations 9% 39% 8% 35% in this area, and providing references to key topics in

School until 5 pm the economics of education.

15% 19%

23% 32%

11%

E uropean E xpert N etwork on Fully favour Economics of Education (EENEE) Somewhat favour Neither favour nor oppose Innovations in education for better skills Somewhat oppose and higher employability Fully oppose

Source: Ifo Education Survey 2015. For more details see ifo EENEE Analytical Report No. 23 Prepared for the European Commission Schnelldienst 68(17), 2015, 29 – 50.

Torberg Falch and Constantin Mang March 2015 European Expert Network on Economics of Education, EENEE L. Wößmann, R. Schüler, F. Kugler, U. Baldi-Cohrs in cooperation with senior experts from leading Euro- pean and non-European universities, research institutes and international organisations on behalf of the European Commission, Directorate General Educa- 23 tion and Culture, 2013 to 2016.

The European Expert Network on Economics of Educa- tion (EENEE) is a network of leading European centres EENEE published four analytical reports in the year and experts on the economics of education. As an EU 2015. Report no. 21 examines how reducing inequal- Four EENEE reports Think Tank, the network is sponsored by the European ity in education and skills can have an impact on eco- published in 2015 Commission, Directorate-General for Education and nomic growth. Report no. 22 analyses how education Culture (DG EAC) and coordinated by the Ifo Institute. and training can be used to prevent and combat youth EENEE aims to contribute to the improvement of deci- unemployment. Report no. 23 examines whether and sion-making and policy development in education and how innovations in education can be used to improve training in Europe by advising the European Commis- skills and employability. Report no. 24 looks at the im- sion in the analysis of economic aspects of educational pact of school size and school consolidations on quality policies and reforms and supporting the dissemination and equity in education. Three additional reports are of knowledge on the economics of education in Europe. in progress. One of these reports deals with student

39 Ifo Annual Report 2015 Ifo Center for the Economics of Education

debt and different fi nancing schemes in higher educa- choose between two fi ctitious CVs. Those CVs are tion. Another report examines the incentive mecha- randomised with respect to exit exam grades, the nisms that can be used to hire and keep high-quality federal state in which the exit exam was obtained, teachers. Another report investigates how education and additional characteristics. This allows identifying can be used as a tool to integrate migrants. and quantifying the causal effect of the randomised elements on the probability of being employed. The Five Policy Briefs published Furthermore, fi ve Policy Briefs summarising important second part of the inquiry includes a questionnaire on in 2015 aspects of the economics of education in a concise the personal characteristics of HR managers and on way were published in 2015. Beside the topics of the the importance of various CV elements for actual hir- mentioned Analytical Reports, one Policy Brief ex- ing decisions. A fi rst pre-test was conducted to test amines whether public procurement can be used to the randomised CVs and the questionnaire before promote apprenticeships. In total, the network has entering the fi eld phase in the next step. Multivariate published 19 Policy Briefs. econometric methods will be used for data analysis. Overall, the project aims to clarify whether, and how Exit Exams as a Governance Instrument strongly, fi rms take into account the individual ele- in the School System: The Importance of ments of school exit degrees in their hiring decisions. School-Leaving Grades for the Hiring This knowledge enables us to draw inferences as to Decisions of Firms the potential long-run repercussions on the incentive L. Wößmann, M. Piopiunik, L. Simon, A. Jacob-Puchals- structures in the school system that could be caused ka, F. Kugler, funded by the German Federal Ministry of by increasingly centralising exit exams. Education and Research, March 2014 to February 2017. Acquisition and Utilisation of Adult Skills – The results of the previous project “Central Exit Ex- A Network for Analysing, Developing and ams as a Governance Instrument in the School Sys- Disseminating PIAAC tem: Labour-Market Effects, Transmission Channels L. Wößmann, S. Wiederhold, F. Hampf, part of a con- and Effect Heterogeneity” reveal that central exit sortium headed by GESIS, funded through the Leibniz exams have long-term implications for an individual’s Competition, February 2015 to January 2018. success on the labour market. However, the observed positive association between central exit exams and The Programme for the International Assessment of labour-market success, as well as the role played by Adult Competencies (PIAAC) provides up-to-date school-leaving grades in hiring decisions in general, is information on key adult skills in 24 countries. This not yet fully understood. Based on an extensive sur- data will be used to carry out further research on vey of human resources managers, this projects aims the acquisition and utilisation of skills. In a fi rst step, to shed light on the general importance of school the Ifo Center for the Economics of Education – in grades to the hiring decisions of fi rms, the importance collaboration with other Leibniz institutes, headed by of school-leaving grades to the hiring decisions of fi rms GESIS – will evaluate existing skill measures in PIAAC School grades and for apprenticeship positions, the importance of school- and compare them to other available skills measures. corporate hiring leaving grades to hiring decisions when another impor- In addition, alternative measures will be developed tant productivity signal (e.g. university grade) is subse- and subsequently tested using data from the Ger- quently acquired, as well as whether the importance of man longitudinal PIAAC survey. In a second step, the school-leaving grades to hiring decisions depends on project aims to improve the understanding of the the degree of centrality of school exit exams. causal effects of skills on labour-market outcomes using improved identifi cation methods. Furthermore, The project is based on an extensive survey of a rep- German PIAAC data will be linked to administrative resentative sample of human resources managers data of individuals’ employment histories. This linking in Germany. The fi rst part consists of a randomised aims to improve future waves of PIAAC background experiment, in which HR managers were asked to questionnaires in terms of questions of education and

Ifo Annual Report 2015 40 Ifo Center for the Economics of Education

employment histories. Finally, the PIAAC data and ment that include teacher fi xed effects. Based on project results will be communicated to the scientifi c the estimated distribution of teacher quality, we can community and to stakeholders from politics and in- quantify the effects of having an “effective” teacher dustry. on student achievement. A second key goal of the Teacher quality and its project is to study the determinants of teacher qual- determinants National Education Panel (NEPS) ity. The NEPS survey information exceeds the infor- L. Wößmann, N. Obergruber in cooperation with the mation on teacher characteristics typically available NEPS Consortium, funded by the Leibniz Institute of in large-scale linked student-teacher datasets. Fur- Educational Trajectories e.V. (LIfBi) at the University thermore, multiple estimation strategies are used to of Bamberg, January 2014 to December 2016. increase reliability of the results teacher effectiveness in Germany and teacher and classroom effects The objective of the National Education Panel is to are disentangled. collect longitudinal data on the development of skills, education processes, education decisions, and returns The Effects of Cultural Diversity on Inno- to education in formal, non-formal, and informal con- vation and Public Provision of Schooling: texts over the entire lifespan. The NEPS data will Evidence from Nineteenth Century Prussia be made available to the national and international F. Cinnirella, funded by the German Research Foun- scientifi c community in the form of an anonymous dation (DFG), February 2015 to January 2017. Scientifi c Use File. The data will offer rich analysis potential for various disciplines that examine education There is a growing body of literature that studies the and training processes, such as education, psychology, costs and benefi ts of cultural diversity. On the one sociology, economics, and demographics, and will hand, cultural diversity may increase productivity due create the basis for improved reporting and policy to complementarities in the specialization of different consulting in Germany. The Ifo Center for the Eco- ethnic, linguistic, and religious groups. On the other nomics of Education has co-responsibility for item de- hand, diversity may lead to lower redistribution and velopment in the pillar of ‘returns to education across under-provision of public goods due to divergent the life course’. Among other things, a development preferences. This project aims to provide new em- study was prepared in 2015 to develop items for the pirical evidence on the costs and benefi ts of cultural transition of children from elementary to lower sec- diversity in the specifi c setting of nineteenth century ondary schools. Prussia.

Teacher Effectiveness and its Determinants The fi rst objective is to investigate the role of cultural Religious diversity and in Germany: A Deepened Analysis diversity in innovation. In particular, we aim to identify patenting in 19th century B. Enzi, L. Wößmann, ongoing doctoral project, sup- the effect of religious diversity on patenting activity. Prussia ported by the German Research Foundation (DFG), This is the fi rst project that explores this relationship fi rst project stage (beginning October 2012) com- for a period of intense technological progress namely pleted in September 2015; follow-up project sup- the German industrial revolution. In fact, Prussia con- ported by the German Research Foundation (DFG), stitutes an ideal laboratory for studying the effect of October 2015 to September 2018. religious diversity on innovative activity. For historical reasons such as the Reformation in the sixteenth cen- Building upon the fi rst funding phase, the project tury and the Partitions of Poland at the end of the aims to analyse teacher the effectiveness and its eighteenth century, Prussia is characterised by a pro- determinants based on student-level achievement nounced religious and ethnic heterogeneity due to the data from the German National Educational Panel cohabitation of Protestants, Catholics, and Jews (plus Study (NEPS). A fi rst key goal of the project is to other smaller religious groups). Using census data at exploit the longitudinal structure of the NEPS data the county level on the religious composition of the to estimate value-added models of student achieve- population in 1816, we can identify exogenous varia-

41 Ifo Annual Report 2015 Ifo Center for the Economics of Education

tion in religious diversity in 1871 and thus estimate its tive impact on school grades, social competencies, causal effect on innovative activity. Innovative activity and the labour market success of students from the is measured by the number of valuable patents grant- Hauptschule. The evaluation aims to investigate both ed to fi rms and individuals between 1877 and 1890. the short-term and long-term effects of the programme and uncovers concrete mechanisms behind The second objective is to shed light on the mecha- them to provide generalizable recommendations for Diversity and innovation nisms behind the effect of diversity on innovative ac- the design of mentoring programmes. tivity. This is achieved by using data on the religious composition of dozens of industries reported in the Calculation of Returns on Education in Prussian occupational census of 1882. This allows us Germany to understand whether the complementarities be- L. Wößmann, J. Ruhose, F. Kugler, funded by Union tween different cultures only have a positive effect Investment Privatfonds GmbH, December 2015 to on innovative activity for specifi c industrial sectors. In September 2016. addition, we will also investigate the existence of spillover effects. In particular, we test whether cultural Investment in education pays off. An overwhelming diversity functioned as a channel for spillover of tech- literature that deals with the estimation of returns on nological knowledge by analysing the extent to which education, estimated that the average yield of an addi- diversity helped the diffusion of technology across tional year of schooling is around 10% higher income. technologically and geographically related industries. But what are the returns to education for people with different educational pathways? The aim of this pro- Evaluating the Effectiveness of a Mentoring ject are extensive calculations for returns to education Programme in Germany. For this purpose, the project looks at re- L. Wößmann, J. Ruhose, S. Wiederhold, funded by the ceived earnings and income of persons with different Commissioner of the Federal Government for Migra- educational and occupational degrees and qualifi cation, Refugees and Integration, and a consortium of tions (educational pathways). For example, one re- non-profi t foundations, June 2015 to March 2020. search question addresses to what extent a university degree yields higher earnings than the completion of Social mobility in Germany is still very low. This is re- vocational education. Additionally, heterogeneities in fl ected in the fact that children with disadvantaged the returns to education are to be analyzed between or migration backgrounds are most likely to visit the men and women, natives and migrants, industry and lowest academic school track in secondary school craft, between different fi elds of study, and in different (Hauptschule). These children often do not make German regions. Considering demographic change in the leap from the Hauptschule to qualifi ed work or particular, the answers to these questions have im- further schooling. Instead, they are stuck in the tran- portant implications for retirement, intergenerational sitional system and thus have little chance of upward redistribution, tax revenues, and the gap between rich social mobility. Reasons for the lack of a perspective and poor. Another aspect of the project is the cal- are inadequate assistance for parents with low income culation of an education-specifi c unemployment rate. or education levels in school-related work, low school Finally, the preceding calculations are used to simulate quality, a resulting lack of training maturity, only vague education-specifi c pension payment schemes. ideas about potential jobs, and lacking detailed knowledge about the German educational system. Empirical Studies in the Economics of Education How mentoring can help Given these problems, mentoring and coaching pro- L. Wößmann, various ongoing research projects, re- Hauptschule students grammes can be an effective way to improve the cent publications, among others, in MIT Press, 2015; future prospects of students from the Hauptschule. OECD, 2015; European Economic Review 73, 2015; This project investigates whether one of the largest Economic Journal, forthcoming; Journal of Human Re- 1:1 mentoring programmes in Germany has a posi- sources, forthcoming; Education Economics, forthcom-

Ifo Annual Report 2015 42 Ifo Center for the Economics of Education

ing; Education Next 15(2), 2015; Foreign Affairs, 2015; Additional studies analyse the role of vocational edu- ifo Schnelldienst 68(10), 2015; NBER Working Paper cation over the lifecycle, the economic case for edu- No. 21295, 2015; CESifo Working Paper No. 5288, cation, the role of human capital for income differenc- 2015; No. 5266, 2015; reports of the Aktionsrat Bil- es across U.S. states, and a U.S.-German comparison dung and of the Academic Advisory Council of the of public opinion on education policy. Federal Ministry of Economics and Energy, as well as contributions to several daily and weekly newspapers. The Accumulation of Human Capital and the Transition from Malthusian Stagnation Numerous ongoing and provisionally completed pro- to Modern Economic Growth jects deal with topics of the economics of education. F. Cinnirella, ongoing habilitation project, publication Written together with Ifo Research Professor Eric of results in Journal of Economic Growth, 2010; Eco- A. Hanushek of Stanford University, the book “The nomics and Human Biology, 2011; Cliometrica, 2012; Knowledge Capital of Nations: Education and the European Review of Economic History, 2013; Historical Economics of Growth” was published by MIT Press Methods, 2014; CESifo Working Paper No. 3603, 2011; in 2015. The book shows that long-run economic No. 3936, 2012; No. 4391, 2013. growth is directly linked to the competencies of the population – the “knowledge capital” of nations. This There is an increasing body of literature that stresses result is developed with rigorous empirical evidence the importance of human capital for economic growth. built on the long-run growth experience of nations. The aim of this project is to study the main determi- Another joint study with Eric A. Hanushek, published nants of education in historical perspective and in par- by the OECD in 2015, reports projections of the ticular to analyse the relationship between land distri- economic gains of educational reforms. It argues that bution and the accumulation of human capital. In the the primary global development goal should focus on latter project, the interaction between land distribu- Land distribution young people achieving basic skills. tion and labour market institutions and its effect on the and human capital accumulation of human capital is also explored. accumulation In several projects, the extensive micro datasets of various international student achievement tests such A companion project studies theoretically and em- as PISA, TIMSS, and PIRLS, as well as the international pirically the economic incentives behind the eman- test of adult competencies PIAAC, are analysed using cipation of labour. The project analyses to what ex- microeconometric techniques. The goal is to deter- tent the complementarity between physical capital mine what lessons can be drawn from international and skills created the incentives to abolish serfdom student tests for educational policies aimed at efﬁ - which, in turn, triggered sustainable investments in ciency and equity and how adult competencies af- human capital. In an additional project for a book fect employment and income in the labour market. chapter, we analyse the relationship between the Current studies investigate among others the role of abolishment of serfdom, the accumulation of human single-parent families, computer use in the classroom, capital, and marriage. and the information value of central exit exams. A further part of the habilitation project analyses the Several historical research projects analyse the ifo relationship between ethnic-linguistic polarization and Prussian Economic History Database (iPEHD). One public education expenditures. This study shows that current paper studies the role of social cohesion and in counties with divergent preferences on the content religious beliefs in the effect of Protestantism on sui- public education, decentralization of education policy cide. Mechanisms of persistence in economic history – leads to lower education expenditure. In particular the long shadow of history – are also studied, such as we ﬁ nd that the coexistence of heterogeneous lin- the effect of the long-gone Habsburg Empire on trust guistic groups leads to underprovision of education and corruption in current local bureaucracy in Eastern in form of lower number of schools and of teachers Europe. per pupil.

43 Ifo Annual Report 2015 Ifo Center for the Economics of Education

Further studies analyse the relationship between hu- Understanding the Relationship between man capital, innovation, and economic growth using Skills and Labour-Market Outcomes data on patenting activity in Prussia in the 19th cen- S. Wiederhold, ongoing habilitation project, publica- tury. In particular, one study shows that average human tion of results in, among others American Economic capital and the human capital of a highly-skilled minority Journal: Macroeconomics (forthcoming); European Eco- have different effects on innovation. We also show that nomic Review 73, 2015; methods data analyses – Jour- human capital and innovation have separate effects on nal for Quantitative Methods and Survey Methodology income and economic growth. Finally, the habilitation 8(2), 2014; NBER Working Paper No. 20727, 2014; Human capital and the project studies the effect of human capital on the fer- CESifo Working Paper No. 5470, 2015. fertility transition tility transition at the end of the 19th century, which marked the transition from a Malthusian stagnation to It has long been reckoned that the population’s skills modern economic growth. In this respect, a study in- are a key ingredient in knowledge-based economies, vestigates how English couples from 1540 to 1800 ad- which is why the European Union emphasises the justed age at marriage and birth intervals to changes in development of a skilled workforce. In this habilita- economic conditions. This part of the project will be tion project, we use recently published PIAAC data complemented by a study on France which was the fi rst on adult skills which for the fi rst time allows quan- country in Europe to experience the fertility transition. tifying how different modern economies value skills. Moreover, the habilitation project attempts to make Human Capital Production and Migration a contribution in the investigation of causal effects of M. Piopiunik, ongoing habilitation project, publication skills on labour-market outcomes. For instance, any of results in NBER Working Paper No. 21393, 2015; positive relationship between skills and wages may CESifo Working Paper No. 5303, 2015; No. 5470, 2015. just refl ect that higher-paid jobs provide the resources to invest in adult education and training, through This habilitation project investigates several determi- which skills develop (reverse causality). To address nants of educational achievement. One study shows endogeneity problems, we exploit the extent of the that differences in the cognitive skills of teachers are traditional voice-telephony networks, which were one important determinant of the international differ- upgraded in most countries to provide fast Internet ences in student performance. For this investigation, access by means of the so-called DSL technology. country-specifi c cognitive skills measures of teachers, The underlying idea is that ICT skills are developed derived from the individual-level PIAAC data, are com- through learning-by-doing for which Internet availabil- bined with student-level PISA data. It also turns out ity is a precondition. that the cognitive skills of teachers differ tremendously across industrialised countries. Another project inves- Another part of this habilitation project deals with tigates whether alternative employment opportunities the skill mismatch, which is a ubiquitous phenom- affect the quality of individuals entering the teaching enon in any economy. At the individual level, every profession. To this end, business cycle fl uctuations at job change involves skill shortages (skills that have career start were exploited and combined with admin- not been learnt, but that are relevant at the new istrative micro data from the US state of Florida. The job) and skill redundancies (previously acquired Teachers hired results indicate that teachers who entered the profes- skills that do not matter anymore at the new job). in recessions prove sion during a recession are considerably more effec- Skill mismatches can be caused by the emergence more effective tive in raising their students’ test scores. The results of technological innovations and new organizational thus suggest that intrinsic motivation seems to be of strategies. For instance, at the beginning of the 19th second-order importance relative to the effects of in- century, automatised looms replaced skilled weavers creasing teacher pay on selection when hiring more ef- in the textile industry with punched cards and few fective teachers. Another goal of this habilitation proj- unskilled workers. More recently, the proliferation ect is to investigate the importance of school-leaving of personal computers created an increase in the grades for hiring decisions in companies. demand for cognitive, problem-solving skills. These

Ifo Annual Report 2015 44 Ifo Center for the Economics of Education

pervasive changes in the structure of employment Labour Markets and the Consequences of also left their mark on the German labour market. Selective Migration A number of recent studies suggest that the avail- J. Ruhose, ongoing habilitation project, publication of able qualifi cations on the labour market are not a partial results in IZA Discussion Paper No. 9164, 2015; good match for the skills that are demanded by the CESifo Working Paper No. 5453, 2015. economy. A skilled population is considered a prerequisite for Previous research has also highlighted that job dis- a prospering economy. To this end, an effi cient edu- placements can have large and lasting adverse effects cation system, as well as the recruitment of skilled Skills and prosperity on life-time earnings. However, the mechanisms be- foreigners and their ensuing integration, seems cru- hind these earnings losses are not well understood. cial, especially in the light of an ageing society. This This habilitation project attempts to answer the habilitation project aims to empirically analyse the questions: Are displaced workers matched worse determinants of educational outcomes, particularly than voluntary job switchers? Can skill mismatch- those of individuals with a migration background. es explain part of the earnings losses of displaced Furthermore, the effects of migration on the labour people? To answer these questions, we use detailed market are investigated. The aim is specifi cally to information on the tasks that workers perform in an identify causal effects. occupation to represent every occupation by a vector of fundamental skill requirements. We fi nd that Education in History displacement increases occupational switching and R. Schüler, ongoing doctoral project. skill mismatch, primarily because displaced workers move to less skill-demanding occupations. The nega- This dissertation project examines topics in edu- tive earning effects associated with displacement are cational economics from a historical perspective. mostly driven by these moves, while workers mov- In a fi rst project a historical educational producing to more skill-demanding occupations have similar tion function is estimated using county-level data of earning losses as stayers. the fi rst Prussian census in 1886. The relationship between educational inputs such as educational Education in Prussia The Effects of Information Provision on expenditures per student, class size and teacher Policy Preferences – Evidence from Survey quality and economic development, measured by Experiments income tax per capita, is analyzed. In a second proj- P. Lergetporer, ongoing habilitation project. ect, further Prussian county-level data are used to examine the effect of linguistic fractionalization on Empirical research has produced many insights on the provision of public goods, measured by educa- how education policies could be altered to improve tional expenditures. In a third project, the effect of student outcomes. But political actors are frequently a historical schooling regulation which introduced reluctant to carry out reforms supported by high- secular school monitoring in Prussian schools, on quality research. One important reason for this educational outcomes such as school attendance, discrepancy between evidence and action could be the student-teacher ratio, school density, private that political actors are responsive to the opinions of school attendance, school completion rates and voters and of well-organised interest groups, which the share of non-German speakers is examined. might diverge from what is in the public interest more In a fourth project, data from the Prussian parlia- generally. This habilitation project aims to empirically mentary elections are used to examine how the analyse the determinants of public support for edu- increasing share of state expenditures infl uenced cation policies. Public opinion is studied by means of the political decision-making process from 1886 representative survey experiments with particular fo- onwards. cus on interest groups and the effects of information provision on public preferences.

45 Ifo Annual Report 2015 Ifo Center for the Economics of Education

Economics of Education Policy Empire concerning the infl uence of agricultural in- K. Werner, ongoing doctoral project. heritance practices, an informal institution, on economic development. The county-level data set is This doctoral project is an empirical analysis of self-constructed from historical statistics and litera- questions concerning the political economics of ture and continuously enhanced. Controlling for ob- education policy. The main question of interest is servables and using fi xed effects and outcome vari- the effect of political processes on the education ables such as average farm size for 1895 and 1907, system. A fi rst research project, conducted in co- the number of people working in secondary employ- operation with the Program on Education Policy ment, employment in detailed industry occupations, and Governance (PEPG) at Harvard University, and the number of cities and their population, the collected data to document the opinion of the project shows that a certain type of inheritance Public schools in the USA American and German public regarding the perfor- practice (partible inheritance) reduces farm sizes and Germany mance of their country’s public schools. First results and supports different development of occupation show that schools receive particularly high grades structure. for their ability to cater to the needs of the most able students and students from high-income back- Essays on the Economics of Education grounds. There are signifi cant differences between L. Oestreich, ongoing doctoral project. countries, as schools in America are assessed even more positively in these respects than schools in Using survey experiments and data from the Ifo Edu- Germany. Furthermore, respondents in both coun- cation Survey, this doctoral project offers an empiri- tries rate the performance of schools less favour- cal analysis of the effects of information provision on ably if they perceive differences in school quality the political preferences of the German population for advantaged and disadvantaged students to be on different topics in education policy. A fi rst proj- larger. A second research project focuses on the re- ect studies the public preferences for reducing class- lationship between public opinion on state spending sizes. Information treatments revealing the relative and the information status of the voting-age popula- costs of different options to improve school policy tion in Germany. This shows that a major par t of the reduce support for class-size reductions signifi cantly. population underestimates current levels of spend- This result is in line with empirical research literature ing on education. Consistently, providing informa- which generally suggests that reducing class-sizes is tion on current spending levels leads to a signifi cant an expensive and largely ineffective policy in order decrease in support for future spending increases. to improve education. Another project examines Future work will provide additional insight into the the role of political party opinions on the prefer- interdependencies of public opinion and the politi- ences of their voters for different education policies. cal economy of education policy. Thereby, conservative voters rely more on their party’s opinions than other voters when stating their Empirical Analysis of Structural Change and own preferences. Questions on the Economics of Education N. Obergruber, ongoing doctoral project. Essays on the Economics of Education and Labour: Microeconometric Analyses One part of this doctoral project uses microecono- L. Simon, ongoing doctoral project. metric methods and data from the national educational panel study (NEPS) questions in the fi eld of This doctoral project analyses the impact of educa- Family background and the economics of education concerning the infl u- tion and other determinants on labour market out- the development of ence of family background on the development of comes, using microeconometric methods. A fi rst pa- schoolchildren cognitive and non-cognitive skills in schoolchildren. per looks at how grades, the centrality of exit exams, Additionally, in an economic history setting, it stud- and other CV characteristics impact employment ies structural change in the 19th century German chances. The data used is being collected in a ran-

Ifo Annual Report 2015 46 Ifo Center for the Economics of Education

domised fi eld experiment among human resource managers. The second project sheds light on a labour market deregulation and its impact on the demand and supply side of labour. More specifi cally a change in the law regarding the qualifi cation requirement to become self-employed in certain crafts of 2004, which was part of the Agenda 2010 deregulations in Germany, is analysed.

47 Ifo Annual Report 2015 Ifo Center for Industrial Organisation and New Technologies

The Center focuses on three main areas: DG publishers (Deutscher Genossenschafts-Verlag eG). Beyond this “Branchen special” information sys- – Industrial organisation and industry-level analysis tem, the Center conducted studies on the economic – New technologies effects of fairs (e.g., in Leipzig and Friedrichshafen) and – Collection of fi rm-level and industry-level data on the construction sector within the framework of the EUROCONSTRUCT project in 2015. These in- The Center’s research programme focuses on ana- dustry reports provide the Center with a unique lysing the determinants and effects of fi rm behav- institutional knowledge base that complements its iour, including internal fi rm structures and process- quantitative micro-econometric studies. The Center’s es. The following questions are of particular interest: industry sector experts also maintain close contacts how successful are different industries, especially with fi rms and industry associations and organise a Assessing innovation with regard to their innovation abilities? How im- yearly conference (Ifo Industry Colloquium) to en- success in industry portant are the institutional framework and govern- hance exchanges with practitioners. The Ifo Industry ment policies, such as direct state support, to the Colloquium was also organised in 2015 in cooperation success of industries? Are government policies ef- with the Chamber of Industry and Commerce for Mu- fective in supporting the development and diffusion nich and Upper Bavaria and with support from the Ba- of new technologies? To answer these questions the varian State Ministry for Economic Affairs and Media, Center’s research applies state-of-the-art micro- Energy and Technology. Finally, the Center prepared econometric methods to fi rm and industry-level the Bavarian Industry Report 2015 for the Bavarian data, thereby providing cutting-edge analysis that is State Ministry for Economic Affairs and Media, Energy deeply valuable to practitioners. and Technology.

Industrial Organisation and Industry-Level Analysis New Technologies In the area of industrial organisation, the Center In the area of new technologies the Center identifi es, analyses, for example, the effects of industry-specif- describes and analyses technologies of high impor- ic regulation or the competitive environment within tance to the various German industries. More specifi - industries on fi rm behaviour. In 2015, the Center cally, the Center analyses technologies with high spill- completed two studies in this area: one study, car- over effects (so-called general-purpose technologies) ried out for A1 Telekom Austria, aimed to evaluate and how governments can support the development Industry-specifi c studies whether retail markets for access to the fi xed-line and application of such general-purpose technologies public telephone network in Austria are still re- in order to enhance the technological base for Ger- quired to be subject to regulation. The other study man industry. The Center focuses heavily on infor- looked at the Edeka/Tengelmann merger case from mation and communication technologies (ICT) as a a Bavarian perspective (commissioned by the Ba- general-purpose technology. Within the framework varian State Ministry for Economic Affairs and Me- of a long-run cooperation, Deutsche Telekom AG dia, Energy and Technology). Besides the analysis sponsors two doctoral positions. The two doctoral of policy effects on fi rm behaviour, the Center also students do research in the fi eld of the economics focuses on internal fi rm activities, such as manage- of innovation in telecommunications. The Center also ment practices, employee diversity and personnel investigates the effects of the institutional framework strategies. Additionally, the Center regularly studies (such as patent laws, for example) and government the competitiveness and macroeconomic impor- policy (like cluster policies) on the innovation activi- tance of individual industries. ties of fi rms. This serves to assess the effectiveness of various policies. The Center, for example, is engaged Another focus of the Center is industry analysis. Since in an international consortium preparing an evalua- 1993, a major outlet for this analysis is the semi-annual tion and monitoring system for DG Enterprise of the publication of 100 industry reports commissioned by European Commission.

Ifo Annual Report 2015 48 Ifo Center for Industrial Organisation and New Technologies

Collection of Firm-Level Data Oliver Falck, Director of the Ifo Center for “Indus- The Center’s research and policy advice rely on high- trial Organisation and New Technologies” closed the quality data, a need that underlies its signifi cant com- Ifo Industry Colloquium 2015 with his talk on: “In- mitment to the collection of original data. Examples of novation and Technological Change in a Digitalized such data collection are the personnel manager survey World”. (supported by Randstad Germany) aimed at gathering data on the quarterly personnel strategies of fi rms, The speakers that participated in the forums were: and the annual innovation survey that the Center has Forum 1 – Industry: Introduction and Moderation: carried out for the past 30 years. The innovation sur- H.-G. Vieweg, Ifo Institute; Experts: M. Ebnet, Ifo vey asks fi rms about their innovation activities, their Institute, B. Diegner, ZVEI and C. Oetter, VDMA. innovation drivers, and the constraints affecting them. Forum 2 – Commerce: Introduction: A. Städtler and G. Orhan, both from Ifo Institute; Moderation: W. Fischer, CityPartner Munich e.V.; Experts: N. Busch- Projects Completed in 2015 Petersen, Trade Association Berlin-Brandenburg e.V., and E. Stueber, IFH Institute for Trade Research (IFH Institut für Handelsforschung,GmbH). Ifo Industry Colloquium 2015 L. Dorffmeister, M. Ebnet, O. Falck, E. Gluch, H.-D. Forum 3 – Construction: Introduction: L. Karl, J. Lachner, G. Nerb, G. Orhan, A. Städtler, R. Dorffmeister, Ifo Institute; Moderation: R. Scholl, Stanga, P. Wojciechowski in cooperation with the former Federal Ministry of Transport, Building and Chamber of Commerce and Industry for Munich Urban Development, Berlin; Experts: K. Freiberg, and Upper Bavaria and fi nancially supported by the Vonovia SE and M. Waltersbacher, BBSR. Bavarian Ministry of Economic Affairs and Media, En- Forum 4 – Services: Introduction: G. Nerb and P. ergy and Technology, report available in ifo Schnell- Wojciechowski, both from Ifo Institute; Moderation: dienst 23(68), 2015. R. Obermeier, Chamber of Commerce and Industry for Munich and Upper Bavaria; Experts: R. Rendl, P3 This year’s Ifo Industry Colloquium took place on Group and R. Reyeros-Bienert, R&R/COMH. October 28, 2015 and was once again supported by the Bavarian Ministry of Economic Affairs and Me- The next Ifo Industry Colloquium will once again take dia, Energy and Technology, as well as the Chamber place in the conference center of the Chamber of of Commerce and Industry for Munich and Upper Commerce and Industry for Munich and Upper Ba- Bavaria. Around 200 representatives from business varia, Munich, on 9 November, 2016. and politics took part. After a welcome speech by Eberhard Sasse, President of the Chamber of Com- merce and Industry for Munich and Upper Bavaria, Prof. Hans-Werner Sinn, President of the Ifo Institute gave a presentation on: “The Economic Situation in Germany and the World”.

Afterwards, smaller parallel sessions on “Manufactur- ing” and “Commerce”, as well as on “Construction” and “Services” were held. Experts from companies and sector associations discussed major branch-related structural changes, as well as the Ifo Institute’s forecasts for 2016 and 2017. The sessions therefore focussed on the structural changes triggered by increasing digitization. Hans-Werner Sinn, President of the Ifo Institute

49 Ifo Annual Report 2015 Ifo Center for Industrial Organisation and New Technologies

The Economic Impact of the Leipzig Trade Bavarian Industry Report 2015 Fairs and Events T. Strobel, H. Arnold-Rothmaier, O. Falck, M. Eb- H. Penzkofer for Leipziger Messe GmbH, November net, H. Hofmann, A. Jacob-Puchalska, M. Kocijan, 2013 to July 2015, publication in: Annual Report of the J. Schricker for the Bavarian Ministry of Economic Af- Leipziger Messe GmbH 2015. fairs and Media, Energy and Technology, April 2105 to May 2015. The total aggregate output resulting from the direct and indirect impact of a typical trade-fair and event Regional Distribution of Employees in Bavarian year amounts to around EUR 656 million, or ap- Manufacturing 2014 proximately 6,600 gainfully employed persons. This project also estimated the resulting tax revenue of Rhön-Grabfeld Coburg Kronach Hof Coburg Hof the various authorities (City of Leipzig, Saxony and Bad Kissingen Lichtenfels Wunsiedel Schweinfurt Kulmbach i.Fichtelgebirge Haßberge Aschaffenburg Bayreuth Aschaffenburg Main-Spessart Schweinfurt Bamberg Germany). With the trade-fair and event related out- Tirschenreuth Bayreuth Bamberg Miltenberg Würzburg Neustadt put of EUR 656 million, the concomitant tax revenue Kitzingen Forchheim a.d.Waldnaab Erlangen- Weiden Würzburg Höchstadt i.d.OPf. Erlangen Neustadt a.d.Aisch- Amberg-Sulzbach totalled approximately EUR 121 million. Bad Windsheim Nürnberger Fürth Land Fürth Nürnberg Amberg Ansbach Schwandorf Schwabach Cham Neumarkt i.d. OPf. The Economic Impact of the Leipzig Trade Fairs Ansbach Roth Regensburg Regen Weißenburg- Straubing- Gunzenhausen Bogen and Events Regensburg Eichstätt Freyung-Grafenau Straubing Kelheim Donau-Ries Deggendorf Average trade-fair and event year of Messe Leipzig GmbH Ingolstadt Landshut Dingolfing- Passau Neuburg- Landau Schrobenhausen Dillingen a.d.Donau Pfaffenhofen Passau a.d.Ilm jobs Landshut Aichach- Rottal-Inn Friedberg 8 000 Augsburg Freising Günzburg Dachau Erding Neu-Ulm Mühldorf Augsburg a.Inn 7 000 Fürstenfeld- Altötting bruck München Ebersberg Unterallgäu Starnberg 6 595 Landsberg München a.Lech 6 000 Memmingen Rosenheim Traunstein

Kaufbeuren Rosenheim Weilheim-Schongau Miesbach Ostallgäu 5 000 Bad Tölz- Berchtesgadener Kempten Wolfrats- Land hausen Lindau (Bodensee) Garmisch- 4 000 Oberallgäu Partenkirchen 3 790 3 000

2 000 Employees in Manufacutring 1 896 City district 010 20406080 1 000 km < 5.000 909 Administrative region 6.000 – 10.000 0 Bavaria 11.000 – 25.000 26.000 – 50.000 Base map: 01.01.2012 Leipzig rest of Saxony rest of Germany total Source: Geodata © Bavarian Agency for Surveying and Geoinformation Design: Ifo Institute 51.000 – 100.000 (ohne Leipzig) Bundesländer (www.geodaten.bayern.de) Source: Bavarian Statistical Office, 2014

Source: Calculations of the Ifo Institute. Source: Bavarian Industry Report 2015.

The Economic Impact of the Trade Fairs in The Bavarian Industry Report 2015 provides a compre- Friedrichshafen hensive description of structures and developments in H. Penzkofer for the Messe Friedrichshafen GmbH, May the Bavarian industry in 2014, as well as an outlook for 2014 to December 2015, publication in: Annual Balance 2015. Both individual sectors and economic structures Report of the Messe Friedrichshafen GmbH 2016. and overall developments in Bavaria were taken into consideration. The industry report is divided into four The objective of this project was to calculate the ex- parts. In Part I, “The Bavarian industry”, industry devel- penditure of trade fair participants for a typical trade opment in Bavaria is presented and evaluated in terms fair year. It also estimated the direct and indirect im- of its business cycles in 2014 and the ﬁ rst two quarters pact on the production volume and tax revenues. of 2015. Information on the development of individual Based on the production effects, the impact on jobs sectors follow in Part II “Bavarian industry report”, in was calculated for a typical trade fair year. The results which indicators and structural features (e.g. employees, of the study will be presented in a few months. turnover) are analysed by sector. In Part III “Government

Ifo Annual Report 2015 50 Ifo Center for Industrial Organisation and New Technologies

district profi les”, the economic and structural develop- Firstly, the report critically evaluates arguments put ment in the various Bavarian administrative districts are forward by the regulation authority during the last examined in detail. In addition, an industry portfolio for market-evaluation procedure. Yet, most importantly, the manufacturing sector is created for each adminis- the report focuses on an empirical analysis of the trative district comparing the localization degree (confi rms’ and consumers’ behaviour between classical centration of the industry in the region as compared to access to the fi xed-line telephone network and al- Fixed-line telephony Germany) to employment trends in the sector. Graphical ternative technologies of access via mobile telephony versus alternative tech- presentations of the regional distribution of employment and “Voice-over-Internet” access in order to classify nologies in manufacturing are also presented by county. Part IV relevant retail markets. In detail, the report exam- “Internationalization profi les of Bavarian industry” (com- ined whether the regional availability of the respec- piled by IW Consult) completes the report. tive alternative infrastructures leads to higher aban- donment of A1 Telekom Austria fi xed-line telephony Short- and Long-Term Policy Requirements access. Results show that the higher the availability to Strengthen Sustainable Growth and of alternative infrastructures, the more frequently Employment in Croatia Austrian retail customers abandon their fi xed-line te- O. Falck, N. Fabritz for Croatian Statehood Founda- lephony access. As a result, the study concludes that tion, Zagreb, September 2014 to December 2015. mobile telephony and “Voice-over-Internet” access realizations should be considered part of the market The focus of the part of the project covered by the for access to the fi xed-line public telephone network. Ifo Center for Industrial Organisation and New Tech- Finally, the so called “three criteria test” indicates that nologies was on the policy areas of human capital, the discussed markets tend to be competitive. As a innovation, and doing business. The Center derived result, the report concludes that the need for regula- policy recommendations for a dual education system, tion must be considered critically. life-long learning and a competitive innovation strategy in Croatia. Furthermore, the Center looked into Income Situation of Outpatient Physiothera- eGovernment as a tool to reduce bureaucracy and pists and Ergotherapists in Germany increase the ease of doing business. M. Reinhard, G. Orhan for Spitzenverband der Heil- mittelverbände (SHV), July 2015 to November 2015. Empirical Evidence on the Substitutability of Fixed-Line Telephone Access in Austria and Outpatient care for physiotherapy and ergotherapy its Effects on Market Defi nition has been a growing market in Germany for a number O. Falck, A. Heimisch, J. Koenen, A. Mazat for A1 of years. Spending on social health insurance (SHI) is Telekom Austria AG, June 2015 to September 2015. on the rise. The supply of therapist’s practices has also risen in line with demand. However, most of practice This report, carried out for A1 Telekom Austria, returns are determined by SHI. Thus social law plays aimed to evaluate whether retail markets for access to an eminent role in running a therapy practice. The law Social law’s infl uence the fi xed-line public telephone network in Austria are regulates the legal claim of insured persons, as well as on operating a therapy still required to be subject to regulation. The report is the type and extent of the activity of care providers. practice motivated by a redefi ned recommendation, published Therapeutic cure usually requires a medical prescrip- by the European Commission on October 4, 2014, of tion by a doctor. Even the process of determining the relevant product- and service markets of the electron- amount of prescriptions is regulated by law. ic communication sector that are potentially subject to ex-ante regulation. The commission therein states Price setting, in addition to benefi ts and the extent of having no intention of maintaining sector specifi c regu- care provisions, is also regulated by social law. Price lation. At the same time it asks national authorities to changes are not necessarily linked with increased per- evaluate the need for regulation of those markets at formance and cost. In fact, treatment prices can only a national level. rise, as the premium revenues of the insurers increase,

51 Ifo Annual Report 2015 Ifo Center for Industrial Organisation and New Technologies

and the revenues are combined with wages. Since wage sector complement each other to create higher value growth was rather low in the last decade, the ques- products and higher productivity, and to determine tion whether therapeutical practices are still suffi ciently what concrete policies need to be put in place to ex- profi table has arisen. The wages of the therapists em- ploit this potential. ployed are also affected, because the profi tability of fi rms determines the level of wages to a large extent. Four industries were selected for closer analysis to gain an in-depth understanding of the use of services The aim of the study is to gather information on the in manufacturing: the machinery and transport equip- Wage growth fi nancial situation of practices and employees in the ment industries – as examples of medium-high- to and profi tability in care physical and occupational care sector. In addition, high-tech industries; and the food and beverages in- sector the levels of profi tability and wages are evaluated by dustry and textiles and clothing industry, as examples means of a reference group approach. The study is of low- to medium-tech industries. carried out on behalf of the German “Spitzenverband der Heilmittelverbände (SHV). Summarising the study’s empirical fi ndings, it is clear that there are signifi cant differences in the prior- The Relation Between Industry and Services ity fi elds for the interaction of manufacturers and in Terms of Productivity and Value Creation service providers. For the high- to medium-tech H.-G. Vieweg, J. Koenen, J. Schricker, T. Strobel for the industries, it turns out that R&D and engineering European Commission, Enterprise and Industry Di- are fi elds of close interaction between manufac- rectorate General, December 2013 to January 2015. turers and service providers, which are of pivotal importance for competitiveness and economic per- The European Commission awarded a contract to formance. Driving factors are the growing complex- the European Consortium for Sustainable Industrial ity and sophistication of products. For the low-tech Policy (ECSIP) within the framework contract award- industries, upstream activities have become more ed in 2012 by the DG Enterprise and Industry with a important, while for the textile and clothing indus- duration of up to 2016 (see: current projects). The try, supply chain management is the main driver; for project lead was taken by the Vienna Institute for In- the food and clothing industry growing administra- ternational Economic Studies, while the Ifo Institute tive requirements to document proof-of-origin, eco and ECORYS became partners. Ifo’s focus was on standards etc. are key drivers. Downstream activi- sectoral analyses and the investigation of the interac- ties have gained a great deal of importance, thanks tion between manufacturing and the services sector to internet-based, innovative IT tools, and which is from the manufacturers’ point of view. fuelled by manufacturers’ renewed efforts to gain better access to consumer markets. The European Industrial Policy Communication of 2012 sets the goal of bringing the share of manufac- Despite these discrepancies between the two turing up to 20% of GDP. Subdued growth potential groups of industries, the overall cost shares of busi- in the EU is dampening the outlook for manufactur- ness services among the four industries investigated ing. On a brighter note, European manufacturing’s do not differ greatly with regard to levels and their strong export performance points to some growth evolution over the period under consideration. For Manufacturing opportunities. The service sector is playing a major all four industries, performance-enhancing business exports create growth role in increasing the added value of manufactured services are of a similar and growing importance. For opportunities products, as products are increasingly being sold with non-business services, differences in the amount of service components. Services and manufacturing services have been identifi ed: low-tech industries have become increasingly intertwined. show a higher cost share of industrial output caused by transport and distribution services, which is ex- The purpose of the study was to understand the plained by the industries’ deliveries into consumer mechanisms by which the manufacturing and services markets.

Ifo Annual Report 2015 52 Ifo Center for Industrial Organisation and New Technologies

Since goods and services markets are becoming Current Projects more closely linked and business services positively impact the performance of manufacturing and vice Information System “Branchen special” versa, further steps towards integration should be M. Ebnet, H. Hofmann in cross departmental cooper- undertaken, particularly in areas where barriers still ation with over 20 other Ifo researchers for the DG- exist. For example, a more ambitious implementation Verlag, Wiesbaden, publication in Bundesverband der of the EU Services Directive would be a signifi cant Deutschen Volksbanken und Raiffeisenbanken (BVR), step forward in this direction, accompanied by the DG-Verlag, Wiesbaden. removal of the remaining regulatory barriers to goods markets, particularly at a national level. In view of the “Branchen special” reports on the 160 most impor- trend towards further specialisation and agglomera- tant branches covered by Germany’s medium-sized tion in business services and manufacturing, reinforc- companies. Biannually updated branch reports are ing the internal market for both services and goods is published on the following economic sectors: servic- likely to become even more important to EU comes, agriculture, construction and development, retail- petitiveness in the future. ing and wholesaling, manufacturing and skilled crafts In-depth branch analyses and trades. The reports contain in-depth analyses and on a biannual basis Naming the Relevant Decision Criteria forecasts of branch structure and the current eco- for an Evaluation of the Request by nomic situation in a clear, standardised form. More Tengelmann and Edeka to Merge by specifi cally, the reports offer information on supply Ministerial Permission and the Related and demand structures in the consumer goods and Report of the Monopolies Commission services markets, company size and trends towards from a Bavarian Perspective concentration. Turnover and production forecasts, M. Ebnet, O. Falck, T. Lohse for the Bavarian State as well as capacity utilisation and price development Ministry of Economic Affairs and Media, Energy and monitoring are conducted to evaluate the economic Technology: August 2015. outlook. The economic condition of each branch is assessed using the results from company compari- The Federal Cartel Offi ce and the Monopolies Com- sons, offi cial statistics and an analysis of trends in mission have evaluated Edeka and Tengelmann’s plans prices and costs. Moreover, the reports highlight the to merge. This brief report names the main argu- company policy options, as well as the market posi- ments made in their evaluations and assesses them tioning and competitiveness of medium-sized compa- from a Bavarian perspective. The report is split into nies in a branch. To take economic transformations three main parts. In the fi rst part, the central argu- into account, the selection of industries surveyed is ments for the (national) sales side of the market are occa-sionally adjusted to correspond to the changes summarised and revisited from a Bavarian perspec- in importance of individual economic segments. tive. The second part considers the arguments made for the supply side of the market and complements Data from offi cial statistics, as well as from primary them with empirical results that are particularly im- and secondary sources, are used as an information Data sources portant for Bavaria. The fi nal part names all of the base, especially association statistics and the results potential welfare effects that might be able to coun- of surveys conducted by different institutions. The teract the restraints of competition on the sales and results of the Ifo Business Survey are particularly im- supply sides of the market and evaluates their rele- portant, as they enable a well-grounded assessment vance for Bavaria. of the current and future development. One example is the assessment of earnings development by survey participants, which turned out to be a reliable indicator of the current profi tability of many manufacturing industries. The total information base is integrated in a condensed preparation of information in text and

53 Ifo Annual Report 2015 Ifo Center for Industrial Organisation and New Technologies

tabular form, as well as in graphics. The industry rat- the literature was applied. In the further course of this ing featured in every report offers key information on project, an actual demand-oriented innovation policy current and future trends in turnover and proﬁ ts in evaluation toolbox will be developed. the industry, as well as the intensity of competition in the industry and its vulnerability to economic cycles Flyer for the Brussels Conference, at a glance. A list of all of the reports available and 17 Nov. 2015 their publication dates can be consulted on the Ifo Institute’s website (www.cesifo-group.de/branchen- special). Individual reports can be obtained from the Volksbanken und Raiffeisenbanken, while subscrip- tions are available from the DG-Verlag in Wiesbaden.

Earnings Development in the Mechanical Engineering Sector

Index 2010 = 100 as a percentage of gross production value Assessment of profitability (yearly averages) Earning before tax 130 7.0 125 6.0

120 long-term 5.0 Ifo Innovation Survey average 115 4.0 O. Falck, H. Penzkofer, ongoing project. 110 3.0 105 2.0 Long-term economic growth and competitiveness 100 1.0 are characterised by high-tech innovations. True tech- 95 0.0 90 -1.0 nological breakthroughs, however, are the exception, 85 -2.0 and progress generally occurs in a series of very small 80 -3.0 steps. For this reason, it is important to adopt a broad 2003 2005 2007 2009 2011 2013 2015 defi nition of innovation. Technical progress can only Adjustments to classification of economic sectors be explained if both “radical” and “marginal” inno- Source: Ifo Business Survey; Federal Statistical Offi ce; Cost Structure vations are taken into account. This is the approach Survey in Manufacturing Industries; calculations of the Ifo Institute. followed by the Ifo Innovation Survey, which has been conducted on a yearly basis since 1979. The innovation surveys in other OECD countries are carried out Demand-Oriented Innovation Policy on the same conceptual basis. O. Falck, J. Koenen, S. Wiederhold in cooperation with Ernst & Young, Italy, Cambridge Econometrics, Based on data from the Ifo Innovation Survey, the Ifo England, Capgemini, Netherlands, und SQW, Eng- Institute is able to capture the industry- and product- land, for the European Commission, Directorate specifi c innovation activities of companies. The survey General Enterprise and Industry, since February 2014. results also supply information on the aggregate level for sector, structural and growth analyses. Data on The goal of this project is to develop a methodologi- the economic and technological conditions that affect cal toolbox and present it to the European Commis- the innovation activities of German industry are also sion to enable the evaluation of demand-oriented collected. innovation policies according to state-of-the-art methodolgy. In an independent work package, Ifo Ifo Randstad Personnel Manager Survey conducted a meta-study analysing existing evaluation A. Jacob-Puchalska, O. Falck, K. Wohlrabe, P. Woj- studies to determine the various types of policies that ciechowski for Randstad Deutschland GmbH & Co. are effective under certain conditions. As a basis for KG, ongoing project, publication on the company’s this study, a typology of policy measures derived from website.

Ifo Annual Report 2015 54 Ifo Center for Industrial Organisation and New Technologies

Four times a year the Ifo Institute asks personnel number of visitors and exhibitors and their expendi- managers in manufacturing, whole-saling and retailing, ture are determined. Calculations of the direct and as well as in the service sector, about the importance indirect effects are derived from an estimation model of fl exibility in personnel placement. The participating that primarily uses the characteristics of the visitors managers provide a general assessment of fl exibility and exhibitors and individual expenditure (e.g. ac- and an assessment with respect to specifi c measures commodation, stand construction). (overtime, limited contracts, “mini-jobs”, temporary workers, freelancers, outsourcing, internal transfers, The Economic Impact of the Nuremberg working-time accounts). Trade Fairs H. Penzkofer for the NürnbergMesse GmbH, January The objective of the project is to gain insights into 2014 to March 2016. the role of fl exibility measures in business cycles on a long-term basis. The survey has been conducted since Based on surveys of visitors and exhibitors at selected the fi rst quarter of 2008. A special, changing question Nuremberg trade fairs conducted for this project, the deals with current personnel policy. An evaluation of total number of visitors and exhibitors and their ex- the special questions can be found on the Ifo Insti- penditure are determined. The calculations of the di- tute’s website and in the ifo Schnelldienst. In 2015, rect and indirect effects are derived from an estimation special questions on the criteria for personnel selec- model that primarily draws on the characteristics of the tion, demands on employees and problems with fi lling visitors and exhibitors and individual expenditure. apprenticeship positions were asked. Building Equipment Sector in Germany and Ifo Randstad Personnel Manager Survey in Selected European Countries

Yes, we provide apprenticeships H.-D. Karl, M. Kocijan for Vereinigung der deutschen No, we do not provide apprenticeships Zentralheizungswirtschaft e.V., Vereinigung Deutsche Sanitärwirtschaft e.V. and Messe Frankfurt Exhibition GmbH, May 2014 to April 2015, continuation until 28% April 2016.

In continuation of a past project, the present development of the German building equipment sector 72% was studied. To this end, key market data such as, for Of these example, the number of enterprises, turnover, em- 39% had difficulties 61% had no difficulties ployees, investments, was collected. In 2014 the building equipment sector comprised 51,400 enterprises Source: Ifo Randstad Personnel Manager Survey, 3rd quarter 2015. with 504,000 employees. The consolidated turnover amounted to around €53 billion. The economic pros- Building equipment sector pects of the building equipment sector improved in enjoys better prospects The Economic Impact of the Hamburg 2014, supported by higher growth in the German Trade Fairs economy. The growing need for replacement of heat- H. Penzkofer for the Hamburg Messe GmbH, January ing and sanitation devices, the Energy Saving Ordi- 2015 to June 2017. nance, and the growing use of renewable energy also had a positive impact. Furthermore, the turnover of This project aims to calculate the direct and indirect the German building equipment sector was com- production and income effects of the Hamburg trade pared with corresponding data from Belgium, Den- fairs, as well as the resulting tax revenue. Based on mark, France, United Kingdom, Italy, the Netherlands, surveys of visitors and exhibitors at selected Ham- Austria, Spain and Switzerland. The project has been burg trade fairs conducted for the project, the total continued in 2015.

55 Ifo Annual Report 2015 Ifo Center for Industrial Organisation and New Technologies

Building Equipment Sector (Sanitary and its impact on the European construction industry, Heating Air-Conditioning) as well as current construction activities in other Eu- H.-D. Karl for Vereinigung der deutschen Zentralhei- ropean countries that are not EUROCONSTRUCT zungswirtschaft, Vereinigung Deutsche Sanitärwirt- members. The summer conference 2016 will be held schaft und Messe Frankfurt Exhibition GmbH, April in Dublin. 2014 to March 2015, continuation until March 2016. Construction in Germany by Segment With the help of the Ifo business barometer for the L. Dorffmeister, E. Gluch, M. Kocijan, for federal and building equipment sector the cyclical situation and state ministries, local authorities, research and advi- further development of the industry was analysed. sory institutes, companies and associations, ongoing For that purpose, following the practice of the Ifo project, work tables (on request), as well as publica- Business Survey, information on the present state tions in ifo Schnelldienst and external publications. of the companies, the business expectations and on additional factors like demand, prices, employment, In the framework of this research and advisory proj- exports etc. was collected in an enterprise survey. ect, fi gures, in terms of values and quantities, illustrat- Considering the three industry stages of the building the German construction activities are forecast ing equipment sector, surveys were carried out in the on a quarterly basis. These fi gures are broken down Three-tier survey manufacturing industry (heating technique, building into residential construction, commercial building conducted fi ttings), wholesaling and larger retail trade fi rms. The construction and civil engineering, and public-sector data for the current business situation and the busi- building construction and civil engineering. The fore- ness expectations were combined to form the busi- casts are presented for debate in the construction ness climate index for the whole sector. The project and housing fore casting group, as well as at the Ifo has been continued in 2015. Industry Colloquium (Ifo Branchen-Dialog). They are also integrated in the Joint Economic Forecast pre- Economic Situation and Structure of pared by four major German research institutes and Europe’s Construction Sector (EURO- in the Ifo Institute’s forecasts. Moreover, they are CONSTRUCT network) used for a series of reports in “Branchen special” and L. Dorffmeister, E. Gluch, M. Kocijan for the EC- as the basis for the German contribution to forecasts Partner institutes, the organisers and participants of European construction (EUROCONSTRUCT). in the EUROCONSTRUCT conferences, as well as recipients of the conference proceedings and for pre- Economic Trends in Amusement Machines sentations at specialist conferences, publication in ifo Industry in 2014 and Outlook for 2015 Schnelldienst 68(2), 2015; 68(3), 2015; 68(13), 2015; H.-G. Vieweg, A. Jacob-Puchalska for the Deutsche 68(14), 2015; as well as in various specialist journals. Automatenwirtschaft, December 2014 to March 2015, follow-up project: December 2015 to March 2016. The European research and advisory network EU- ROCONSTRUCT consists of 19 European member The latest of the studies carried out on an annual basis institutes (15 from Western Europe and four from focuses on the regulation of the German gambling and Central and Eastern Europe). At conferences held gaming market. The rationale was set out by legislative twice a year in different locations, current forecasts initiatives drafted by the German Länder to protect for all partner countries – as well as for Europe as a their gambling monopoly, but failed in court (Federal Construction forecast for whole – are presented. The forecasts not only fea- Constitutional Court, European Court of Justice). The 19 countries ture fi gures (in euros) differentiated by construction initiatives tried to prevent illegal online gambling that type, but also present the physical variables of con- attracts a growing number of clients in Germany – with struction (number of dwellings). The conferences in inappropriate measures. The situation has got out of 2015 (held in Warsaw in June, and in Budapest in De- control, especially with sports betting. At the same cember) also looked at the Russia-Ukraine-confl ict time, the Länder infringe the constitutionally anchored

Ifo Annual Report 2015 56 Ifo Center for Industrial Organisation and New Technologies

rights of amusement arcade operators. The corre- In 2012, Ifo, together with ECORYS, IDEA, CE, DTI, sponding provisions of the Interstate Treaty on Gam- WIIW and Euromonitor, launched a European con- bling will take effect as of 1 July 2017 and sound the sortium for sustainable industry policy to execute death knell for over half of businesses. The industry has sectoral competitiveness studies, namely the Europe- to use the remaining time to defend its constitutional an Competitiveness and Sustainable Industrial Policy rights. However, it has met with little success to date, Consortium (ECSIP). After a successful open tender- with lawsuits against the infringement of basic rights at ing procedure the European Commission awarded Consortium awarded State Constitutional Courts. According to the expert the consortium a framework contract covering a 4-year contract in constitutional law, Hans-Peter Schneider, this has not time period of four years. The assessment of sec- been caused by an insuffi cient clarifi cation of facts, but toral competitiveness lays the foundation for further by the courts’ aversion to making judgements on the economic analysis. The consortium plans to identify constitutional rights of amusement arcade operators, determinants, trace the long-term perspectives for which they see as less worthy of protection. European industries, and recommend measures for strengthening competitiveness. The framework con- The Energy Policy Turnaround Caught tract is a follow-up to a previous framework contract Between Regionalisation and Centralisation with the European Commission covering the period (ENERGIO) of 2007–2011. T. Triebs for the German Federal Ministry of Edu- cation and Research (“Environmentally and Socially Economics of Innovation in Tele- Compatible Transformation of the Energy System” communications subsidies), September 2013 to August 2016. A. Heimisch and A. Mazat, ongoing doctoral projects, supported by Deutsche Telekom AG, beginning This part of the ENERGIO project covered by the Ifo Center of for Industrial Organisation and New Technol- The doctoral projects deal with determinants of in- ogies analyses the behaviour of electric utilities, because novation in telecommunications and investigate the fi rms’ strategic behaviour is an important determinant underlying mechanisms. Besides, the dissertations of the success of the government’s energy policy. The also consider the overall economic impact of these objective of energy policy is the decentralisation and innovations. To answer these questions, individual-, regionalisation of energy generation. This project inves- regional- and fi rm-level data are used. tigates whether fi rm strategies support this objective. In particular, the supply decisions (including cooperation In the doctoral project of Andreas Mazat the fi rst choices) by local government-owned utilities are anal- topic addressed is the effect of high-speed internet ysed. Small utilities are important in this regard because availability on entrepreneurs’ decision to start a busi- they can only provide electricity from large centralised ness, as well as on fi rm location. An instrumental generation sources in cooperation. variables strategy, exploiting the technological pe- culiarities of the public switched telephone network High-speed internet and European Consortium for Sustainable that infl uence the employability of DSL, is applied to its impact on start-ups Industrial Policy (ECSIP) – EU Sectoral identify a causal relationship. Initial results indicate Competitiveness Studies that the establishment rate of startups increases with H.-G. Vieweg, J. Koenen in cooperation with ECO- high-speed internet availability, especially in the ser- RYS, the Netherlands, IDEA Consult, Belgium, Cam- vice sector and knowledge intensive sectors. bridge Econometrics (CE), England, Danish Techno- logical Institute (DTI), Denmark, The Vienna Institute In Alexandra Heimisch’s doctoral project, a fi rst study for International Economic Studies (WIIW), Austria investigates the returns on specialized skills in infor- and Euromonitor, England commissioned by the Di- mation and telecommunication technologies (ICT) rectorate General Enterprise and Industry of the Eu- (e.g. writing emails or searching for information on- ropean Commission, 2012 to 2016. line) in the labour market. These kinds of skills partly

57 Ifo Annual Report 2015 Ifo Center for Industrial Organisation and New Technologies

emerge from being exposed to broadband internet migrants in Germany and potential spillover effects (learning-by-doing). By employing two different in- on the productivity of German inventors. This project strumental variable approaches, ICT skills can be uses a unique dataset of patent and migration data at ICT skills have causal shown to have a causal effect on wages. The pro- the regional level. effect on wages ject also looked at whether ICT skills assist workers in carrying out abstract tasks on the job. Thus, the Innovation Incentives, Innovation Policy and study presents another channel through which broad New Technologies band infrastructure infl uences economic growth. It J. Koenen, ongoing habilitation project. Publication: also examines whether computers are complemen- Koenen, Johannes together with Martin Peitz “Firm tary to non-routine abstract tasks (such as problem reputation and incentives to “milk” pending patents”, solving and coordination); and whether they substi- International Journal of Industrial Organization 43 tute for routine tasks (those that can be accomplished (November), 2015. by following explicit rules).The paper fi nds evidence that this is indeed the case. The trends towards the The incentives of fi rms and individuals to invest in in- growing importance of these abstract tasks may be a novative fi elds and technologies depend on their eco- potential mechanism behind our result that ICT skills nomic environment, which directly depends on inno- are considerably rewarded in modern labour markets vation policies. The patent system plays a central role in this context: Three projects focus on this nexus and What Works in Innovation Policy? explore how different components of the patent sys- T. Lohse, ongoing doctoral project. tem (litigation, patents as property rights in vertical industry relationships and reputational mechanisms) Conceptually, this dissertation is located at the inter- are related to the incentives of fi rms and individuals section of evidence-based economic research and to carry out innovation investments. Complementary the evaluation of publicly-funded innovation policies, to this, a fourth project analyses both theoretically as well as empirical innovation economics in general. and empirically (using data from the German auto- The fi rst part of this project aims to review the as- motive industry) how bilateral bargaining power and pects of innovation policies that have been evaluated trust affect investments in innovative technologies. in a causal sense to date, and to draw conclusions that are relevant for policy makers. The second part deals Management in Production Evaluating innovation with the evaluation of an innovation policy in eastern T. Triebs, ongoing habilitation project, publication in policy in eastern Germany Germany. The remaining parts will investigate dif- Ifo Working Paper No. 129, 2012. ferent determinants and mechanisms of innovation- enhancing policies. This project focuses on fi rm performance and its drivers. Performance is measured by production- New Technologies and Innovative Industries function-based estimates of effi ciency, productivity, K. Candel Haug, ongoing doctoral project. or technical change. One part of the project investigates the impact of regulatory change on produc- This dissertation project focuses on the creation and tivity for energy utilities. Technical and institutional diffusion of innovation, as well as on the resulting changes enable regulatory change. It is important to market and industry structures. An initial paper re- assess the success of regulatory change in terms of visits the established measures of ICT in economic fi rm performance. Another part of the project looks literature and develops a new indicator that refl ects at the importance of management practices on fi rm recent technological developments. The initial results performance, as well as the nature of management. of a fi rm-level analysis suggest that recent technolo- It is widely believed that better management leads gies have signifi cant effects on fi rm employment. to better performance. Is this always the case? Does Notably, small fi rms shrink and large fi rms grow. A management affect labour productivity more than second paper analyses the innovation contribution of capital productivity? Does better management also

Ifo Annual Report 2015 58 Ifo Center for Industrial Organisation and New Technologies

increase the rate of technical change? This research Finally, “Corporate Provision of Public Goods” mod- on management also helps us to understand how els the coordination benefi ts that fi rms bring to fi rms react to changing regulatory incentives. shareholders. When managerial contracts refl ect shareholders’ desires for consumption and public Economics of Teamwork goods, fi rms produce the socially optimal output, de- J. Tumlinson, various ongoing research projects, publi- spite mismatches between shareholder preferences cation in Management Science 60(9), 2014. and those of society at large. Managers also redirect more profi ts toward public goods than shareholders This project explores the economics of teams, how would when acting separately. they form and when they do not, the incentives of team mates and loners, together with teamwork’s impact on public and private welfare. This project spans the behaviour of entrepreneurs, partners and shareholders, together with the interplay of culture and societal norms. Methodologically, it marries game theory and empirics.

Although team production is synergistic, it obscures individual contribution. Thus, managers cannot perfectly compensate workers. In the model of “Unob- served Ability and Entrepreneurship” individuals use pedigree to imperfectly signal their ability to employ- ers. However, individuals, whose ability exceeds their pedigree, choose entrepreneur-ship. Empirical analysis supports predictions that (a) entrepreneurs’ ability and income exceed that of similarly educated employees’, and (b) employees have better educational qualiﬁ cations than equally able entrepreneurs.

It is precisely the most talented individuals relative to employer perception who avoid teamwork in favour of solo-oriented work. In “Adverse Selection in Team Formation under Discrimination”, talented minorities strategically self-select out of traditional employment, leading to self-reinforcing, discriminatory beliefs, even when the manager assigns credit on a merit basis. Furthermore, among those working individually, discrimination victims outperform beneﬁ ciaries. Co-au- thoring behaviour in economics, where discrimination by surname exists, conﬁ rms these predictions.

In “Moral Hazard in Teamwork under Discrimina- tion”, discrimination victims, expecting lower rewards from group output, exert less effort than beneﬁ ciaries, such that a fair manager, knowing these incentives, compensates in a way that beliefs are conﬁ rmed in a Bayesian-Nash equilibrium.

59 Ifo Annual Report 2015 Ifo Center for Energy, Climate and Exhaustible Resources

The center’s research activities are determined by the empirical analysis of the transformation of energy sys- major challenges related to protecting the environ- tems, energy markets and the energy industry, as well ment, climate change, the scarcity of natural resources as the efﬁ cient design of energy policy. In its research, and sustainable energy supply. In accordance with its the center measures the success of energy policy,

name, the center is especially active in research and not only in terms of the reduction in CO2-emissions policy advice on climate and energy policy and the ef- achieved, but also in terms of economic feasibility, ac- fi cient utilisation of exhaustible resources. However, ceptance, environmental compatibility in general, as it also addresses questions regarding the provision of well as power supply security. environmental goods and services. This area’s research analyses the overall and regional The focus of the center’s research in the fi eld of Cli- economic effects of the restructuring of the energy mate and Exhaustible Resources is on the intertem- systems, as well as the question of the optimal degree poral analysis of the allocation of non-renewable re- of centralisation and regionalisation of energy supply Focus on effi ciency and sources and the effi ciency and effectiveness of climate and energy policy. Both the expansion of renewable effectiveness of climate policies. Hans-Werner Sinn’s work on the green para- energies and the realisation and implementation of policies dox highlighted the critical role played by resource energy policy measures require harmonisation be- suppliers in the effectiveness of climate policy mea- tween various regional levels. The characteristics of sures. The center’s analysis of climate and resource energy supply, as well as behavioural and acceptance policy measures therefore places a special emphasis aspects on the part of citizens, companies and state on resource supply responses. The results of this re- institutions create a tension between regionalisation search serve as a basis for providing policy-makers and centralisation. This tension is the focus of a pe- with substantiated information on the effectiveness rennial research project that takes policy implications and effi ciency of climate policy instruments. The cen- into special consideration. Another interdisciplinary ter analyses climate policies, theoretically as well as research project in cooperation with partners from empirically, under specifi c consideration of interna- a specifi c Bavarian region analyses the effects of the tional trade, extraction costs, substitution possibili- transformation of the energy system at a local level. ties, and capital market effects when the behaviour of resource owners is taken into account. An additional However, German energy policy and its impact also research area in climate change focuses on technol- needs to be understood in the context of European ogy development and adaptation under specifi c con- developments as a whole. For this reason the area is sideration of uncertainty. The center also maintains developing a model of the European electricity mar- and continuously expands an internet-based informa- ket in which renewable energy production from wind tion platform on resource and energy related topics. and sun are integrated in a very detailed manner. The Furthermore, it contributes to the existing database model contributes to a better understanding of the for the international comparison of economic institu- impacts of national and European policies, and thus tions (DICE) with indicators from the areas of climate makes an important contribution to policy advisory change and energy policy. work.

The research area Energy is closely related to the In the area of Environmental Economics, the center’s research area Climate and Exhaustible Resources, research mainly focuses on current topics from the as anthropogenic emissions mainly result from the environmental sector. Ifo has years of experience burning of fossil energy sources. Due to the great in analysing the environmental sector and its recent importance for growth and prosperity that this fi eld studies have focused on the suppliers of equipment has gained during the rapid expansion of renewable and services in the fi eld of renewable energies, as energies, as well as the German phase-out of nuclear well as improvements in energy effi ciency and energy energy, the center is increasingly focusing on energy- saving, which provides a good example of the inter- related topics. At the core of this research lies the relatedness of the center’s different research areas.

Ifo Annual Report 2015 60 Ifo Center for Energy, Climate and Exhaustible Resources

Further topics in this fi eld encompass the economic ferent types of energy, the role of international trade evaluation of the environmental effects of climate in fossil resources, as well as feedback effects from change as well as, traditionally, research on water use the capital markets and market power are often left and water management. Beyond these research activ- out of the discussion. Transaction costs and expecta- ities, the center also offers policy advice on different tions related to the demand side of future policies environment-related topics. Examples include market can affect the strength of the Green Paradox consid- analyses in the environmental sector and the assess- erably. Improved incorporation of these aspects into ment of instruments and institutions with respect to theoretical and empirical analyses can lead to better the promotion of sustainable development. Analyses insights into the quantitative signifi cance of the Green of the interactions of innovation, energy and environ- Paradox. mental policy also play a central role. The main goal of this project was to assess the signifi cance of the Green Paradox in an extended The green paradox and its Projects Completed in 2015 modelling framework and analyse its effects on the effects on the benefi ts and benefi ts and costs of climate policies. The idea was costs of climate policies Assessing the Green Paradox that the insights gained would prove useful in de- J. Pfeiffer, W. Marz, N. Jaakkola, K. Pittel in coopera- veloping and implementing effective second-best tion with the Potsdam Institute for Climate Impact measures that would pave the way for a global Research (PIK) for the German Federal Ministry of climate policy framework. In order to achieve this Education and Research (BMBF), October 2011 to goal, the project conducted theoretical analyses, as August 2015. well as numerical simulations of policy impact in the framework of the integrated assessment model The fi rst-best approach to climate policy would be REMIND. the immediate and permanent introduction of a global emission trading system for all greenhouse gases The project results provide decision-makers with in all sectors. Experience with international negotia- more accurate information on the implications and ef- tions as in Kyoto, Copenhagen or Paris, for example, fectiveness of different climate protection strategies. has shown, however, that only second- and third-best They offer a basis for the derivation of supply-side policies seem realistically attainable. The Green Par- policy measures that take the behaviour of resource Formulating supply-side adox is an important argument in the debate over owners, as well as the complex international and in- policy measures different types of climate policy. Basically, it implies tertemporal effects of second-best climate policies, that deviations from the fi rst-best policy will be in- into consideration. effective – or even counterproductive – in reducing carbon emissions from the energy sector because of Accompanying Activities to the BMBF the behaviour of fossil fuel owners. A global CO2 tax Funding Priority “Economics of Climate that rises over time, as is often discussed in literature Change” on this topic, creates incentives for resource owners K. Pittel, J. Wackerbauer in cooperation with the to increase emissions (in terms of the supply of fos- Centre for European Economic Research (ZEW), sil resources that cause emissions) in the short run. Mannheim, for the German Federal Ministry of Edu- Second- and third-best climate policies have to take cation and Research (BMBF), January 2014 to De- this effect into account and should be designed ac- cember 2015. cordingly. The goal of the accompanying activities to the The literature on the Green Paradox usually makes a BMBF funding priority “Economics of Climate number of simplifying assumptions and abstracts from Change” was to strengthen the practical appli- some of potentially important aspects. The implica- cation and use made of the scientifi c work done tions of limited substitution possibilities between dif- within the framework of this research programme.

61 Ifo Annual Report 2015 Ifo Center for Energy, Climate and Exhaustible Resources

The projects that were supported by the “Econom- true of the modelling of the international competi- ics of Climate Change” funding priority generated tiveness effects that arise from unilateral climate a variety of results to various climate-economic policies, or the feedback effects of those policies on research questions. The aim of the accompanying the supply behaviour of resource owners. Estimates Communicating project activities was to communicate these results beyond from empirical literature do not always address the results to a wider public the boundaries of the professional community to informational requirements of CGE modellers, nor a wider public. The Ifo Institute cooperated with do they necessarily reﬂ ect the restrictions underly- the Centre for European Economic Research in one ing the theoretical model. There is therefore a great of four focus areas entitled: “Energy resources and deal of uncertainty surrounding the results of CGE climate-friendly energy supply”. simulations.

This included, inter alia, the organisation of scientifi c In other fi elds of applied economic work – such as workshops and events related to the focus. These in the area of international trade, for example – re- conferences addressed topical issues of climate and searchers have recently developed methods to use energy policy debate and provided insights into cur- structural relationships consistent with theoretical rent research, as well as a platform for discussion and models to econometrically identify the parameters informal exchange between science and practice. The of the models. This ensures that the theoretical fi ndings and recommendations of the latest economic and empirical setups are compatible. This research climate research were presented as background and project made intensive use of these insights. It in- policy papers in a concise and clear form. These pub- tegrated structural estimation and proper econo- lications are aimed at decision-makers and interested metric identifi cation, based on sound theory-based parties from industry, government, politics, media and micro-founded relationships into a CGE climate and society. policy framework. The researchers with theoretical, empirical, and simulation-related backgrounds Integrated Assessment of the Instruments brought together by the project, contributed to the and the Fiscal- and Market-Based Incentives development of an integrated, internally consistent of International Climate Change Policies approach that helps to improve the quality of ap- and their Impacts (IACCP) plied policy work. One key prerequisite was the M. Zimmer, K. Pittel, A. Ciesielski, J. Dieler, J. Lippelt, generation of comparable data on various policies A. M. Montoya Gómez, G. Felbermayr, R. Aichele in that regulate, tax, or subsidize the production and cooperation with R. Tol, University of Sussex, and use of different types of energy. A lack of compa- D. Anthoff, University of California Berkeley, for the rable data has greatly hampered empirical work to German Federal Ministry of Education and Research date. A second important step consisted of working (BMBF), October 2011 to December 2015. out extensions – focusing on endogenous growth – to the FUND model, enabling a structural empirical To date past, literature on the effects and the effec- estimation of behavioural economic relationships. tiveness of (unilateral) climate policy measures has In a third step, the project team used its frame- relied heavily on work based on computable general work to gain novel insights into the effects and ef- Moving beyond CGE equilibrium models (CGEs) and integrated assess- fectiveness of existing unilateral climate policies, as models ment models. While these models are strongly in- well as the assessment of newly proposed policies. spired by theoretical economic work and concisely The project’s key tasks were to assess the instru- integrate climatological insights, their calibration and ments and the fi scal and market-based incentives numerical implementation are often based on ad of international climate change policies, to develop hoc parameterizations drawn from separate pieces indices that allow comparisons of policies between of evidence. Moreover, key economic relationships countries and policy instruments; and to quantify are typically not micro-founded, but used in a re- and compare the effects of policy measures con- duced-form format. This is, amongst other things, sidering cross-border interdependencies with other

Ifo Annual Report 2015 62 Ifo Center for Energy, Climate and Exhaustible Resources

users and providers of fossil fuels. The project also This project aimed to develop a dynamic model of aimed to identify substitution effects between dif- the European electricity sector that is suffi ciently ferent energy sources, to derive policy implications decentralized to generate quantifi able answers to from the status quo analysis of policy measures, and the crucial issues; and therefore provides the basis to assess the national and global welfare effects of for much needed policy advice. Existing models of potential policy scenarios with a focus on their long- electricity markets that are designed to focus on term consequences. long-term planning often omit key system features, while the more detailed system models tend to Development of a New European Electricity lack dynamics and breadth of scope. The model de- Sector Model veloped by the Ifo Center for Energy, Climate and C. Weissbart, M. Zimmer in cooperation with G. Exhaustible Resources in cooperation with EPRI Blanford, Electric Power Research Institute (EPRI), combines both of these criteria. It aggregates the Palo Alto, for the Bavarian Ministry of Economic Af- EU28 countries plus Norway and Switzerland into New model aggregates fairs and Media, Energy and Technology, May 2014 to 12 regions and considers the north and south of 28 countries into October 2015. Germany separately. The model is solved by inter- 12 regions temporal optimization through 2050 with 5-year In the wake of the political decision to phase out time steps with the intention of simulating a com- nuclear energy in Germany, both politicians and the petitive equilibrium under alternative scenarios. It public were optimistic about the so-called “Ener- also disaggregates generators and intra-annual time giewende”. After this burst of initial enthusiasm, segments with suffi cient resolution to capture dis- however, it became increasingly apparent that mat- patch, power fl ows between regions, and the im- ters are far more complex, and potentially much plications of increased penetration of intermittent more expensive, than initially assumed. The cur- renewable resources. rent debate is almost exclusively focused on the transformation of the electricity system, which can In the fi rst phase of the project, existing electric sys- partially be justifi ed by the role of electricity in the tem data at country level was collected. Furthermore, future. If the long-term goals of reducing green- the project team set up an in-house database for house gas emissions are to be achieved, the share of wind and solar resources. This enabled the simulation electricity in energy demand will rise considerably. of hourly renewable resource profi les at a country Without nuclear energy, the role of renewables in level, disaggregated by quality class. Phase two of the such a low-carbon system will become increasingly project focused on the development of the dynamic important. In the discussion over the future design model of the European electricity sector. The model of national electricity markets, one dimension, how- was calibrated and fi rst scenarios were run on the ever, is often ignored, although it is crucial: the inte- topics mentioned above. In September, the Ifo Cen- gration of European-wide markets and policies. Al- ter for Energy, Climate and Exhaustible Resources Two fi nal workshops though European electricity markets are essentially hosted the two fi nal project workshops, one on hosted in September liberalized, European states largely tend to focus on modelling and one on policy issues. The workshops national strategies and regulation. Integrating poli- brought together renowned researchers from energy cies and developing a trans-European renewable modelling and experts from the electricity sector and energy strategy has the potential to increase effi - politics. The main purpose of the modelling work- ciency – and thereby decrease costs – considerably. shop was to gather feedback on the model structure, Not only does the larger, and therefore potentially calibration, data and scenario set-up, as well as input more competitive market, offer potential cost re- on further model development. The policy workshop ductions, the geography and meteorological diver- served to present the new model to stakeholders and sity of Europe could also reduce both generation to discuss fi rst model results and further scenario de- and storage costs. velopment.

63 Ifo Annual Report 2015 Ifo Center for Energy, Climate and Exhaustible Resources

Electricity Generation by Technology in the Current Projects Baseline Scenario until 2050

Generation in TWh ENERGIO – The Energy Policy Turnaround 4 500 Solar Caught Between Regionalisation and Cen- 4 000 Wind tralisation 3 500 K. Pittel, T. Rave, J. Albrecht-Saavedra, T. Triebs in Bio+ 3 000 cooperation with A. Ziegler, University of Kassel, A. Gas/Oil 2 500 Lange, University of Hamburg, and the Institute of En- Hard Coal ergy Economics at the University of Cologne for the 2 000 German Federal Ministry of Education and Research 1 500 Brown Coal (BMBF), September 2013 to August 2016. 1 000 Nuclear

500 CHP-Gas/Oil In the course of the energy policy turnaround the

0 Hydro German federal government set targets for reduc- 2015 2020 2025 2030 2035 2040 2045 2050 ing greenhouse gas emissions, increasing the share of Source: Ifo Institute. renewable energies and lowering energy consumption. The implementation of the measures necessary to achieve such targets usually requires an agreement Generation Capacity by Technology in the Baseline between the federal states and municipalities, as well Scenario until 2050 as local implementation of the measures. Closely Capacity in GW 1 400 linked to the need for regional implementation and Solar independent local and regional policy measures are 1 200 Wind approaches to a decentralisation of energy provi-

1 000 Bio+ sion itself, which completes, and if necessary, replaces

Gas/Oil existing central provision. However, between the 800 regionalization of energy policy and a centralized ap- Hard Coal 600 proach there is a potential area of tension arising from Brown Coal both the characteristics of energy provision, as well 400 Nuclear as from behavioural and acceptance aspects on the 200 part of citizens, companies and state institutions. Both CHP-Gas/Oil centralized, supra-regional planning, as well as a de- 0 Hydro 2015 2020 2025 2030 2035 2040 2045 2050 centralised approach that is close to citizens have certain advantages, but cannot be readily implemented Source: Ifo Institute. at the same time.

In addition, the regional baseline situations for achieving energy turnaround targets are often very different (in terms of natural resources, the strategies of energy providers and demographic trends, for example). This baseline situation is also heavily inﬂ uenced by political lobbying.

It remains largely unclear whether the political activities of states and municipalities are economically expedient and socially desirable. A form of maximisa- tion philosophy and optimism about implementation seem widespread, and to such an extent that all levels

Ifo Annual Report 2015 64 Ifo Center for Energy, Climate and Exhaustible Resources

of government should and can implement as many considerations, this project evaluates different trans- of the measures for achieving the goals of the energy formation paths and policy approaches. The project turnaround as possible. However, there are good rea- partners specifi cally analyse questions of process fair- sons for giving the various levels of government in a ness, mechanisms to foster cooperation in the provi- Focus on process federal state differentiated tasks and competences. sion of public goods and scenarios of policy-induced fairness and cooperation technological change. Depending on the specifi c mechanisms This project aims to shed empirical light on regional question addressed, the analyses employ theoretical, aspects of the planning and implementation of Ger- as well as empirical and experimental methods. The many’s energy turnaround, and to explain the in- social and economic effects of different policies on teraction between cost effi ciency and preference households in Germany and international feed-back equality/acceptance. Different methods will be used effects will be simulated in the framework of a micro to analyse the degree to which the acceptance and simulation model, as well as a global general equilib- participation of the players involved differ at a re- rium model. Finally, questions of societies’ potential gional level; and how energy policy measures can be to adapt to change are analysed from a sociological- designed in a regionally differentiated and/or more historical perspective. The expected results of the cost-effective way. It will also explore whether en- project promise a better understanding of different ergy policy measures can be implemented in areas policy approaches to transformation. where it is least expensive to do so; and/or where the greatest untapped potential for avoiding CO2 In its contribution to the project, the department focus- emissions and innovation can be expected. Policy es on technological change and the provision of environ- recommendations will be deduced with the help of mentally-friendly technologies, which are an important theory-based criteria and the project results will be prerequisite for the success of a green transformation. made available to experts and the general public. Feasible growth and technology paths are compared The validity and transferability of the results will be with respect to their economic and climate impacts un- improved via an interdisciplinary group of experts der consideration of different forms of uncertainty. The and the organisation of workshops. process of technical change is at the center of the analysis, which aims to take potential path dependencies, InTrans – Integrated Analysis of a Green irreversibilities and technological barriers into account. Transformation The macroeconomic perspective on long-run growth, A. Ciesielski, A. Schmitt, K. Pittel in cooperation with investment and technology paths makes it possible to the Centre for European Economic Research (ZEW), draw conclusions about the distribution of welfare gains Mannheim, the Ludwig-Maximilian-University Munich and losses in an intergenerational context. and the University Bayreuth for the German Federal Ministry of Education and Research (BMBF), June A second focus of the project is on the analysis of 2015 to May 2018. suitable long-run policies to foster clean technologies. Long-term policies to In our modelling, technology paths are considered as foster clean technologies Reducing fossil fuel use to stabilise greenhouse gas an endogenous component in order to identify, in a emissions is an important element of a green trans- fi rst step, potential barriers to the adaptation of new formation. Ensuring “environmental quality” in this technologies and their path dependencies, as well as context has the character of a public good for whose to derive optimal policies. Another important goal of provision the regulator has to impose policy measures. this research is to analyse endogenous technological As the transformation process induces signifi cant long- change in view of the structural breaks and transition term changes, the design of such measures must take processes that are inevitable in the course of long-run into account acceptance of the process. The choice of development. In this context it is interesting to con- policy instruments should therefore refl ect not only sider whether and to what extent the regulator might questions of effectiveness and effi ciency, but also of be able to create investment incentives by reducing fairness and distributional impacts. In the light of these regulatory and political uncertainties.

65 Ifo Annual Report 2015 Ifo Center for Energy, Climate and Exhaustible Resources

The department’s work on the project can be ex- gional level: INOLA will provide key insights and tools pected to result in a macroeconomic growth model for civil society players and decision-makers, enabling that is soundly based on empirical observations. The them to assess the economic sustainability of differ- model will help in the design of policies that promote ent land use and energy management options, and technological change under uncertainty and will also will accelerate the joint development of innovation facilitate assessments of the impact of different poli- strategies as a result. cies. The explicit integration of uncertainty in a dynamic context constitutes a substantial scientiﬁ c contribution.

INOLA – Innovations for Sustainable Land and Energy Management at a Regional Level J. Lippelt, A.M. Montoya Gómez, K. Pittel, M. v. Schick- fus, M. Zimmer in cooperation with A. v. Streit and W. Mauser, Ludwig-Maximilian-University Munich, W. Mayer, Kempten University, and communal civil society and utility company partners for the German Federal Ministry of Education and Research (BMBF), October 2014 to September 2019.

The INOLA project aims to promote the interdisciplinary and transdisciplinary development of system solutions for sustainable land use and energy management of the model region “Energiewende Oberland” (“Oberland Energy Transition”). The Energiewende Oberland region covers three administrative districts south of Munich. The central question of the project is: which social and technical innovations are necessary in order to establish sustainable regional land use Innovations needed together with an adequate energy system. Coopera- to establish sustainable tion between municipalities and districts, as well as regional land use the reﬂ exive design of the innovation process are crucial in achieving these objectives. The primary contribution of the project is an innovation concept providing the region with the necessary process knowledge to successfully shape the transition towards a sustainable land use and energy system.

The Ifo Institute’s task within INOLA is to determine the economic impacts of different scenarios for regional energy and land use systems. An input-output model is used to identify the effects on value-added, employment and sectoral output at a regional level, and to determine innovation strategies.

The results from the Ifo Institute’s analysis will be used in the decision-making process at a local and re-

Ifo Annual Report 2015 66 Ifo Center for International Economics

There were no major changes to the department wati. In December, the center’s Director started con- structure of the Ifo Center for International Econom- sulting work with the IMF on the Transpacifi c Trade ics in 2015, which is expected to remain in its present Partnership agreement. He also cooperated with the form in the future. There was, however, some turn- Norwegian Institute for International Affairs (NUPI) over at the level of doctoral students and post-docs. on trade policy issues and is in the process of pro- Sebastian Benz left the institute for a position in the posing a study to the Norwegian government. The trade department of the OECD in Paris. The affi liated center is part of an international consortium that won doctoral student Gilbert Spiegel, who completed his a framework contract with the EU Commission (Di- PhD, started to work for a consulting fi rm. Jasmin rectorate General Trade) and submitted an offer for Gröschl, who left Ifo in 2013 for a position in the in- the ex post evaluation of the EU’s 2011 free trade surance industry, returned as a post-doc. Finally, Ms. agreement with South Korea. The center’s Director, Feodora Teti started at the Center as a doctoral stu- his deputy, together with the Ifo research professor dent in August 2015. The Center’s Director Gabriel Mario Larch and a former Ifo doctoral student, pub- Felbermayr went on a sabbatical to the Université de lished a study on TTIP in the journal Economic Policy. TTIP article published in Paris I (Sorbonne, February to March 2015), to the The center is involved in a joint project proposal for Economic Policy University of California in Davis (March to May 2015) the German Finance Ministry that brings together Ifo’s and to CEPII Paris (July 2015). The doctoral student French partner CEPII and several Ifo centers with a Ms Inga Heiland spent the winter term 2015 at the view to developing new perspectives for fostering Eu- University of Colorado, Boulder. rope’s competitiveness.

The Center for International Economics also made Two new research professors joined the center in use of and expanded its international networks in 2015: Wolfgang Keller, University of Colarado, Boul- 2015. As in 2014, these networks were drawn upon der, who was a Humboldt professor at the center in to organise conferences. The annual conference of 2014, and Marc-Andreas Mündler, University of Cali- the Economic Geography and International Trade fornia, San Diego. Wolfgang Keller is working with the Group took place on 20 and 21 March in Düsseldorf. center’s staff on a project using Ifo fi rm-level data. The conference series organised with Ifo’s coopera- Marc-Andreas Mündler is cooperating with the center tion partners GEP, Nottingham, and CEPII, Paris, also on research aimed at a better understanding of the continued in 2015. For scheduling reasons, however, labour markets of globalization and is planning a num- the event that was supposed to take place in 2014 ber of research stays in Munich in the years ahead. was not held until January 2015 in Paris. A widely acclaimed conference on the topic of export fi nancing Cooperation with national partners was also expand- was held at the Ifo Institute on 14 April. Finally, the ed in the center’s project work. The center benefi tted Center co-organised a conference on the Transatlan- from the fi nancial support of Roland Berger Strategy tic Trade and Investment Partnership (TTIP) in War- Consultants Holding to conduct work on the evolu- saw, in which the chief negotiators of the EU and the tion of collective wage bargaining structures in the Developments in collective US, Ignacio Garcia Bercero and Dan Mullaney gave context of increasing domestic and global competi- wage bargaining presentations and interacted with the audience. tion. It also further developed its successful cooperation with the Institute for Applied Economic Research The Center for International Economics also used its at the University of Tübingen (IAW). In January 2015, international network in its project work and con- Gabriel Felbermayr presented a major study for the tinued to make new strides in this area. Its work on German Federal Ministry for Economic Cooperation mega regional trade agreements continued to involve and Development on the potential effects of TTIP on international partners. The center participated in a developing countries at a large conference in Berlin CEPR e-book on the third country effects of TTIP together with Minister Gerd Müller and Secretary of and participated in a forthcoming book (MIT Press) State Brigitte Zypries. Again together with IAW, over on recent trade agreements edited by Jagdish Bhag- the summer, the center drafted a report for the Aus-

67 Ifo Annual Report 2015 Ifo Center for International Economics

trian government on the economic effects of Austria’s Munich and Berlin. This major proposal, led by Klaus entry into the EU in 1995. In the fall, IAW and the Schmidt from the University of Munich, cleared the Center collaborated on a large project for the Ger- fi rst hurdle in autumn 2015. man Federal Ministry for Economics and Energy on the effects of market liberalisation from 1990 to 2014. The Center for International Economics hosted a total of 11 guest researchers from abroad in 2015. Despite Over the summer, Gabriel Felbermayr wrote a study Gabriel Felbermayr’s sabbatical, the number of guests for the Federal Ministry for Economic Cooperation received was comparable to the number hosted in and Development on the involvement of German previous years. This was par tly due to the fact that for- German fi rms in Africa fi rms on the African continent. This analysis provided eign researchers are cooperating in several of the de- background information for the EU-Africa summit in partment’s projects and in its acquisition of additional September 2015. projects. The choice of visitors is regularly motivated by the center’s strategic objective to develop new Finally, towards the end of 2015 the Senate of the Leib- competences in the area of the Chinese economy, for niz Association announced its decision to fund an am- example, or to develop new partnerships with a view bitious three-year project QUANTAGG – Quantita- to acquiring interesting project work. tive Analysis of Global Governance, led by the center’s post-doc Rahel Aichele. The project aims to further The center’s research primarily focuses on the develop quantitative methods for the analysis of trade following areas: policy and international agreements. The center is also – Globalization and labour markets, involved in a similar three-year project ENGAGE – Eco- nomic Growth Impacts of Climate Change – scheduled – Trade costs and trade policy to start in early 2016 and led by the Potsdam Institute – Trade and environmental policy. for Climate Impact Research (PIK). In the fi rst area, the center is supported by Ifo re- The center also continued its long-standing cooperation search professors Devashish Mitra, Maxwell School with the Bertelsmann Foundation. In 2015, the Founda- of Public Administration, Syracuse University, Marc- tion commissioned a study on the potential economic Andreas Mündler, University of California, San Diego, effects of an exit of the United Kingdom (BREXIT) and Assaf Razin, Cornell. In the second area, it is sup- from the European Union, which received over 1,000 ported by Ifo research professors Wolfgang Keller, citations in international media. The cooperation also University of Colorado, Boulder, Mario Larch, Uni- yielded a study on the role of international trade in eco- versity of Bayreuth, and Wilhelm Kohler, University of nomic inequality. This work, which also involved Daniel Tübingen. Peter Egger, ETH Zurich, provides advice in Baumgarten from the University of Munich, showed all of the center’s research areas. that international trade has played only a minor role in shaping the evolution of the distribution of gross wages The analysis of the effects of globalisation on labour International trade and in Germany. Finally, the center produced a study on markets has always been a major part of the depart- gross wages in Germany the Transpacifi c Trade and Partnership agreement that ment’s work in the past. This research attempts to the US has successfully negotiated with eleven other incorporate various types of labour market imperfec- countries in the Pacifi c region. Work started on joint tions into models of international trade, outsourcing projects to evaluate the options of developing the Eu- and international migration; and to numerically or em- ropean Union’s cooperation with Turkey and Russia in pirically quantify their effects. A new article by the de- 2015; initial results are expected in spring 2016. partment head, together with G. Impullitti, University of Cambridge, and J. Prat, Centre de Recherche en The center’s Head is involved in preparing a large- Économie et Statistique, Paris, shows how wage distri- scale research proposal in a special research area bution for homogeneous employees can be deduced together with colleagues from the universities of from the interaction of search frictions, convex ad-

Ifo Annual Report 2015 68 Ifo Center for International Economics

justment costs and nominal wage rigidity. Key insights German Bishops’ Conference. He also continued to from this research will be used in a recent consulting advise political parties on issues related to free trade project for the European Parliament. The center head agreements. also published a chapter in the new Handbook of the Economics of International Migration, together with As part of the center’s basic research, Erdal Yalcin Wilhelm Kohler, University of Tübingen, and Volker and Ifo research professor Wilhelm Kohler, Universi- Grossman, Université di Fribourg. ty of Tübingen, continued to work on the DFG project “Dynamic Aspects of Offshoring”. One of the Dynamic aspects of In terms of the center’s applied work, the refugee issues addressed as part of the project is the relation- offshoring crisis played a large role. With co-authors from the ship between economic uncertainty and the grow- Ifo Center of Excellence for Migration and Integration ing fragmentation of production. In addition to basic Research (CEMIR), Michele Battisti and Gabriel Fel- research on the topic, Yalcin and Kohler coorganised bermayr produced a series of policy briefs published a workshop at the CESifo Summer Institute in Ven- in the ifo Schnelldienst. Their purpose was to present ice. The keynote speakers were Pol Antràs, Harvard the results of the Ifo migration model (a quantitative University, Kalina Manova, Stanford University, and general equilibrium model featuring unemployment, Ngo Van Long, McGill University. The project will wage bargaining, a redistributive public sector, and run into 2016. classical labour market complementarities), to provide insights from a survey of fi rms asked about their Finally, the department continued and intensifi ed its assessment of the employability of refugees, and to activities in the fi eld of trade and environmental pol- offer much needed transparency on numbers, the icy. This research mainly highlights the question of qualifi cations of refugees, and the implications that the role of international trade fl ows in making econ- the latest wave of migration has for public fi nances. omies more resistant to global climate change. The Gabriel Felbermayr gave a number of public speeches impact of climate shocks can be lessened by strong on this topic in 2015. participation in the international division of labour; at the same time, however, there is the danger of The department continued its work in the area of an outfl ow of capital and skilled labour. The center trade costs and trade policy. This strand of research has compiled and published online the Ifo GAME looks at how high the natural and policy-induced database, a database that contains Geological And Ifo GAME database trade costs are, what measures can be taken to re- Meteorological Events from across the world on an duce them and the trade potential that can be re- extremely disaggregated regional scale from 1970 to alised in this manner. 2014. These data were used in an article published by Gabriel Felbermayr and Jasmin Gröschl in the As in the last two years, there continued to be lively Journal of Development Economics and have been interest in the analysis of a potential free trade agree- requested by numerous scholars worldwide. The ment between the EU and the USA in 2015. This top- database is a key information source for the center’s ic attracted a tremendous amount of media attention participation in the PIK-led research project EN- over the course of the entire year. The center’s Di- GAGE (see above), which will be offi cially launched rector gave a series of interviews in the national and in March 2016. The center’s work in this area has international press, as well as presentations on the increasingly focused on issues of international devel- economic effects of the agreement at a wide range opment in recent years, and will continue to do so of conferences including, for example, a keynote ad- in the years ahead. dress at the ADRES conference in Paris, a talk at the German Economic Association’s meeting in Münster, and at a TTIP conference at the Warsaw School of Economics. He testifi ed twice before the German Bundestag, and co-authored a position paper for the

69 Ifo Annual Report 2015 Ifo Center for International Economics

Projects Completed in 2015 lation to TTIP. This was followed by 12 expert interviews with key representatives from business and civil Potential Impact of TTIP on Developing and society. Based on this conceptual groundwork, the Emerging Countries results of several existing quantitative studies were G. Felbermayr, R. Aichele, E. Yalcin in cooperation with evaluated. Finally, nine detailed case studies were Ifo research professor W. Kohler, University of Tübin- made of countries that are interesting from a devel- gen, G. Klee for the German Federal Ministry of Eco- opment policy point of view. Based on this work, the nomic Co-operation and Development, October 2014 study ends with ten policy recommendations. to January 2015, publication in ifo Forschungsbericht No. 67, Ifo Institute, Munich 2015. The sheer size of the transatlantic economy means that TTIP will have an impact on developing and Although TTIP will incorporate a classic free trade emerging economies. On the one hand, higher in- TTIP to help defi ne agreement, the two sides also want the partnership come in the EU and the USA will increase demand for world trade rules for to make a contribution towards defi ning the rules goods and services in third countries, which should 21st century of world trade for the 21st century, especially in the benefi t them. On the other hand, the agreement can area of regulatory cooperation. TTIP should directly be expected to divert trade fl ows from TTIP part- impact around 45 percent of global value added and ners away from third countries, which will be detri- 30 percent of world trade. According to the latest mental to the latter. On balance, there will be both estimates, Germany’s real per capita income will winners and losers among the developing countries. grow by between 1.0 percent and 3.5 percent in the However, the effects on both groups will be small; long term as a result of TTIP. But impacts on third and several parameters can be adjusted to make the countries must also be expected. Excluding energy winner group as large as possible. resources, the EU imports more from developing countries than the US, Canada, Japan and China Microeconomic analyses report limited negative real combined. But the United States is also an important income effects for 42% to 80 % of third countries. market for developing countries. For 30 percent of Even if the trade costs of third countries stand to fall third countries, trade with TTIP countries accounts due to TTIP (“spillover effects”), this decrease will for over 50 percent of export turnover. range from 3% to 40%. The cumulative prosperity losses over 10 –12 years will amount to less than 1% The negotiating mandate of the EU Commission of per capita income. Against a background of annual repeatedly highlights sustainable development as a growth rates of 3 to 4%, these effects seem small. major goal of the contracting parties and states that The exporters of raw materials or countries that are the Commission is committed, in principle, to making involved in the value creation chains of EU or US TTIP committed to TTIP development-friendly. It envisages monitoring manufacturers tend to be positively affected. By con- sustainable development sustainability, not least from a development perspec- trast, exporters of clothing, shoes and citrus fruits, for tive, based on regular dialogue with other stakehold- example, tend to be negatively impacted. ers, including civil society. The present study looks at whether and how TTIP could become the basis for an Since TTIP is supposed to prove a success for as equitable and revised multilateral world trading sys- many developing countries as possible, the agreement tem. The factors that are needed for this should be should (1) forego complex rules of origin unless abso- taken into account in the negotiations. lutely necessary, (2) expand recognition of transatlantic standards to third countries as far as possible, (3) The study drew on analyses of literature, expert in- give developing countries rights to information on the terviews and case studies. It proceeded in fi ve steps: work of the planned regulation boards, (4) prevent the fi rstly, existing theoretical literature on the trade redirecting of protectionist measures towards “TTIP- diversion and trade creation effects of preferential outsiders” and (5) develop a credible prospect of third trade agreements was presented and examined in re- and developing countries participating in the future.

Ifo Annual Report 2015 70 Ifo Center for International Economics

To ensure that TTIP contributes to the development In 2012 the Ifo Institute analysed the “Employment ef- of a fair world trade order, the EU’s long-term inter- fects of export credit guarantees issued by the Fed- national trade policy needs to be oriented towards eral Republic of Germany (Hermes coverage)” us- (1) further lowering the customs and trade barriers ing econometric methods. The study illustrates that for particularly relevant export goods (e.g. textiles, Hermes guarantees promote German exports and, in shoes, cotton, tobacco), (2) offering political and turn, employment by lessening the impact of a par- technical support to developing countries in forming tial failure in the capital markets. In this sense Hermes their own regional free trade agreements, (3) ex- guarantees can be seen as a regulatory policy instru- panding the existing trade agreements between the ment that compensates for a gap in the market system. EU and various developing countries, (4) promoting the involvement of developing countries in global val- Against the background of increasingly international ue creation chains with suitable development policy supply chains, this follow-up study focused on the em- instruments and (5) reinforcing the WTO’s role as ployment-creating effects of export credit guarantees Export credit guarantees the effective advocate of smaller, poorer states. in companies with different shares of foreign value and employment added. It investigated the extent to which companies Follow-up Project: Global Trade and Wage with high shares of foreign value added create jobs in Inequality: Facts and Challenges Germany, and whether increasing the share of for- G. Felbermayr, S. Lehwald for the Bertelsmann Foun- eign value added that can be covered would lead to a dation, October 2014 to March 2015. change in the employment effect of Hermes guarantees. These results made it possible to assess whether This study analysed the change in German wage inequal- the approval of a higher share of foreign value added ity over the years from 1996 to 2010 based on social in the provision of Hermes guarantees would have security data from the research data centre of the fed- positive or negative effects on domestic employment. eral employment agency. This study was an update of a Unlike in earlier studies, the employment effects cre- previous project completed in 2014 for the Bertelsmann ated abroad were identiﬁ ed and plausible case study Foundation. It aimed to incorporate recent insights and analyses were used to simulate the potential effects of results from related research, conducted with Daniel a change in current rules. The results presented aim Baumgarten, University of Munich. The main part of the to promote the further development of this govern- study attempted to identify the most important drivers ment instrument, especially in terms of sensible regu- of wage inequality in Germany from the mid-1990s on- lation of the approved foreign value added share of wards. It found that classical factors such as changes in the exports that can be covered by Hermes guarantees. education and age structure of the workforce, together with changes in the remuneration of these factors, are Net Employment Effects by Hermes Coverage largely driving the increase in wage inequality. Another important factor for the increase in wage inequality, how- No informaon ever, is the decline in the collective bargaining coverage of 31% German plants over the considered time period. 8% No eﬀects on employment Assessment of the Net Employment Effects Creaon of 12% of a Change in Rules on Foreign Value Added addional jobs in the German Federal Government’s Export Credit Guarantee Scheme (Hermes Coverage) E. Yalcin, G. Felbermayr, A.-N. Sandkamp for the Ger- 49% man Federal Ministry for Economic Affairs and En- Secure exisng jobs ergy, October 2014 to March 2015, publication in ifo Forschungsberichte No. 68, Ifo Institute Munich 2015; ifo Schnelldienst 68(13), 2015. Source: Survey of the Ifo Institute.

71 Ifo Annual Report 2015 Ifo Center for International Economics

While existing cover policy is suffi ciently fl exible for land (“soft exit”), but also a scenario the UK’s isola- the majority of companies, the study fi nds that allow- tion, in which the country loses preferential access to ing higher foreign content shares would create ad- the Single European Market and all of the EU’s free ditional employment in Germany and Europe. Finally, trade agreements with third countries. the study includes a critical discussion of passing default risks on to countries whose companies have a The project’s key results are: share in German exports. 1. The costs of the Brexit for the United Kingdom range between 0.6 and 3 % of the per capita income Costs and Benefi ts of Britain’s Exit from the (GDP per capita) in the base year in static models – European Union (BREXIT) depending on whether the Brexit takes place as a G. Felbermayr, R. Aichele for the Bertelsmann foun- “soft exit,” or (less likely) an “isolation of the UK.” dation, January 2015 to April 2015. If dynamic effects that illustrate the impact of economic integration on investment and innovation After winning the UK’s general elections on May 7, 2015, behaviour are taken into account, the costs in- the Tories announced a referendum on Britain’s exit crease to between 2 and 14%. (“Brexit”) from the European Union for the year 2017. 2. For the United Kingdom, leaving the EU would yield a potential fi scal saving of 0.5% of the GDP In recent years Britain has been the second and third at most. As such, the static models make clear that biggest net contributor to the EU and made almost a Brexit, on balance, would not yield a profi t for 10 billion euros in net payments to Brussels in 2014. the UK; and that its net cost – depending on the Britain is not in the Eurozone or in the Schengen area. scenario – could be extremely high. Certain EU rules like, for example, freedom of move- 3. The economic uncertainty that a Brexit would ment within the EU, or the EU Working Time Direc- unleash for the UK and other EU member states tive are increasingly coming under fi re. Britain’s exit would be huge, certainly for the fi rst few years would mean its withdrawal from the European Cus- after the decision was taken. The broad spectrum toms Union and the internal market. The EU’s foreign of predictions demonstrates this uncertainty. The trade agreements, of which there are now almost resulting indirect costs for economic momentum 40, would no longer apply to Britain. Around half of are diffi cult to quantify, but could be signifi cantly Britain’s foreign trade, foreign direct investment and higher than the direct costs of increasingly diffi cult Economic implications of labour migration respectively takes place with other market access. a Brexit EU member states. This would seem to suggest that the economic risks of a Brexit are signifi cant. These 4. A Brexit would entail very high costs for some of the remaining EU member states. On one hand, risks, however, would be very unevenly distributed they would need to compensate for the UK’s across the various economic sectors. Other EU eliminated net contribution to EU fi nancing. On member states would also be negatively impacted by the other, EU companies would also have poorer a Brexit, and to a growing degree the closer their links access to markets in the United Kingdom. How- to Britain. ever, these costs would differ widely depending on the countries’ intensity of economic relations This project aimed to assess the net economic costs with the UK. The biggest losers – after the United of a Brexit for Britain and other EU members. A criti- Kingdom – would be Ireland, Malta and Luxem- cal factor is the scope that Britain will have to rebuild bourg, which maintain strong economic relation- its foreign trade relationships in the wake of a Brexit. ships with the island kingdom’s fi nance sector. This, in turn, will depend heavily on the attitude of its These countries would have to accept heavy losses trade partners (e.g. the rest of the EU). This analy- similar in magnitude to those in the UK. According sis used Ifo’s foreign trade model to examine several to the results of static model simulations, Germany’s different scenarios, e.g. a scenario in which the EU losses would be relatively moderate (0.1 to 0.3%), grants the UK a status similar to Norway or Switzer- but could be much higher in dynamic models

Ifo Annual Report 2015 72 Ifo Center for International Economics

(0.6 to 3.0%). Germany would need to transfer econometric methods, to simulate various climate an additional €2.5 billion to Brussels to compensate scenarios and their impact on trade fl ows and the for loss of the UK’s fi nancial contribution to the EU resulting carbon leakage taking into consideration budget, if the present contribution mechanism were general balancing effects. to remain unchanged. 5. Findings in academic literature show that the Megatrends in World Trade: Opportunities United Kingdom has enjoyed both fi scal and labour and Challenges for the Bavarian Economy market benefi ts from the immigration of EU G. Felbermayr for the Bavarian Chamber of Com- citizens. If half of EU immigrants were to return to merce and Industry, March 2015 to June 2015. their home countries, Britons could expect a lower per capita income of between 2 and 5 % in the Bavaria’s companies are now more successful than ever long term. There would also be signifi cant effects on the world market. The Free State’s exports recently on innovation and investment dynamics. totalled 170 billion euros; and 25% of employees de- 6. At a sectoral level, a Brexit would most heavily pend directly or indirectly on exports. But the world impact the UK’s mechanical engineering, automotive is changing at a rapid pace: new technologies, new and chemicals industries. The EU’s MFN import markets and diverging demographic trends are lead- tariffs are relatively high in these areas. However, ing to a shift in power relations. This project outlined the fi nance industry could be the biggest loser. long-term trends in the export markets, supply mar- Long-term trends in Conversely, this industry would benefi t in coun- kets and production locations of the future. It draws on export markets tries like Germany, France and Luxembourg. On the long-term forecasts of various international institu- the continent, losses would be concentrated in the tions and the Ifo partner institutes CEPII Paris. It clearly automotive, food and paper industries. showed that the markets of the future are outside of Europe and that they are of largely not yet covered 7. Since a Brexit would also have a negative impact on the remaining EU member states without timely by free trade agreements. To ensure the prosperity and generous negotiations on new terms of co- of Bavaria, which depends far more heavily on inter- operation, they have a strong incentive to quickly national trade than many other regions in Europe, the negotiate follow-up agreements with the United offensive design of world trade system rules is more Kingdom, which could, in turn, limit the costs for important. However, economic policy homework also the UK. has to be done nationwide and this primarily includes an improvement in the investment climate. Integrated Assessment of the Instruments and Fiscal and Market-Based Incentives of Short and Long-Term Policy Requirements International Climate Policy and Its Impact to Achieve Sustainable Economic Growth (IACCP) and Employment in Croatia G. Felbermayr, R. Aichele, I. Heiland in cooperation E. Yalcin, T. Steinwachs in cooperation with other Ifo with the Ifo Center for Energy, Climate and Exhaustible Centers for the die Croatian Statehood Foundation, Resources, R. Tol, University of Sussex, D. Anthoff, Uni- Zagreb, September 2014 to December 2015. versity of Michigan, for the German Federal Ministry of Education and Research, October 2011 to April 2015. In the context of this project, the department particularly analysed the development of foreign direct in- This project aimed to conduct a consistent, inte- vestment in Croatia, as well as Croatian exports over grated, micro-based estimate of the impact of uni- the past decade, and derived recommendations aimed Improving Croatia’s lateral climate policy. The Center for International at improving Croatia’s international competitiveness. competitiveness Economics investigated international competitive effects. To this end, international trade fl ows were In this analysis, economic indicators are used to fi rst modelled using a structural gravity model. Relevant identify a reference group of countries with an eco- model parameters were structurally estimated using nomic performance that corresponds to Croatia’s.

73 Ifo Annual Report 2015 Ifo Center for International Economics

The data analysis reveals that the development of ex- gaining agreements in the trade sector has changed ports and FDI attraction was much weaker in Croatia signifi cantly: since 2000 the share of jobs governed compared to its reference countries. A major reason by a collective wage agreement has fallen from al- for Croatia’s relatively weak economic development most three quarters to less than half. Only one in in these two areas can be found in the insuffi cient three companies has a collective agreement. It also competitiveness of Croatian unit labour costs, par- emerged that companies with collective wage agree- ticularly since the country’s deepening integration ments tend to be bigger and older than those with- into the EU. out. They also paid 25% to 32% higher wages on average. Using econometric panel data analyses, the average effect of a change in unit labour costs on per capita Developments in Collective Wage Agreements in growth within the reference countries is derived. Wholesaling and Retailing Unit labour costs, FDI and Thereby, the average effect of the change in unit la- in % 80 exports bour cost on exports and FDI, which in turn results employees in an adjustment of per capita income, is identifi ed Western Germany companies explicitly. 60

In a ﬁ nal step, the derived average effects are used 40 for simulations quantifying the politico-economic Eastern Germany consequences of an internal and external devalua- tion. These simulations aim to present reliable rec- 20 ommendations for action to political decision-makers

and to communicate target-oriented economic re- 0 forms, which can lead Croatia out of its economic 2000 2002 2004 2006 2008 2010 stagnation in the medium term. The results of these Source: Ifo Institute calculations based on LIAB data. analyses have been documented, critically discussed at Croatian-German expert meetings, and processed into a policy paper. 20 Years of Austria in the EU – Challenges and a Blueprint for Future Action Commitment to the Collective Bargaining G. Felbermayr, R. Aichele in cooperation with B. Boock- Agreement in Retailing: Trends and Wage mann and W. Kohler , University of Tübingen, for the Effects Austrian Federal Ministry for Science, Research and G. Felbermayr, S. Lehwald for the Roland Berger Business March 2015 to May 2015. Strategy Consultants Holding GmbH, April 2015 to Juni 2015, publication in ifo Schnelldienst 68(11), 2015. Austria has been a full member of the European Union for 20 years. The country has developed very Price structure in German The project looked at the price structure in the Ger- favourably over this period: purchasing power per retailing man retailing sector. A descriptive approach was capita has risen from around 30,000 euros in 1995 selected to paint a picture of the current collec- to 44,000 euros in 2014 – an increase of 47%. The tive bargaining situation in German retailing without country’s commodity exports have more than tri- theoretical classiﬁ cations or complex econometric pled since 1995 from around 42 billion euros to 128 assumptions. The analysis was based on a socalled billion euros; while the country’s traditional negative LIAB data set, which was provided by the Institut balance of trade has shrunk to less than 2 billion eu- für Arbeitsmarkt und Berufsforschung (IAB) of the ros. Between 50 % and 64% of Austria’s per capita German Federal Employment Agency. The result of gross domestic product (GDP) is now generated by the analysis, which spanned the period from 2000 to international trade and the number of employees 2010, showed that the importance of collective bar- in Austria has risen to over 3.5 million in 2014. In

Ifo Annual Report 2015 74 Ifo Center for International Economics

this study researchers from the Ifo Institute and the New Trade Rules for China? Opportunities IAW Tübingen focused on the question of whether and Threats for the EU and to what degree Austria’s EU accession can be E. Yalcin, G. Felbermayr, A. Sandkamp for the Euro- held causally responsible for this success story. The pean Parliament, October 2015 to November 2015. results of the Ifo study show that at least 2 % of Aus- trian purchasing power per capita and per year (per A large number of World Trade Organisation (WTO) 2014) is purely due to the effects of EU member- member states continue to classify China as a non- ship that boost static effi ciency. If dynamic effects market economy, including the European Union and are included, the benefi ts are even more substantial. the USA. The legal basis for this classifi cation lies in EU membership has boosted Austria’s trade with China’s protocol of accession to the WTO dated EU countries by at least 15% on average. All eco- December 2001. Article 15 of the protocol enables nomic sectors increased their EU exports, especially WTO member states to decide, on the basis of their the key sectors of mechanical engineering (+54%), own national legislation, whether or not China is a Is China a market vehicle manufacturing (+88%), chemistry (+80 %) market economy. China is generally seen as a country economy? and company services (+87%). The reduction in the in transition from a centrally planned economy to a fi xed costs of access to European markets primarily market-based economy. A country’s economic sta- helped mediumsized companies in Austria. Austria’s tus nevertheless plays an important role due to the (southern) eastern neighbours – especially Slovenia, trade policy protective instruments allowed within Hungary and Slovakia – are benefi ting tremendously the WTO, for it legally determines the comparability from Austria’s EU membership. of prices, as well as the calculation of the dumping margin. Paragraph 15(a) in China‘s accession proto- Austrian per capita gross domestic product has col allows member states to ignore prices and costs been almost 5% higher since 1998 than it would in the Chinese market and to use data from third have been if Austria had not joined the EU. Be- countries to calculate the corresponding dumping tween 1995 and 2008 this corresponded to a cu- margin instead. This presupposes that the Chinese mulative additional value creation of 19,000 euros exporters in question cannot clearly prove that they per capita. The advantages of membership are at are acting under market economy conditions. least four times higher than Austria’s net contributions (1.25 billion euros, and/or 0.4% of GDP) to Article 15 paragraph (a) (ii) of China’s accession the EU budget. If dynamic effects are taken into protocol to the WTO expires on December 2016. consideration, the advantages are up to 20 times as This short study examined the economic and politi- high as Austria’s contribution. The positive income cal implications arising from the potential European effects of European integration are largely level ef- strategies related to China’s treatment against this fects: an annual repeated increase in income de- background, including the possibility of China being spite unchanged growth rates. These effects were granted a market economy status. somewhat higher in the fi rst decade of Austria’s membership than in recent years. In other words, Detailed Factsheets on the Trade Effects of the growth stimulus provided by EU expansion Free Trade Agreements is gradually fading. Fresh stimuli could come from R. Aichele, G. Felbermayr for the Bertelsmann Foun- a further deepening of the EU internal market in dation, June 2015 to November 2015. the areas of services, digital business and electrical energy, for instance. The EU’s collective interna- After fi ve years of intensive negotiations, a politi- tional trade policy could also drive fresh growth. cal consensus was reached on 5 October 2015 on TTP signed after fi ve years Ultimately, medium-sized and young companies in a trans-Pacifi c free trade agreement (TPP) between particular need better access to venture capital in the USA and eleven other neighbouring states on order to fully capitalize on the growth opportuni- the Pacifi c Ocean (Australia, Brunei, Chile, Canada, ties offered by global markets. Japan, Malaysia, Mexico, New Zealand, Peru, Sin-

75 Ifo Annual Report 2015 Ifo Center for International Economics

gapore and Vietnam). This marked the creation of The Effects of Market Liberalisation in the world’s biggest free trade area, with 800 million International Trade for Business, Growth consumers and a gross domestic value added of 28 and Jobs in Germany, 1990 –2014 trillion US dollars, or around 37% of world GDP. In G. Felbermayr, R. Aichele, E. Yalcin in cooperation addition to the removal of traditional trade barriers with W. Kohler, University of Tübingen, for the Ger- like customs and excise and quotas, the agreement man Federal Ministry for Economic Affairs and Energy features regulations on non-tariff barriers, working (BMWi), June 2015 to November 2015. standards and new technologies. This project investigated the effects of the growing This study quantifi ed the potential prosperity effects globalisation of the German economy on international that TTP could bring its partners, as well as the ef- trade and domestic per capita income. This research fects on non-members like China and the EU. Finally, it primarily focused on the EU’s eastward expansion Potential prosperity quantifi ed the benefi ts lost by the other TTP countries and preparation for it through the Europe agreement effects of TTP as a result of China’s exclusion. TPP could boost world at the beginning of the 1990s, China’s accession to the income by around 1%, with participants in the agree- World Trade Organisation in 2001 and various EU ment enjoying signifi cant benefi ts. Australia, Vietnam free trade agreements (with Turkey, South Africa and and the USA stand to see their per capita income in- Chile, for example). crease by 5%, 5% and 2% respectively. In contrast to China, which will be a clear loser, other non-participat- Involvement of German Firms in African ing countries also stand to benefi t from TTP, especially States as additional economic growth in the Pacifi c region Gabriel Felbermayr, Erdal Yalcin for the Federal Minis- will lead to higher demand for exports. An agreement try for Economic Cooperation and Development, July including China would benefi t the world and the ma- 2015 to September 2015. jority of TTP countries, as well most non-participating countries, but not the USA. For Germany it emerges Africa is a continent with huge potential. However, it that the automobile industry in particular could come also faces enormous challenges. Recently, economic under pressure from TPP, since Japanese and US auto- growth has been high in many countries. Africa’s motive manufacturers may source more from suppli- population will double by 2050, but per capita in- ers in Asia as a result of the agreement. comes remain very low. The involvement of German fi rms in Africa is rather weak, with the eception of Optimal Immigration Policies in Europe: South Africa. Germany is Africa’s fi fth most impor- From Confl icting Interests to Mutual Gains tant supplier, but its market share in the continent M. Battisti, supported by the Leibniz Association has eroded from 14% in 1992 to 5% in 2013. Ger- (SAW), January 2012 to December 2015. many mostly exports manufactured goods, while agricultural goods tend to play only a minor role. The Ifo Center of Excellence for Migration and In- Germany is the eighth most important market for CEMIR set up in 2012 tegration Research (CEMIR) was set up in January African exporters, but growth in trade has lagged 2012. This center combines expertise from different signifi cantly behind the dynamics seen in Africa’s institutions, different countries, and separate fi elds in trade relationships with other countries. Interesting- economics. It constitutes the node of a lasting net- ly, energy and mining pro-ducts dominate Germany’s work with the goal of providing public goods to the imports to a lesser degree than those of other coun- research and policy communities in the form of analy- tries. This is related to the fact that there is virtually sis, data, policy briefs, workshops and conferences, no foreign direct investment (FDI) by German fi rms the education of young academics and a new inte- in extractive resource sectors. Instead, German FDI grated assessment model. For further details, see the is concentrated in the know-how intensive automo- chapter on the Ifo Center of Excellence for Migration tive industry. However, Africa acounts for less than and Integration Research (CEMIR). 1% of Germany’s total FDI and this fi gure is only

Ifo Annual Report 2015 76 Ifo Center for International Economics

growing very slowly. German businesses could stand equality in income and wealth seems to be increasing to profi t from growth opportunities in Africa; and steadily. The empirical evidence of this development, their involvement could also spur local economic de- however, is rarely called into question. Interdepen- velopment. An appropriate institutional framework dencies such as, for example, lower unemployment and political assistance is required to facilitate more among the low-skilled and gross wage distribution, are trade and investment. For example, the study shows not taken into account; the changing composition of that free trade agreements are highly effective in labour force potential is excluded; the very clear dif- fostering African exports, and that bilateral invest- ferences in trends in gross and net values (in income ment treaties are necessary conditions for German distribution, for example) particularly in Germany, FDI in Africa. are not suffi ciently highlighted; and the role of public goods and the size and/or composition of households is not taken into consideration. On the basis of the Rising economic inequality Current Projects apparent dramatic increase in economic inequality, calls for radical measures there are calls for radical economic measures such as, In-Depth Analysis of TTIP and Jobs for example, intervention in primary income distribu- G. Felbermayr for the European Parliament, October tion or changes in taxation policy. The introduction 2015 to January 2016. of a minimum wage on 1 January 2015 and calls for its rapid increase to 10 euros are examples of these This study examines literature on the labour market demands. There is a danger that the Agenda 2010 re- effects of European international trade policy in gen- forms will be repealed. There are also discussions on eral, and the agreement currently under negotiation raising income tax rates and various forms of taxes on of a Transatlantic Trade and Investment Partnership wealth. The long-term negative side-effects of these specifi cally. The critical analysis of academic literature measures on, for example, employment, education should lead to a realistic assessment of the agree- incentives and economic growth, are not mentioned ment’s impact. To this end it will draw heavily on pre- in the current debate. vious work by the Ifo Center for International Eco- nomics. More recent literature, in contrast to older This research project uses data from the Socio- traditions, refers to systematic labour market effects Economic Panel (SOEP) and data on wages and created by stronger international integration of the employment from the Institut für Arbeits- und markets for goods and services. This should be com- Berufsforschung to analyse the structure and dy- pared with other market reforms, which initially only namic of income and wage inequality in Germany have an impact on the domestic market. Lower barri- since Agenda 2010. A superfi cial look at the data ers to market entry, stiffer competition and a greater available reveals that the assertion that the aver- specialisation in competitive fi elds can increase incen- age earner‘s real gross income in Germany is falling tives to create additional jobs. This primarily applies has to be qualifi ed. For today’s average earner has Changes in profi le to the long term, since adjustment costs arise in the other socio-economic characteristics than he used of average earner short term in the form of temporarily higher unem- to have in the past. The assertion that the Hartz re- ployment. forms were unfair because they increased inequality also merits closer consideration. The reforms have Structure and Dynamic of Income and Wealth made the distribution of household income from Inequality in Germany since Agenda 2010 earnings more equal through higher employment G. Felbermayr, S. Lehwald, M. Battisti for the Stiftung and participation rates in the labour market. Lastly, Familienunternehmen, October 2015 to January 2016. the widespread assumption that the distribution system structured by taxes, transfers and public The debate over the distribution of wealth and in- goods no longer functions is not true. Compared come has been going on in Germany for some time. to other countries Germany distributes wealth on a The basic tenor of the debate seems to be that in- large scale and effectively.

77 Ifo Annual Report 2015 Ifo Center for International Economics

Free Trade from Lisbon to Vladivostok: panies. The study looks at the following questions: Who Will Benefi t from a Eurasian Trade (i) What are the economic implications of Turkey’s Agreement and Who Will Be Harmed by It? inclusion in the European customs union? (ii) What R. Aichele, G. Felbermayr, J. Gröschl for the Bertels- economic effects are to be expected in Turkey and mann Foundation, November 2015 to January 2016. the EU if the free trade agreement currently under negotiation is ratifi ed and the asymmetry of the Eu- Free trade between Europe the Eurasian customs ropean-Turkish customs union continues to exist? (iii) union dominated by Russia (EZU: Kasakhstan, What economic adjustments are to be expected in Kirgizia, Russia, Tajikistan and Belarus) could offer Turkey and the EU if one of the potential agreement signifi cant economic advantages for the countries adjustments is made in the light of new EU trade pol- involved; as Russia’s economic structure, geared icy (iv) What would a mid-term integration path for towards commodities and primary industries, is Turkey look like? complementary to the EU’s. To date there has been no quantifi cation of the economic effects of a free Dynamic Aspects of Offshoring trade area between the EU and EZU that would E. Yalcin, S. Benz, I. Heiland in cooperation with Ifo include additional countries with which both Rus- research professor W. Kohler, University of Tübingen, Free trade area between sia and the EU already have free trade agreements, for the German Research Foundation (DFG), January EU and EZU especially the Ukraine. The study will begin by es- 2013 to June 2016. timating the potential trade and income effects of such an agreement. Thanks to its dynamic perspective, as well as its consideration of uncertainty, this project should make a EU Integration of Turkey at a Crossroads major contribution to the existing literature on the E. Yalcin, G. Felbermayr, R. Aichele for the Bertels- relocation of production stages abroad (offshoring). mann Foundation, November 2015 to January 2016. Dynamic models enable the analysis of long-term effects that arise through the accumulation of real or In May 2015 the Turkish government together with human capital (education, R&D). By taking uncertain- European Union representatives announced a dec- ty into consideration, the international fragmentation laration of intent to update and deepen the existing of production can be explained as a key strategy for customs union between both parties. This desire coping with shocks or volatility in the areas of pro- to deepen relations between the EU and Turkey duction and demand. This can partly explain empiri- free from the stagnating EU acquis is surprising, but cal anomalies related to fl uctuation in employment may represent a step towards averting the threat in various countries. From a practical standpoint this of a rift in the economic trade relations between strategy seems natural, but it has barely been men- the two regions. While no major progress has been tioned in literature on the topic to date. If the per- made in political negotiations over Turkey’s acces- spective is extended to include dynamic relations and Bilateral economic sion to the EU in recent years, bilateral economic elements of uncertainty, new normative issues are al- relations developing relations have developed very positively, despite most inevitably brought into play. The project should positively the fact that Turkey’s membership of the customs therefore also look at aspects of optimal economic union is restricted to industrial goods and pro- policy in trade and foreign direct investment. cessed agricultural goods.

German companies in particular are using the customs union with Turkey to produce cheap intermediate goods in the country and to subsequently reim- port them into Germany for further processing. It is therefore unsurprising that a large share of foreign direct investment in Turkey comes from German com-

Ifo Annual Report 2015 78 Ifo Center for Business Cycle Analysis and Surveys

The Ifo Center for Business Cycle Analysis and Sur- the forecasting instruments developed by the Ifo In- veys comprises the two main areas of economic fore- stitute itself, such as econometric approaches to esti- casting and business surveys. Joining these two areas mating business cycles and growth trends, time-series emphasises the importance of business surveys for models for various economic variables, and model the analysis of economic activity and differentiates the analyses of the macroeconomic effects of alternative Ifo Institute from other economic research institutes. economic policy measures. The key activities of the department include the surveying, evaluation and interpretation of business data, In order to quantify macroeconomic production gaps as well as survey-based business-cycle analyses and as a measure for cyclical swings, the production po- forecasts for Germany, the European Union and oth- tential of key countries is also estimated. The main er major countries. focus is on the German economy for which develop- Analysing supply-side ment trends in the supply-side determinants of pro- determinants of A key service function of the Ifo Institute is conduct- duction potential like productivity, labour market par- production potential ing and interpreting business surveys. The regularly ticipation and capital accumulation are documented collected data not only constitute an integral part of and analysed. Moreover, the key fi gures for economic the Institute’s economic forecasts; they also form the development and the special circumstances of indi- basis of industry and aggregate economic forecasts vidual countries – currently, for example, public debt of businesses, industry associations and government levels, budget defi cits, current account balances, mea- agencies. The survey results are extensively discussed sures of competitiveness and fi scal policy reform – and interpreted in the media. In economic research, are also systematically compared to identify possible micro data derived from Ifo business surveys play an economic policy options for Germany and Europe. important role in testing economic behavioural patterns – for example investment and employment behaviour, labour market trends or pricing policies. The Service Projects excellent reputation of the Ifo Institute in the area of business surveys is also confi rmed by the fact that The Center for Business Cycle Analyses and Surveys the surveying techniques of the Institute are currently regularly carries out a number of service projects, used in over fi fty countries throughout the world. based on its own research work and continuously monitored by scientifi c criteria. The most important Ifo business surveys again stood at the centre of pub- projects are the Ifo business surveys and the econom- lic interest in 2015. To meet the demand for informa- ic forecasts. tion on the international business cycle, Ifo conducts the Ifo World Economic Survey (WES). In contrast Ifo Business Survey in Industry and Trade to the national Ifo business surveys that query fi rms The business survey introduced by the Ifo Institute in on their own situation and prospects, WES is a pool 1949 was an innovation in business-cycle and market of experts who assess the economic situation of the observation. Today it is one of the most important countries in which they are based. sources for assessing the current economic situation in Germany. In 1990, shortly after the German Eco- The economic forecasts are based on the systematic nomic and Currency Union took effect, the Business collection and methodical processing and analysis of Survey was expanded to include eastern Germany. Ifo’s own survey data and offi cial statistics. Particu- lar weight is given to the results of the Ifo Business The monthly survey is based on roughly 7,000 re- Survey, the Ifo Investment Survey and the Ifo World sponses from fi rms throughout Germany on how Economic Survey (WES). The economic indicators they see their business situation and related aspects derived from the Ifo surveys and offi cial statistics are of operational activities. The standard questions re- constantly examined for their usefulness in macro- quire fi rms to appraise their current situation and as- economic analysis and forecasting. This also applies to sess their business expectations and plans in the three

79 Ifo Annual Report 2015 Ifo Center for Business Cycle Analysis and Surveys

to six months ahead. Survey participants are asked to of economic development in Germany. Compared to exclude seasonal fl uctuations from their assessments. the production index for the manufacturing industry As this is only partially possible, the results undergo provided by offi cial statistics, it leads, on average, by an additional seasonal adjustment. The survey results, two to three months. As a result, it has become an which are subject to a complex evaluation procedure, integral part of German economic forecasts. The na- provide information on some 500 individual sub-sec- tional and international importance of the Ifo Business tors, the manufacturing industry, construction, as well Climate can be seen in the reactions to the publica- as the wholesaling and retail industry. tion of the new forecast on the part of the fi nancial markets, which eagerly await its results every month. The objective of the Ifo Business Survey is to capture Special monthly evaluations and commentaries of A business cycle snapshot the business-cycle component of the macroeconomic the Ifo Business Survey are provided by the Ifo Insti- developments. It does not predict long-term growth tute for Bavaria, Baden-Württemberg, North Rhine- trends. The Ifo Business Survey is designed to supple- Westphalia and Saxony. ment offi cial statistics. It provides information on economic phenomena that are not ascertained by offi cial Ifo Business Climate in Germany

statistics, and is published in a timely manner. Industry and Tradea) Index value, 2005 = 100, seasonally adjusted by X-13ARIMA-SEATS The long time-series of the Ifo Business Survey is used 130 to derive informative business-cycle indicators. The Business climate 120 Ifo Business Climate Index, combined with quarterly Business situation questions on capacity utilisation and order stocks,

provides a reliable picture of the current business 110 situation and short-term developments. A key advantage of Ifo’s economic indicators vis-à-vis the ofﬁ cial 100 statistics are their early availability. Ofﬁ cial German Early availability offers key production and new-order indicators are, in general, Business expectations 90 advantage not published until four weeks after the end of the 2010 2011 2012 2013 2014 2015

reporting period, and are often subject to major revi- a) Manufacturing, construction, wholesaling and retailing.

sions. The results of the Ifo Business Survey are re- Source: Ifo Business Climate. leased between the 22nd and 27th day of the survey month. Furthermore, participants give their appraisal of and expectations for their fi rms, thereby offering At the beginning of 2015 the Ifo Institute changed its supplemental information to the quantitative infor- seasonal adjustment procedure. The old approach mation provided by the offi cial statistics. was not able to remove all seasonal patterns, especially in the construction sector. All series have been External individuals interested in the time series of completely revised. There were substantial changes the Ifo Business Survey can obtain data from the Ifo in the construction sector, whereas for the main Ifo Institute’s database service. The data offered also in- Business Climate Index the modifi cations were small. clude time series from other sources. During the year, the Ifo Business Climate grew steadily with some decreases, pointing to robust economic Ifo Business Climate in German Trade and development in 2016. Industry The Ifo Business Climate, which is calculated as the Monthly Ifo Business Survey of the Service transformed mean of the balances of the business Sector situation and expectations for the next six months, The Ifo Business Survey of the Service Sector is the has been published regularly by the Ifo Institute since most comprehensive monthly survey of the German 1972. It has proven to be a reliable early indicator service sector. Over 2,500 fi rms participate on a reg-

Ifo Annual Report 2015 80 Ifo Center for Business Cycle Analysis and Surveys

ular basis. The Ifo Business Climate in the Service Sec- In addition to data on past developments in invest- tor indicator, which has been published since 2005, is ment, the Ifo Institute’s investment survey of manu- based on important, and particularly on business-ori- facturing and mining also collects data on investment ented segments of the tertiary sector (excluding dis- plans for the ongoing and forthcoming year and the tribution and government). Financial services (bank- setting of investment goals, as well as the relevant facing and insurance) are not included in the indicator. tors infl uencing them. According to the latest results, The Ifo Institute carries out separate surveys in these investments in manufacturing increased nominally by areas, including its monthly business climate in leasing. around 7% in 2015. These results are used, among other things, to assess investments in plants and equipment. Ifo Business Survey in Leasing With its business survey of the leasing sector the Ifo Information on sales, employment and the economic Institute closes a statistical gap. Unlike in other ar- sector, as well as structural data from offi cial statistics, eas of the investment survey, this is a comprehensive are used in the calculation and projection of the indi- survey, as there are no offi cial statistics for the ex- cator. The survey methods and calculations are similar trapolation of sample results. The test results for last to those of the Ifo Business Survey of industry and year show an 8.3 % upturn in new business versus last New leasing business sees trade (manufacturing, construction, wholesaling and year to 50.7 billion euros. Movables leasing rose by upturn in 2015 retailing). 7.9 %, while growth of as much as 20.6% was seen in real-estate leasing following a three-year decline. The Ifo Business Survey of the Service Sector meets This led to an increase in the overall leasing rate to the current standards of harmonised business surveys 15.3 % from 14.7%; while leasing as a share of total in EU member states. The results are published on a investment in movables even increased from 22.2% monthly basis together with the Ifo Business Survey to 23.0 %. of manufacturing, construction, as well as wholesaling and retailing. For over a decade the Ifo Institute, in cooperation with the German Association of Leasing Companies based in Berlin, has conducted a regular economic Ifo Investment Survey survey of German leasing companies. The survey was The Ifo Investment Survey was the forerunner of all initially conducted on a quarterly basis, but became of the Federal Statistics Offi ce’s investment surveys. monthly as of 2003. The assessments by leasing com- Today it supplements offi cial ex-post data with timely panies of their current business developments are information on projections based on company plans. particularly useful in forecasting overall investment in This makes the Ifo Institute the only source for quanti- equipment. fi ed estimates of current developments in investment prior to the publication of offi cial ex-post data. As a The results of the Ifo Institute’s economic surveys voluntary survey – the Ifo Investment Survey is like of the leasing sector point to more favourable busi- all non-offi cial surveys and is not grounded in law – ness developments for leasing companies in 2015. Al- it cannot essentially replace a comprehensive survey. though assessments of the current business situation This is especially true with respect to the desired sub- were no longer quite as positive as previously over division of the branches. The sectors of manufactur- vast swathes of last year, they remained signifi cantly ing, construction, wholesaling and retailing, as well as higher than the long-term average on balance. Opti- Leasing companies express equipment leasing (leasing and manufacturer leasing) mism on the part of leasing companies participating in optimism were all polled by the Ifo Investment Survey in 2015. the Ifo Business Survey regarding business expecta- The forecasting horizon covers roughly one year. The tions reached its highest level since the beginning of surveys were conducted on an annual basis in most of 2014. This suggests that leasing investment will con- the sectors mentioned above; and only manufactur- tinue to develop positively in the second half of the ers were surveyed twice a year. year.

81 Ifo Annual Report 2015 Ifo Center for Business Cycle Analysis and Surveys

The investment indicator, which is based on assess- Ifo World Economic Survey (WES) ments of the current business situation jointly polled For over 30 years the objective of the Ifo World Eco- by the Ifo Institute and the German Association of nomic Survey (WES) has been to depict the current Leasing Companies, signalled a moderate increase of economic situation and outlook in numerous industrial 3.4% in equipment investment, including other as- and transformation countries as accurately as possible. sets, for 2015, following on from a 4.7% increase the The survey results are characterised by their timely previous year. There was a downturn in growth in information and international comparability. The as- investment over the course of 2015. The investment sessments and expectations of on-site experts are par- climate indicator points to a further weakening in the ticularly valuable in countries where the ofﬁ cial statistics investment dynamic in 2016. remain unreliable. The ﬁ gure below shows the high correlation of the survey results with actual growth in the Investment Indicator world economy. Once again in 2015, the Ifo Institute in billion euro polled over 1,000 international business experts at in- 90 Investment in billion euros stitutes or multinational enterprises on the economic 85 Business-cycle trend components of investment situation and outlook in some 120 industrial, emerg- Indicator for the business-cycle trend components 80 ing and developing economies. In return, participants received detailed survey results. The WES results are 75 also published in the quarterly English language journal

70 CESifo World Economic Survey, and in a condensed form in German in the ifo Schnelldienst. In Latin America the 65 Ifo Institute has cooperated with Fundacao Getulio Var- 60 gas/Instituto Brasilerio de Economia (FGB/IBRE) since 2007, which publishes the WES results for this region. 55 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Calculated as of 25 November 2015. World Economic Outlook and Ifo World Economic Climate Source: Ifo Business Survey of the Service Sector; Federal Statistical % change from previous year Index 2005 = 100 Ofﬁ ce; calculations of the Ifo Institute. 9 130 a) real GDP (left-hand scale) Ifo World Economic Climate 8 120

110 7 100 Ifo Insurance Survey 6 90 In close collaboration with the Federation of the Ger- 5 80 man Insurance Industry, the Ifo Institute has been 4 70 conducting a quarterly business survey of the insur- 3 5.5 5.7 5.2 5.4 60 4.9 ance sector since the end of 1999. Included in the sur- 2 4.1 4.2 3.4 3.3 3.4 50 vey are insurance companies in the areas of life, health 3.1 3.1 1 40 and property/casualty. In terms of gross premiums, 0.0 0 30 the insurance companies participating in the survey 02 03 04 05 06 07 08 09 10 11 12 13 14 15 cover over 80 % of the premium income. a) Arithmetic mean of judgement of present and expected economic situation. Sources: IMF, World Economic Outlook, October 2015; Ifo World Economic Survey (WES) IV/2015. Ifo Innovation Survey The Ifo Institute has conducted the Ifo Innovation Survey since 1979. The innovation surveys in other Ifo Architects Survey OECD countries are carried out on the same con- The Ifo Architects Survey, which began in 1980 in only ceptual basis. For details, see the chapter on the Ifo four federal states, has been conducted nationwide in Center for Industrial Organisation and New Tech- Germany since 1996. Some 1,800 freelance architects nologies. across all 16 German states are surveyed on a quarterly

Ifo Annual Report 2015 82 Ifo Center for Business Cycle Analysis and Surveys

basis. The survey results produce the following indica- The department frequently makes statements to the tors: business climate, new contracts – and hence esti- media on the current economic outlook and the eco- mated construction volume – as well as order stocks. nomic policy problems related to it. The economic The data are supplemented by annually surveyed in- implications of fi scal policy decisions are also analysed formation on the legal form and size of the architects’ and commented upon. Particularly interesting issues offi ces and their fees. State-specifi c survey results are in 2015 included the European Central Bank’s large- Key issues: ECB’s bond sent to participating architect chambers in various Ger- scale bond buying programme, the sharp fall in oil buying, lower oil prices man states; and participants receive the survey results prices, as well as the economic implications of refu- and immigration along with the next quarterly survey questionnaire. The gee migration. Overall, the department enjoyed ex- results for Germany are published every three months tensive media coverage in 2015. in ifo Schnelldienst. The current business climate among freelance architects is equally as favorable as it was in Joint Economic Forecast the years following German Reunifi cation. In the spring and autumn the department participates in the Joint Economic Forecast (Gemeinschaftsdiag- Business Climate of Self-employed Architects nose), commissioned by the Federal Ministry of Eco- Assessments of the current order situation by freelance architects nomics and Technology. In 2013, an open invitation to Balance of “good” and “poor” assessments tender for this forecast was reissued. Together with 40 the department for business cycle research of the ETH 30 (Swiss Federal Institute of Technology) Zurich (KOF) 20 as a consortium partner, the Ifo institute was awarded 10 a contract to participate for another three years. 0 -10 The other three successful consortia were the Ger- -20 man Institute for Economic Research (DIW), together -30 unadjusted figures with the Austrian Institute of Economic Research -40 smoothed figures (WIFO), the Halle Leibniz Institute for Economic Re- -50 1994 1997 2000 2003 2006 2009 2012 2015 search (IWH) together with Kiel Economics, as well as the Rheinisch-Westfälisches Institut für Wirtschafts- Source: Ifo Architects Survey forschung (RWI), Essen, together with the Institute for Advanced Studies in Vienna (IHS). The Joint Economic Forecast comprises forecasts for Germany, the Euro- Ifo Economic Forecasts pean Union and other major countries, as well as an Forecasts for EU, At mid-year and year-end, the department publishes evaluation of those economic policies that affect Ger- Germany and other major a detailed report that includes forecasts of gross do- many’s economic activity. It is presented at the facili- countries mestic product (sector origin, use and distribution), ties of the federal press conference (Bundespressekon- the labour market, infl ation, as well as public expendi- ferenz) in Berlin and subsequently submitted to the ture and revenues. Special attention is paid to quan- Federal Ministry of Economics and Energy (BMWI). tifying the acceleration or deceleration of economic activity, and to identifying business-cycle turning points. Since 2010, the department has also provided Eurozone Economic Outlook annual sector accounts for institutional sectors, the The Eurozone Economic Outlook is a European joint economy as a whole, non-fi nancial and fi nancial cor- initiative of the Ifo Institute, INSEE in Paris and Istat in porations, private households (including non-profi t Rome. It provides an estimate (for the past quarter) organisations), the government sector, as well as for and a forecast (for the current and following quarters) the rest of the world. The accounts provide a system- of real GDP, private consumption, industrial output atic overview of important transactions between sec- and infl ation in the euro-zone. Forecasting is con- tors that are included in the overall economic fi gures. ducted primarily by applying econometric forecasting

83 Ifo Annual Report 2015 Ifo Center for Business Cycle Analysis and Surveys

methods. The projections are then rounded off us- Service Projects in Detail ing the personal appraisals of the project team. The Eurozone Economic Outlook is published quarterly – in Ifo Business Survey January, April, July and October – as a two-page press K. Wohlrabe, P. Wojciechowski, L. Dorffmeister, release in German and English. S. Sauer, C. Seiler, A. Bauer, monthly publication in ifo Schnelldienst and ifo Konjunkturperspektiven. European Economic Advisory Group (EEAG) The European Economic Advisory Group at CESifo Ifo World Economic Survey (WES) (EEAG) is a European expert advisory board con- K. Wohlrabe, G. Nerb, J. Garnitz, quarterly publication sisting of seven well-known economists from seven in CESifo World Economic Survey and ifo Schnelldienst. countries and currently chaired by John Driffi ll, Birk- beck College. It was launched in 2001 by CESifo. The Ifo Leasing Business Survey group writes detailed reports on specifi c economic A. Städtler, S. Sauer regular publication in ifo Schnell- policy issues. The Ifo Center for Business Cycle Analy- dienst. ses and Surveys provides a forecast and analysis of economic activity in Europe and the world for the Ifo Business Survey of the Insurance Sector EEAG Report. Special matters are also treated on a W. Ruppert for the Association of German Insurance regular basis. The forecast is part of the “Economic Companies, information for clients and participants. Outlook” chapter. Ifo Business Survey for Bavaria Economic Analyses, Preparation of Indicators P. Jäckel, for the Bavarian Ministry of Economic Affairs and Forecasts and Media, Energy and Technology, regular publica- The project aims to compute monthly survey-based tion in Konjunktur in Bayern as well as on the client’s Forecasting electricity electricity indicators to forecast the electricity con- website. consumption in Germany sumption in Germany and in the ENBW customer base and to build an appropriate econometric mod- Ifo Business Survey for Baden-Württemberg el to predict the target time series over a forecast W. Ruppert for Landeskreditbank Baden-Württem- horizon of up to 12 months. The electricity indica- berg – Förderbank, regular publication in the series tors are generated from the disaggregated results of L-Bank-ifo-Konjunkturtest and on the internet. the Ifo business surveys in the manufacturing industry and refl ect the cyclical variations in power de- Ifo Business Survey for Saxony mand. The forecasting model is based on the idea of R. Lehmann, regular publication in ifo Dresden beri- improving predictive accuracy by combining a larger chtet. number of individual forecasts and models not only of business cycle fl uctuations, but also the medium Ifo Business Survey for North-Rhine term trend, seasonality, temperature and structural Westphalia effects of electricity demand. Additionally, this proj- A. Weichselberger for NRW Bank, regular publication ect includes consulting services connected with the in the series NRW.Bank.ifo-Index and on the internet. current state of the business cycle and economic policy issues. Ifo Investment Survey P. Jäckel, S. Sauer, A. Städtler, A. Weichselberger, regular publication in ifo Schnelldienst.

Ifo-KfW Business Cycle Barometer for Medium-sized Businesses W. Ruppert, for the KfW Bank Group, regularly published by the client.

Ifo Annual Report 2015 84 Ifo Center for Business Cycle Analysis and Surveys

Ifo Employment Barometer Ifo Economic Forecasts K. Wohlrabe, A. Bauer, monthly publication in Handels- T. Wollmershäuser, T.O. Berg, Chr. Breuer, Chr. blatt, ifo Konjunkturperspektiven and on the CESifo Grimme, St. Henzel, A. Hristov, N. Hristov, W. Meis- website. ter, W. Nierhaus, J. Garnitz, F. Schröter, A. Steiner, E. Wieland, A. Wolf, K. Wohlrabe, published in ifo Credit Constraint Indicator Schnelldienst 68(12), 2015; 68(24), 2015. K. Wohlrabe, A. Marjenko, monthly publication as a press release, in ifo Konjunkturperspektiven and on the Ongoing analyses and forecasts of economic activity Ifo Institute’s website. in Germany, Europe and the world.

Ifo-GfK-Konsumreport Eurozone Economic Outlook W. Nierhaus, A. Bauer in cooperation with GfK A. Hristov in cooperation with INSEE, Paris, and Istat, Marktforschung, Nürnberg, publication in ifo-GfK- Rome. Konsumreport. The Eurozone Economic Outlook is published on a Ifo Export Expectations quarterly basis – in January, April, July and October – K. Wohlrabe, monthly publication as a press release, as a two-page press release in German and English. in ifo Schnelldienst and on the CESifo website. European Economic Advisory Group Ifo Architects Survey (EEAG) L. Dorffmeister, E. Gluch, regular publication in ifo T.O. Berg, N. Hristov, regular publication in the EEAG Schnelldienst and Deutsches Architektenblatt. Report on the European Economy.

Ifo Managers Survey Economic Analyses, Preparation of Indica- K. Wohlrabe, J. Garnitz for WirtschaftsWoche, regular tors and Forecasts publication in WirtschaftsWoche and on the Ifo website. T.O. Berg, P. Wojciechowski for EnBW Trading GmbH.

Upper Interest Rate Ceiling/Average Ifo Export Climate Interest Rates for Consumer Credit Average C. Grimme, for WirtschaftsWoche. Interest Rates for Consumer Loans C. Seiler, K. Wohlrabe, T. Wollmershäuser, Survey for The Ifo Export Climate consists of the world eco- the Bankenfachverband. nomic climate and an indicator for the price competitiveness of German companies versus 36 trading Joint Economic Forecast partners as distinguished by their consumer price in- T. Wollmershäuser, T.O. Berg, Chr. Breuer, Chr. dices. The world economic climate, weighted by Ger- Grimme, St. Henzel, A. Hristov, N. Hristov, W. Meis- many’s export shares, reﬂ ects sentiment among com- ter, W. Nierhaus, J. Garnitz, F. Schröter, A. Steiner, panies and consumers in 41 countries. The countries E. Wieland, A. Wolf, K. Wohlrabe together with the covered by the Ifo Export Climate account for 90 Konjunkturforschungsstelle (KOF) of the ETH Zu- percent of the sales markets for German exports and rich and in cooperation with three other consortia, are represented by seasonally-adjusted values in the for the Federal Ministry of Economics and Energy, calculation of the Ifo Export Climate. Price competi- published in ifo Schnelldienst. ifo Schnelldienst 68(8), tiveness is introduced via log differences. The weight- 2015; 68(19), 2015. ings used for price competitiveness and the world economic climate are 0.12 and 0.88 respectively. The Joint Economic Forecast was conducted at the Ifo Institute in Munich in spring 2015, and was hosted by the RWI in Essen in autumn.

85 Ifo Annual Report 2015 Ifo Center for Business Cycle Analysis and Surveys

Export Climate and Exports Research Projects

Export climate indikatora) Exports (real, seasonally-adjusted) index points YOY change in percent The Center’s research is divided into three major 2.0 30 interdependent areas: survey methods, forecasting 1.0 20 methods and macroeconomics.

0.0 10 Projects by the Survey Methods Research Group -1.0 0 In the area of survey methods, efforts are made to -2.0 -10 safeguard the high quality of surveys on the one hand, -3.0 -20 and to improve surveying techniques on the other.

-4.0 -30 The results of these research projects are directly in- 2008 2009 2010 2011 2012 2013 2014 2015 corporated into the practical analysis and design of Last Value: October a) the business surveys. The range of topics includes the Business and consumer climate in the key sales markets and the real effective exchange rate of the euro. analysis of response spectrums, the graphic represen-

Source: Federal Statistical Ofﬁ ce; national sources: calculations of the tation of survey results, as well as the analysis of the Ifo Institute. questionnaire and response behaviour of the companies participating in the business survey.

National Income Accounting for Saxony One research project is currently looking at response W. Nierhaus in cooperation with the State Statistics behaviour in the context of surveys. It looks at wheth- Offi ce of Saxony, ongoing project, published in Statis- er there are structural differences between the re- tik in Sachsen (1), 2008; ifo Dresden berichtet 21(3), sponses given via electronic media and traditional re- 2015; 21(4), 2015; 21(6), 2015. sponses fi led on paper. (C. Seiler, “Mode Preferences in Business Tendency Surveys”, Ifo Working Paper The working group “National Income Accounting No. 193, 2014). Another research project focuses on (NIA) of the German States” regularly publishes an- the question of how many responses are required as nual regional statistics on gross domestic product and part of tendency surveys in order to obtain valid in- gross value added by economic sector. In contrast to dicators. Various criteria are used as benchmarks like, national income accounts, no quarterly statistics are for example, the MCD measurement or correlations. made available on a regional basis. Quarterly NIA (C. Seiler and K. Wohlrabe, “Sample Size Determina- statistics constitute an important link, however, be- tion in Business Tendency Surveys”, mimeo, 2014). tween the monthly cyclical indicators of the special statistics and the annual NIA results. The objective Projects by the Forecasting Methods Research of this project is to provide additional information Group Supplementing information for economic monitoring and forecasting in Saxony In view of the huge quantities of data available to for forecasting in Saxony with aggregate data for periods of less than a year. the forecasters, partly stemming from the results of The focus is on the origin of the price-adjusted gross Ifo’s own surveys, the department focuses on pro- domestic product. Using the method of temporal cesses of information compression and selection in disaggregation, a quarterly regional dataset is gener- the fi eld of forecasting methodology. It investigates, ated that is largely consistent with the annual results for instance, whether microdata from companies of the Working Group NIA of the German States for and surveys are suitable for forecasting macroeco- Saxony in the estimating period. Annual aggregates nomic time series. Moreover, alternative aggregation are transformed into quarterly aggregates by using procedures for microdata on survey participants, higher-frequency reference indicators. Since 2013 branches and regional boundaries are also analysed. the quarterly results have been presented accord- Examples include boosting techniques, which make it ing to the new breakdown of the branches of the possible to gather core information (e.g. to identify economy (WZ 2008). companies that are very good predictors). In addi-

Ifo Annual Report 2015 86 Ifo Center for Business Cycle Analysis and Surveys

tion, procedures like Bayesian modelling or models crease in overall economic uncertainty on the inter- with mixed frequencies, which are already frequently est rates charged on corporate and bank loans in Economic uncertainty and used, are analysed in terms of their suitability and Germany and the USA. It emerges that loan interest loan interest rates further developed. A paper shows that Bayesian rates rise during periods of volatility, while interest Vector Autoregressive (BVAR) models are good rates on bank loans fall. This difference is due to the predictors in forecasts that draw on large quantities fact that bank loans also feature credit collateral in of data. It compares different methods of implement- addition to interest. Banks are interested in maintaining such BVAR models. The methods analysed are ing long-term customer relations, and try to prevent evaluated both in terms of their point forecasts and fl uctuations in the probability of default by corporate their density forecasts. It emerges that a combina- clients by lowering interest rates during volatile peri- tion of Bayesian “shrinkage” and factor methods re- ods. At the same time, however, banks demand more sults in very good forecasting quality in most of the collateral in order to cover themselves if their clients situations assessed (T.O Berg, S. Henzel, “Point and should nevertheless declare insolvency. This instru- Density Forecasts for the Euro Area Using Bayes- ment is not available in the bond market, which ex- ian VARs”, International Journal of Forecasting 31(4), plains the rise in interest rates to provide correspond- 2015). Building on this research, a further working ing compensation. paper examines whether explicit modelling of monetary policy’s so-called zero lower bound improves In another project A. Hristov (together with R. forecasting quality. (T.O. Berg, “Forecast Accuracy of Bachmann, University of Notre Dame, and S. Elst- a BVAR under Alternative Specifi cations of the Zero ner, German Council of Economic Experts) looks at Lower Bound”, Ifo Working Paper No. 203, 2015). the interdependence of economic fl uctuations and company-specifi c heterogeneity. The project uses nu- Projects of the Macroeconomics Research Group merical procedures to represent both aggregate and The research group “Macroeconomics” investigates microeconomic uncertainty and heterogeneity. The the cause and effect of macroeconomic disturbances project shows how various strands of macroeconom- and derives implications for applied business cycle ic uncertainty are correlated to the business cycle. analyses from them. Thematically the Group’s work focuses on the infl uence of fi nancial market frictions The project “Financial Market Imperfections and the and uncertainties, as well as the impact of monetary Pricing Decision of Firms: Evidence, Theory, and Mac- and fi scal policy measures on real and fi nancial vari- roeconomic Implications” (N. Hristov together with ables. Many questions arise from experiences and A. Balleer, RWTH Aachen, and D. Menno, Univer- observations related to the global fi nancial crisis and sity of Michigan) is fi nanced by the German Research the euro crisis. In terms of methods, theoretical model Foundation (DFG) for 2015–2017. Drawing on micro- approaches like dynamic stochastic general equilibri- data from the Ifo Business Survey, it examines why um (DSGE) models, as well as empirical time series and in what way fl aws in the fi nancial market infl u- Financial market fl aws and procedures like, for example, vector autoregressive ence the price-setting behaviour of companies. The price setting models, are both used. Moreover, the Group’s empiri- theoretical part of the project models an explicit cal research frequently also draws upon the Ifo Insti- interaction of fi nancing restrictions and price adjust- tute’s survey data. Credit constraints and corporate ments. Insights from this model are used as a basis for uncertainty, for example, are identifi ed at a company empirical procedures and to interpret empirical re- level with the help of microdata from the Ifo Business sults. Initial results suggest that fi nancially-constrained Survey. The Group also cooperates with the center’s companies in Germany adjust their prices far more research professors and research associates. frequently. This means that price adjustments are more fl exible, and thus monetary policy is less ef- In the project “Uncertainty Shocks and Credit fective, when companies only have restricted access Spreads in Bank-Based and Market-Based Financial to funding. The theoretical model is in a position to Systems” C. Grimme analyses the impact of an in- qualitatively reproduce these empirical facts.

87 Ifo Annual Report 2015 Ifo Center for Business Cycle Analysis and Surveys

Another research project examines the causes and and co-fi nanced by the Fritz Thyssen Stiftung analy- outcomes of international capital fl ows (A. Steiner, ses the economic effects of fi scal policy measures in “Does the Accumulation of International Reserves Germany in 2008 and 2009. During this period two Spur Infl ation? A Reappraisal” and “A Tale of Two major economic stimulus packages were introduced Defi cits: Public Budget Balance of Reserve Currency to combat the negative effects of the largest reces- Countries”). This project focuses on the difference sion since 1950 on the German economy. The aim Differences between between private and offi cial capital fl ows. While pri- of this two part research project is to understand private and offi cial capital vate capital fl ows are based on investment decisions the impact of fi scal policy measures on the German fl o w s taken by private investors, development aid and the economy. The fi rst part of the project has already currency reserves held by central banks count as assessed and quantifi ed the effects of fi scal measures offi cial forms of capital movements. This is used as on Germany’s economy (T.O. Berg, “Time Varying a basis to develop a new benchmark for measuring Fiscal Multipliers in Germany”, Review of Economics the private fi nancial openness of countries. A panel 66(1), 2015). The second part of the project will also study of over 100 countries shows that private fi nan- explore the importance of corporate confi dence as cial openness has a signifi cantly positive impact on a transmission channel for fi scal policy measures. In economic growth. In a subsequent step the project addition, the project analyses the effectiveness of fi - examines the impact of a world reserve currency on nancial support to boost investments in the future by the economy in question. Our empirical analysis over municipalities and Länder, taking into account institu- a historical period from 1890 to 2009 shows that tional framework conditions in Germany. The project demand for currency reserves leads to lower fi scal also examines the growth effects of the expenditure balances in the budgets of world currency countries. policy on the Länder (“Economic Effectiveness of In economic policy terms, this highlights the insta- the Financial Policy Economic Stimulus Measures of bility of the world currency system, since the world 2008 and 2009”, N. Potrafke, T. Wollmershäuser, reserve countries are accumulating a rising level of T.O. Berg, C. Breuer, A. Hristov, B. Kauder, M. Reis- debt. chmann, M. Riem, C. Schinke, July 2013 to July 2016).

The topic of Target 2 balances also remains on the department’s research agenda. The option of accumulating potentially unlimited Target 2 claims via-à- vis other member countries primarily enabled the crisis-affl icted countries in the euro area to largely compensate for dwindling, or even reversing, fl ows in foreign capital. The study: “Capital Infl ow Shocks in the Euro Area and the Effects of Target-2-Balances” (N. Hristov and T. Wollmershäuser together with O. Hülsewig, Hochschule München and T. Siemsen, Ludwig Maximilian-University Munich) examines the effects of the Target 2 system on economic devel- Target 2 and its impact on opments in key core and crisis-affl icted countries in economic developments the euro area. The results suggest that the Target 2 system signifi cantly reduced the negative economic impact of dwindling private capital fl ows.

However, joint research contributions are also made in cooperation with other Ifo Centers, especially the Ifo Center for Public Finance and Political Economy. A research project spanning several years

Ifo Annual Report 2015 88 Ifo Center for Business Cycle Analysis and Surveys

LMU-ifo Economics & Business Data Center (EBDC)

In 2015 the EBDC’s hardware usage was made more fl exible. Now researchers can simultaneously access the Ifo data pool – panels and EBDC Business data – from all 4 EBDC computers, depending on the identifi er they have been given. This signifi cantly eased the demand situation during the busy summer months. The EBDC also benefi tted from improvements in Ifo’s IT in terms of storage and software licences. Larger storage capacities were also made available for the archive, and the fi rst microdata panel from the departments has already been stored there.

To minimise the work involved in panel updates, the Do-procedures of the Ifo data pool and the EBDC Business Panel will be harmonized. This means that the appearance of the panel will be synchronized, which should facilitate work by researchers.

To promote the alignment of the research data centers organised by the Council for social and economic data, the EBDC is participating in the harmonisation working group. The group aims to develop common standards for creating panels, as well as testing, offering and archiving data. This will create greater transparency for researchers both in terms of locating and assessing data, as well as in their work with it.

A comprehensive set of EBDC panel statistics was also recently made available to interested researchers.

89 Ifo Annual Report 2015 Ifo Center for International Institutional Comparisons and Migration Research

The main research focus of the Ifo Center for Inter- a country-comparative perspective. Its editors are national Institutional Comparisons and Migration Re- Marcus Drometer, Christa Hainz and Romuald Mé- search (IICM) is international migration and institu- ango. Each issue of the journal considers a special tional economics in the fi elds of banking and political topic, presented in the “Forum” section, which is ap- economics. IICM also offers key services for academ- proached by different authors from various perspec- ics and the general public by maintaining, developing tives. The journal also features the following sections: and distributing DICE, an internationally comparative “Research Reports”, “Reform Models”, “Database database of economically relevant regulations and in- and News”. stitutions, and by publishing the journals CESifo DICE Report and CESifo Forum. The Journal CESifo Forum CESifo Forum focuses on current economic topics of DICE Database and the Journal CESifo DICE worldwide interest and features contributions by in- Report ternationally renowned authors. The English language The institutional framework of an economy and its journal is published quarterly. It comprises the rubrics implied incentive structure are central to any analysis “Focus”, “Special”, “Spotlight” and “Trends”. CESifo of a nation’s welfare. At a time of rapid globalisation Forum is edited by Chang Woon Nam. when people, businesses, capital and goods are becoming increasingly mobile internationally, countries Institutional Research International and their respective institutions are compelled to The institutional research deals with the impact of benchmarking of compete. No country can afford not to compare its institutions institutions with those of its neighbours; and all coun- institutional regulations on economic development. tries must aim to comply with international bench- An important question investigated is the extent to marks and best practices. International institutional which the voting behaviour of individuals depends on data that allow a country to assess its own situation the impact of policies on their own fi nancial situation. and to prepare reforms are in great demand as a re- Initial work on this subject examines whether voters sult. However, defi ciencies in comparable EU data on respond to election promises or wait until the fol- institutional regulations are widespread. DICE there- lowing election, if the appropriate policy measures fore collects international institutional data from a have been implemented. A second paper analyses broad range of sources. whether voting behaviour in referenda can be explained by fi nancial self-interest or social preferences. The English-language database contains system- Another focus is the analysis of interactions between atic descriptions of the institutional set-up and legal political institutions and migration. This research regulations of the economic policy framework in all examines whether naturalisations are used strategi- European countries and in selected non-European cally by the government to increase the likelihood countries, enabling inter-country and benchmark of re-election. Furthermore, institutional research comparisons. The DICE database is available free-of- explores the relationship between elections, party charge via the internet. DICE currently includes the ideologies and migration. following areas: business and fi nancial markets, edu- DICE database online and cation and innovation, energy and natural environ- The research fi eld of banking investigates whether free-of-charge ment, infrastructure, labour market and migration, well-protected property rights reduce the lending public sector, social policies and values. At present, rate and the role played by bank competition here. It the database contains nearly 3,800 entries. also examines the real effects of the abolition of state guarantees for banks. Further research in the fi eld of The quarterly journal, CESifo DICE Report – Journal institutional economics looks at the impact of aid fl ows for Institutional Comparisons, was launched in 2003. on the quality of institutions in recipient countries. An- The journal is dedicated to the analysis of institu- other project analyses the rules underlying the Euro- tions, regulations and economic policy design from pean Central Bank’s monetary policy decisions.

Ifo Annual Report 2015 90 Ifo Center for International Institutional Comparisons and Migration Research

International Advisory and Research Projects DICE: Database for Institutional Coordinated by the Center for International Institu- Comparisons in Europe tional Comparisons and Migration Research, the Ifo M. Drometer, C. Hainz, I. Kauppinen, D. Leithold, Institute conducts international advisory and research R. Méango, T. Nikolka, P. Poutvaara, S. Rumscheidt, projects that deal with questions in the context of de- M. Wiegand, D. Wech, H. Arnold-Rothmaier, J. Di- velopment and transition economics. The focus here eler, N. Fabritz, A. Fichtl, J. Lippelt, W. Marz, M. Pio- is on economic risk assessment and analysis, as well as punik, T. Strobel, J. Wackerbauer, S. Wiederhold. on crisis management in emerging economies. The user-friendliness of the DICE Database was improved in 2015. The DICE website has gained a dy- Projects Completed in 2015 namic dimension and the four most recent entries to DICE and to the CESifo DICE Report are linked Employment Effects of Regulatory Thresh- here. Furthermore, two video short-clips were olds for French and German Enterprises produced to explain the use of the DICE Database M. Drometer, C. Hainz, D. Leithold, R. Méango, T. Ni- and the interactive graphic tool Visual Storytell- kolka, P. Poutvaara, S. Rumscheidt, D. Wech for the ing. Short abstracts were added to individual DICE French Senate, April 2015 to May 2015. themes in order to explain their respective institutional background. The DICE Database currently This project presented a comparative analysis of reg- comprises around 3,800 entries (tables, graphs and ulatory thresholds related to the number of employ- short reports), which have been thematically sum- ees applicable to fi rms in France and in Germany. It marised in a more user-friendly format and a range started with a descriptive analysis of the thresholds. of visual stories have been added. Free access to A central question tackled by the report was whether DICE is provided at www.cesifo-group.de/DICE. regulations related to limits on fi rms’ employment ap- Some data are available as Excel fi les, facilitating pear to stop French fi rms from growing above these econometric research. The tool Visual Storytelling, Visual Storytelling offers thresholds. The project’s fi nal task was to present a which gives interactive graphical insights into the interactive insights qualitative analysis of potential reforms in France and data presented, was also implemented. Data sets their effects. were compiled from numerous sources. The combination of qualitative descriptions and quantitative Analysis was carried out both qualitatively and quan- judgements in one database makes DICE a “one- titatively. The fi rst part of the project compared stop service” for interested researchers, journalists French and German labour market regulations, which and policy-makers. depend on fi rm size. The differences identifi ed in the fi rst part provided the basis for the empirical analysis Visual Storytelling in the second part, which focused on manufacturers in both countries. Firm size distributions around the regulatory thresholds were compared between France and Germany; and the propensity for fi rm growth was assessed in an empirical framework. The third part, based on empirical fi ndings, presented an evaluation of reform proposals aimed at alleviating the potential growth deterring effects of the regulatory thresholds. The empirical analysis focused on the manufacturing sector and used AMADEUS fi rm data for France and the IAB establishment history panel for Germany.

91 Ifo Annual Report 2015 Ifo Center for International Institutional Comparisons and Migration Research

CESifo DICE Report grant through December 2015. It combines exper- M. Drometer, C. Hainz, R. Méango, S. Rumscheidt, tise from four Ifo Centers and integrates labour D. Wech. economics, international economics, public economics, and education economics perspectives on In 2015 the topics featured in the “Forum” category of migration. The unifying question behind its analyses the CESifo DICE Report were: lessons from a decade is how receiving countries’ welfare state and labour of childcare reforms, pensions and the fi nancial crisis, market institutions, as well as their immigration rent seeking, and private insolvency. The “Research Re- policies, should be designed so that migration can ports” and “Reform Models” rubrics are not themati- unlock mutual benefi ts for all parties involved. CE- cally fi xed, but constantly provide national comparisons MIR was established to achieve a lasting impact on of the set-up of relevant institutions in terms of the the German and European policy debates on migra- economy and economic policy. The “Database” rubric tion. For details see the chapter on the Ifo Center of highlights and interprets new entries in the DICE data- Excellence for Migration and Integration Research base. The articles featured in the CESifo DICE Report (CEMIR). can also be downloaded from the CESifo homepage.

CESifo Forum C. W. Nam.

In 2015 the following “Focus” themes were discussed: Disputes about Piketty’s r>g Hypothesis on Wealth Inequality; Foreign Direct Investment: Current Chal- lenges; Competitiveness and Innovation and Recov- ery of Baltic Countries from the Crisis. In addition, a special issue with the title The Greek Tragedy was published in June. CESifo Forum can also be downloaded from the CESifo homepage.

Optimal Immigration Policies in Europe: From Conﬂ icting Interests to Mutual Gains / CEMIR P. Poutvaara, G. Felbermayr, H. Rainer, L. Wößmann, M. Drometer, I. Kauppinen, R. Méango, T. Nikolka, M. Battisti, J. Saurer, T. Heitmann, J. Koch, M. Piopiunik in cooperation with A. Danzer, University of Munich, M. D. Munk, Aalborg University, E. Sadka, Tel-Aviv University, and the Ifo research professors G. Borjas, Harvard Kennedy School, E. A. Hanushek, Stanford University, W. Kohler, University of Tübingen, G. Peri, University of California Davis, A. Razin, Cornell Uni- versity, S. Übelmesser, University of Jena, supported Short- and Long-Term Policy Requirements by the Leibniz Association (SAW), January 2012 to to Strengthen Sustainable Growth and December 2015. Employment in Croatia O. Falck, S. Schönherr, J. Saavedra, N. Fabritz, The Ifo Center of Excellence for Migration and M. Reischmann, M. Riem, J. Ragnitz, J. Steinbrecher, Integration Research (CEMIR) was set up in Janu- M. Weber, T. Steinwachs, E. Yalcin, T. Wollmershäus- ary 2012 and funded by a Leibniz association SAW er, T. Buchen, D.M. Bach, M. Drometer in coopera-

Ifo Annual Report 2015 92 Ifo Center for International Institutional Comparisons and Migration Research

tion with R. Osterkamp, Ifo research professor M. Current Projects Werding, University of Bochum, Klaus-Peter Willsch, MP, as well as a group of Croatian scientists for the Ifo Center of Excellence for Migration and Croatian Statehood Foundation, September 2014 to Integration Research (CEMIR) December 2015. P. Poutvaara, G. Felbermayr, H. Rainer, L. Wößmann, M. Drometer, Méango, T. Nikolka, M. Battisti, J. Sau- The main purpose of the project was to develop ap- rer, M. Piopiunik in cooperation with the Ifo research propriate recommendations to improve Croatia’s in- professors G. Borjas, Harvard University, Cambridge ternational economic competitiveness. Since the out- MA., and G. Peri, University of California Davis. break of the fi nancial crisis Croatia has faced negative growth rates and Foreign Direct Investment has not This project is ongoing and will continue in the future. recovered since. This has resulted in a steadily growing For further details, see the chapter on the Ifo Center brain drain of highly qualifi ed labour and extremely of Excellence for Migration and Integration Research high unemployment, especially among young people. (CEMIR). The economy’s international competitiveness has been falling for quite some time, and has now dropped DICE Database for Institutional Compari- to one of the last positions in the European ranking. sons in Europe and CESifo DICE Report – Economic analysts and many politicians agree that the Journal for Institutional Comparisons country’s development is blocked by not being able M. Drometer, C. Hainz, D. Leithold, R. Méango, to reform. Implementation of the necessary reforms T. Nikolka, P. Poutvaara, S. Rumscheidt, D. Wech, is a precondition for any return to sustainable growth. H. Arnold-Rothmaier, J. Dieler, A. Fichtl, J. Lippelt, W. Marz, M. Piopunik, J. Wackerbauer, S. Wiederhold. On behalf of the Croatian Statehood Foundation, the Ifo Institute was searching for ways out of the reform The extension of the DICE database and the publica- crisis. The analyses focused on reform areas such as tion of the CESifo DICE Report series will continue. FDI and exports, exchange rates, labour markets, pri- The DICE Database has become more text-based in vate debt, public fi nance, regulations of private enter- order to facilitate orientation for the user. Moreover, prise, social security, human capital, technology and for illustrative purposes, parts of central Visual Stories innovations, as well as infrastructure. Policy papers have been integrated into the homepage. were prepared on these topics by working groups and discussed in joint workshops in which Croatian CESifo Forum scientists and specialists participated. The policy C.W. Nam. papers dealing with the individual topics were condensed into a fi nal reform agenda document. Publica- The publication of the CESifo Forum series will continue. tion of the results and recommendations is planned for early 2016.

93 Ifo Annual Report 2015 Ifo Center of Excellence for Migration and Integration Research – CEMIR

The Ifo Center of Excellence for Migration and In- CEMIR’s research is divided into fi ve modules: tegration Research (CEMIR) was set up in January 2012 as a multidisciplinary centre of competence at Module 1: Optimal Immigration Policies with the Ifo Institute. It combines expertise from four Ifo Skill Complementarities and Redistribution research departments – Ifo Center for International Migration affects the welfare of all native skill groups, Institutional Comparisons and Migration Research, since it leads to wage effects in the labour market which is responsible for coordinating CEMIR, the Ifo and income redistribution. The fi rst module looks at Analysing immigration Center for the Economics of Education, the Ifo Cen- an optimal migration policy integrates in imperfectly from different ter for International Economics, and the Ifo Center competitive labour markets. perspectives for Labour Market Research and Family Economics. This, in turn, makes it possible to analyse migration This module investigates the role of social networks and integration from the different perspectives of in infl uencing employment opportunities and human labour economics, international economics, public capital investment by recent immigrants to Germany. economics, and education economics. It is assumed that both social networks and human capital affect the probability of fi nding employment. CEMIR’s main focus up until December 2015 was the Individuals with larger social networks are also more project titled “Optimal Immigration Policies in Europe: likely to fi nd a job soon after arrival, but these posi- From Confl icting Interests to Mutual Gains (SAW- tive effects shrink over time, as individuals with better 2012-ifo-3)” funded by the Leibniz Association. The social networks invest less in developing their human heads of the four Ifo Centers, Panu Poutvaara, Ludger capital. It is possible to match information from a nov- Wößmann, Gabriel Felbermayr and Helmut Rainer el survey dataset of immigrants to Germany with their worked on the project along with the Ifo researchers individual administrative records to construct social Marcus Drometer, Ilpo Kauppinen, Romuald Méango, networks on arrival, as well as employment and earn- Till Nikolka (Ifo Center for International Institutional ings profi les. The module fi nds support for the main Comparisons and Migration Research), Marc Piopi- predictions of the model: while individuals with larger unik, Jens Ruhose, Guido Schwerdt (Ifo Center for the networks are more likely to be employed initially, the Economics of Education), Michelle Battisti (Ifo Center effects decrease over time. At the same time, larger for International Economics), Judith Saurer (Ifo Center social networks are associated with a lower probabil- for Labour Market Research and Family Economics). ity of making human capital investments, as well as Cooperation with external They worked in cooperation with a range of external lower wages in the long run. researchers researchers including Alexander Danzer, Ludwig Maxi- milian-University Munich, Martin David Munk, Aalborg Another project also focuses on the labour market University, Efraim Sadka, Tel-Aviv University and the Ifo integration of immigrants in Germany. Immigrants research professors George Borjas, Harvard University, and natives perform differently in labour markets Cambridge MA., Erik A. Hanushek, Stanford University, (Michele Battisti, Gabriel Felbermayr and Panu Wilhelm Kohler, University of Tübingen, Giovanni Peri, Poutvaara, CESifo Working Paper No. 5022, 2014; ifo University of California, Davis, Assad Razin, Cornell Schnelldienst 68(18), 2015; ifo Schnelldienst 68(22), University and Silke Übelmesser, University of Jena. 2015; Michele Battisti and Gabriel Felbermayr ifo Schnelldienst 68(20), 2015). Using detailed micro- CEMIR’s reseach is informed by the question of how level data from Germany for 2000 to 2010, it is receiving countries’ welfare state and labour mar- documented that immigrants’ wages are 14% lower ket institutions, as well as their immigration policies, than those of natives, controlling for observables, should ideally be designed so that migration can un- that their odds of being unemployed are about 6 lock mutual benefi ts for all parties involved. Through percentage points higher, that their unemployment research, scientifi c conferences and discussion events, spells are approximately one month longer and that CEMIR aims to enrich the debate over migration in they absorb more business cycle volatility than na- Germany and Europe with scientifi c information. tives.

Ifo Annual Report 2015 94 Ifo Center of Excellence for Migration and Integration Research – CEMIR

Assessment of the Recruitment Potential of ing the terms of Democratic incumbents. A second Asylum-Seekers in Relation to Various Positions strand of research investigates the linkages between

….. % of companies survey see potential as high low migration ﬂ ows, election outcomes and changes in migration laws based on a large panel data set on migra- Management 3% 97% tion ﬂ ows for 12 OECD (destination) countries. This study comes to the conclusion that nationalist parties Other positions 7% 93% that enter parliament are a crucial factor in explaining the stringency of laws that regulate migration and the Skilled workers 22% 78% stance of moderate parties as regards migration.

Trainees 37% 63% Another study analyses how the proportion of foreigners in one’s region affects attitudes towards immi- Unskilled workers 41% 60% gration and political preferences. Using multiple data sources, it exploits an instrumental variable strategy 0 20 40 60 80 100 based on immigrants from former Yugoslavia during Source: Ifo Business Survey on the Employment of Refugees, Octo- the Balkan wars in the 1990s. Providing within-coun- ber 2015. try evidence from Germany, the author fi nds that an increase in the proportion of immigrants in a region Presence of foreigners creates more negative attitudes towards asylum seek- and attitudes to Module 2: The Political Economy of Immigra- ers and immigrants in general among the general pub- asylum-seekers tion and the Welfare State lic. This effect largely appears to be driven by growing A large body of empirical literature has established concerns about job security and worries related to that ethnic diversity reduces political support for in- individuals’ personal economic situation. Extreme- come redistribution. At the same time, immigrants Right Placement, however, decreases. who obtain citizenship change the distribution of vot- er preferences. The second module integrates vari- Module 3: Integration of Immigrants’ Children ous political responses into the analysis carried out in via the Education System the fi rst module. The Ifo Center for the Economics of Education was the main contributor to module 3 entitled: “Integra- This module analyses attitudes towards immigration tion of Immigrants’ Children through the Education in Germany, using the German Socioeconomic Panel System”. Several studies analysed the determinants of (SOEP) (Panu Poutvaara and Max Steinhardt, CESifo the educational outcomes of students with a migra- Working Paper No. 5611, 2015). It emerges that a neg- tion background, such as the institutional structure of ative approach to life is correlated with harbouring the education system, language profi ciency and the concerns over immigration. Separate analyses of civil effect of migration on crime. servants, pensioners and other persons not working show that the effect cannot be entirely explained by The Ifo Center for the Economics of Education mainly concerns that immigrants are competitors in the la- contributed to module 3: “Integration of Immigrants’ bour market. Children through the Education System”. Several studies analysed determinants of educational out- A further strand of research focusses on the political comes of students with migration background, such economy of migration. One paper analyses the im- as the institutional structure of the education system pact of elections on immigration policy, and particu- and the language profi ciency, and the effect of migra- larly on naturalisations, in a panel study of US states. tion on crime. The corresponding results indicate that immigration policy is (partly) driven by elections: there are more One study investigates the effect of language pro- naturalisations in presidential election years and dur- fi ciency of children with migration background on

95 Ifo Annual Report 2015 Ifo Center of Excellence for Migration and Integration Research – CEMIR

educational outcomes. The results show that stron- January 1, 2000 to birthright citizenship. Results based ger language skills in the host-country language have on administrative data indicate signiﬁ cant positive ef- a strong positive impact on the math competencies fects across all educational levels: preschool, primary of the children. This emphasises the importance of school and secondary school – the latter, however, language skills for the educational success and the in- fade out over time. The underlying mechanism seems tegration into the host country of children with mi- to be parental decisions and not improved (evalua- gration background. tions of) children’s skills.

A further study considers the question whether the Module 4: Economic and Social Integration of timing of school tracking affects the integration of Immigrants School tracking and migrants (Jens Ruhose and Guido Schwerdt, CESifo This module aims to examine the effects of recent immigrant integration Working Paper No. 5248, 2015; Jens Ruhose, ifo Be- changes in the German tax and transfer system on iträge zur Wirtschaftsforschung 61, Ifo Institute, Munich the economic integration of immigrants. Second, with 2015). The results show that early performance- respect to social integration, the module investigates based tracking of children into different school types intermarriage as a way through which immigrants ac- does not automatically foster migrant integration. quire host county customs, language skills and knowl- This is not true, however, for children from the least edge of the local labour market, and obtain connec- integrated families, i.e. those families that do not tions which improve their job prospects and increase speak the language of the country at home or chil- the rate of assimilation. dren born outside the country. For them, the abolition of early school tracking is an appropriate way to Individual trust in police among migrants residing in increase educational performance. This part of the European countries is the focus of this module, which project provides insights into how the educational in- draws on data from the European Social Survey. It is stitutions can help to reduce the cost of integration well established in literature on this topic that indi- and reap additional long-run beneﬁ ts by taking inter- vidual trust towards other people is culturally trans- generational aspects into account. mitted from immigrants’ countries of origin, and this study aims to shed light on whether a similar pattern In an additional study, we investigate whether immi- can be established for trust of institutions. According gration increases crime in Germany (Marc Piopionik to its ﬁ ndings, immigrants’ trust in police is associated and Jens Ruhose, CESifo Working Paper No. 5303, with the trust levels in their respective countries of 2015; Jens Ruhose, ifo Beiträge zur Wirtschaftsforschung origin. 61, Ifo Institute, Munich 2015). To identify a causal effect, we exploit the quasi-random distribution of eth- A further paper studies the return migration behav- Immigration and crime nic Germans across federal states and counties. The iour of immigrants in Denmark accounting for the results indicate that migration does not increase crime particular role of partnership and family ties. Initial in regions with good economic conditions (i.e. low un- results show that return migrants seem to be more employment rates), while it increases crime in regions highly educated on average and earn more than with high unemployment rates. those who remain in the country. Studying partners who jointly immigrated reveals that those couples Another paper looks at the effects of birthright citi- featuring two college-educated partners are more zenship on participation and the success of immigrant likely to return. Return propensities are also higher children in the educational system of the host coun- among couples where one partner is not part of the try (Judith Saurer, Anita Fichtl and Christina Felfe, ifo labor force. Among dual earner couples, returners Schnelldienst 68(24), 2015; Judith Saurer and Christina seem to be strongly positively selected on the in- Felfe Ifo Working Paper No. 208, 2015). It addresses come of the primary earner. Families with children this question relying on a reform of the German natu- at school age are less likely to return to their home ralization law in 1999 that entitled children born after country.

Ifo Annual Report 2015 96 Ifo Center of Excellence for Migration and Integration Research – CEMIR

CEMIR also publishes the Ifo Migration Monitor, pro- couples that have emigrated. It shows that emigra- viding the latest information on migration as well as tion is associated with reduced female labour force Emigration reduces female on refugees, which is updated on a monthly basis and participation, especially among couples migrating to labour force participation available via the Ifo website. Quarterly articles on the the United States. Most couples that had separate Ifo Migration Monitor are also published in the ifo fi nances in Denmark have joint fi nances abroad. Usu- Schnelldienst. The fi rst article in this series provides ally, the male partner contributes more. The switch an overview of data gathered to date on regular mi- to a traditional male breadwinner model is particu- gration and refugee infl ows into Germany ifo Schnell- larly strong among couples with children and where dienst (68(23), 2015; 69(1). Another article discusses the male is highly educated. the institutional aspects of current asylum legislations in Germany (ifo Schnelldienst 69(1), 2016). In another project theory and evidence on intra-family decision-making in the context of international migra- Qualifi cation Structure of Asylum Applicants in tion is presented. Theory predicts that the probability Germany in 2015 of being a tied mover decreases with own income % and increases with the partner’s income. Empirically, 35 it emerges that family migration decisions are usually 30.0 30 a shared preference, but are often driven to a larger

25 24.0 extent by the male partner. The probability that emigration is driven by male preferences increases with 20 17.5 male earnings. 15 13.0 In addition to its research output, CEMIR also or- 10 8.0 ganised the following events in 2015: a CEMIR and 5 UC DAVIS workshop on “Advances in migration

0 research” was held on on 1 and 2 May 2015, which University Grammar Secondary Primary school No schooling degree school/ school/ educations brought together migration researchers from Europe leaving certificate leaving certificate and the United States to present ongoing research in Source: IAB (2015). the fi eld. On 30 and 31 May 2015 the CEMIR junior economist workshop on migration research provided CEMIR hosts junior the opportunity for young researchers from different economist workshop Module 5: International Competition for Talent countries to discuss their recent work and exchange and Brainpower Circulation ideas on future research. A concluding policy event As part of the fi fth module, which looks at the exo- was held in November 2015 in Berlin to present CE- dus of highly-qualifi ed workers and with the circu- MIR’s research results to a broader public, including lation of knowledge, one study analyses the self- policy makers and journalists. In December, Panu selection of emigrants, in terms of observable and Poutvaara gave a public lecture on refugee crisis at unobservable characteristics (Ilpo Kauppinen, Panu the Ifo Institute. Poutvaara and George J. Borjas, CESifo Working Paper No. 5567, 2015).

In terms of family migration, research into the international migration of couples from 2014 was extended to accommodate different skill prices in the country of origin and in the country of destination. Another report analyses labour force participation and the household economies of couples that have emigrated. It draws on survey data on Danish

97 Ifo Annual Report 2015 Library

The library of the Ifo Institute is primarily a ser- the library fulﬁ ls an important service function. Its vice provider for Ifo and CESifo, visiting research- services were used a total of around. 5,000 times ers and students of the Munich universities. With in 2015. more than 135,500 books, ca. 400 periodicals and 30 statistical reports, the Ifo library is one of the The Ifo Institute’s library is a member of the library largest libraries for economics in southern Ger- association of the Northern German Länder, GBV. many. This allows users to access Ifo’s library via the internet and marked an important step in the harmonisation The Institute’s electronic catalogue uses various de- of the Ifo holdings with those of other large libraries scriptors, PTS country codes, and abstracts, as well in economics. The Ifo online public access catalogue as the classiﬁ cation system of the Journal of Economic (OPAC) is a component of the Ifo website (under Literature (JEL). Publication Series / Database Search).

Thanks to its literature and database research, The library of the Ifo Institute co-operates closely along with its procurement of data and information with the German National Library of Economics on selected economic and economic-political areas, (ZBW) in Kiel and Hamburg.

Ifo Annual Report 2015 98 Press, Publications, Conferences

The Ifo Institute is a European think-tank that forms With the support of external partners, who will a bridge between academic research and politics. bring their complementary expertise to the project, The applied, scientifi c economic research carried out the effectiveness and effi ciency of knowledge trans- by the Ifo Institute aims to intensively contribute to fer by the Ifo Institute will be systematically lifted to policy advice and the economic policy debate, as well a new level. Prof. Hans-Bernd Brosius, Director of as to provide services to researchers and the gen- the Institute Communications and Media Research eral public. The successful transfer of knowledge to at the University of Munich, and Dr. Alexander Haas the public realm is the task of the Press, Publications, will provide support with their expertise in commu- Conferences department. It prepares and conveys nications. the results of Ifo’s research to its target audience of political and business decision-makers, public admin- In a fi rst step Ifo’s existing transfer services will be Ifo’s existing transfer istrators, members of the academic community and documented. These services specifi cally include the services reviewed the media. Additionally, supplying information to en- publications and events organised by the Ifo Institute, hance a broader public’s knowledge of economics has its press and publicity work, the diffusion of the Ifo become more important. The department also of- departments’ research results and other, scientifi - fers services for Ifo’s Executive Board and its research cally-based economic information, the institute’s in- departments, as well as supporting them in their ternet presence and its use of social media. This re- publications, organising major events and assuming view will be followed by a strengths-and-weaknesses responsibility for the public image of the Ifo Institute. analysis of existing transfer services. The additional This includes the development of Ifo’s corporate de- information requirements of socially relevant groups sign, as well as the design and editorial maintenance of will then be identifi ed and potential for improvement its website. In addition, the department is responsible will be developed. for the numerous video projects and social media activities of the entire CESifo Group. Finding new instruments for providing society with economic information, and intensifying the use of Development, Implementation and mass media to raise awareness of Ifo’s research re- Professionalisation of Knowledge Transfer sults at an international level in particular, is one of the Concepts project’s main focal points. To enhance the benefi ts of its work for society, the Ifo Institute wishes to further develop the concep- After a kick-off meeting the Ifo Institute’s products tional and methodological bases for the transfer of were systematically reviewed in several workshops knowledge available in the Ifo Institute and its work- held over the course of 2015. These “product pro- ing results to relevant social groups, and to tap fresh fi les” cover the contents of the publications/events, knowledge transfer potential. With communication diffusion channels, the respective target groups, sta- technologies and behaviour undergoing rapid chang- tistics on use to date, and an evaluation by those es, the Ifo Institute also wishes to align its expertise responsible for the respective products. The results and the results of its work with these new framework were summarised in a matrix featuring target groups conditions. and the most relevant products on offer from Ifo’s point of view. Moreover, the planning and imple- New knowledge transfer In view of this aim, a knowledge transfer concept ori- mentation of new transfer offerings for the key tar- offerings launched ented towards the future needs of the Ifo Institute, get groups of schools and mass media has already which can also be used as a prototype for other re- commenced. The signature of a cooperation agree- search institutes, is to be developed as part of the ment between the Bayerischen Rundfunk (BR), the project entitled: “The development, implementation Deutsche Journalistenschule (DJS) and the Ifo Insti- and professionalisation of knowledge transfer con- tute laid the legal foundation for close cooperation cepts” funded by the German Federal Ministry for between these institutions to promote young jour- Education and Research from June 2015 to May 2018. nalistic talent. The newly-introduced series of events

99 Ifo Annual Report 2015 Press, Publications, Conferences

“Ifo Practical Experience Days for High-Quality Jour- It continuous and active PR work is one of the rea- nalism” forms the core of Ifo’s contribution to the sons why the Ifo Institute has a very high media pro- professional qualifi cation of these young journalists. fi le. This is also partly due to the monthly publication The fi rst event in this series took place in November of the Ifo Business Climate Index, the Ifo Export Ex- 2015. It built on the experience of a pilot workshop pectations, the Ifo Employment Barometer and other Focus on raising press successfully conducted in November of the previous Ifo survey results. Ifo’s forecasts of the economic out- profi le in Europe year. With a view to intensifying press work in key look, and above all Ifo’s economic policy statements, European countries, steps were also taken to expand also attract a great deal of media attention. Ifo’s international press mailing list. To expand knowledge transfer geared towards the key target group of With their numerous interviews and exclusive re- schools, an analysis of their needs for scientifi cally- ports in the national media, Ifo researchers frequently based economic information was initiated and work initiate discussions on important issues. As a colum- started on the production of a DVD on the topic of nist of the weekly WirtschaftsWoche, the president “Economic activity” in cooperation with the special- of the Ifo Institute Hans-Werner Sinn elaborates his ist publisher MedienLB. views on current economic policy developments on a monthly basis. He also writes regularly for Project Syndicate, which places his articles worldwide in ma- Press Relations jor national daily newspapers. Ifo’s President is also a The task of Ifo’s press offi ce is to present the insti- sought-after interview partner by radio stations, tele- tute’s research results to the media and the general vision channels and newspapers across Europe. The public in an understandable, non-technical form. discussion surrounding his new book “Der Euro: Von Around 200 press releases in 2015 offered informa- der Friedensidee zum Zankapfel” received a great tion on research results, current survey results, new deal of media attention. Several press conferences publications and events. As an intermediary between related to the book launch were held in Germany. journalists and the Ifo Institute, the press offi ce coordinates press interviews with institute staff, orga- To support the media in reporting on the Ifo Institute’s nises press conferences and answers queries. It also results, Ifo’s press releases were more strongly oriented provides the general public with relevant information towards journalists’ information needs in 2015 and an and material. additional service for the media offering regular notice of forthcoming regular press releases was launched. Ifo Institute Press Conference Presenting the Ifo Economic Forecast, December 2015 29 young journalists (18 from DJs and 11 from BR) took part in the Ifo Practical Experience Days for High-Quality Journalism mentioned above, which were chaired by BR editor Jürgen Seitz and Ifo press offi cer Harald Schultz. This event aims to deepen participants’ understanding of economic relations through the practice-oriented communication of economic and journalistic knowledge. Leading scientists from all of Ifo’s departments presented their work and their research results. Typical mistakes in economic reporting were also analysed using practical examples. In addition to the explanation of the Ifo Business Climate Index by Timo Wollmershäuser, the presentation on energy and climate research by Karen Pittel and Panu Poutvaara’s report on the problems of migration were Prof. Dr. Timo Wollmershäuser, Director of the Ifo Center for Business Cycle Analysis and Surveys, Prof. Hans-Werner Sinn, President of the also particularly well received. A highlight of the event was Ifo Institute, Dr. Mayntz, Bundespressekonferenz Hans-Werner Sinn’s speech on the refugee crisis.

Ifo Annual Report 2015 100 Press, Publications, Conferences

Publications relevant issues. CESifo Economic Studies is pub- Another of the department’s responsibilities is the lished by Oxford University Press. Its managing conception, production and distribution of Ifo’s pub- editor is Panu Poutvaara, who has been director of lications. This includes developing topics of general Ifo’s Center for International Institutions Compari- sons and Migration Research since 2010; current interest, editing and translating (German/Eng- lish or English/German). The pre-printing work is also – ifo Beiträge zur Wirtschaftsforschung: a book series done in the department, including the preparation of in which important research projects of the Ifo graphs and tables, as well as type-setting and layout, Institute are published. interfacing with the printers and address management. – Ifo Economic Policy: an English-language book series The press relations, publications and conferences on important research projects of the Ifo Institute, team assists other departments in the professional published by Edward Elgar Publishing, Cheltenham, presentation of their publications and lectures. UK.

The Ifo Institute publishes the following series of As of 2014 selected journals are also available in publications: EPUB format. – ifo Schnelldienst: a bi-monthly journal containing In addition to the standard issues of the ifo Schnell- discussions of current policy issues and Ifo research dienst, a special issue was published in 2015 entitled fi nd i n g s ; “Die griechische Tragödie“, and a special issue of CES- – ifo Konjunkturperspektiven: a monthly journal pre- ifo Forum entitled “The Greek Tragedy“ was also senting the current results of the Ifo Business published in the same year. Survey in graphs, tables and descriptive analyses; – ifo–GfK-Konsumreport: a monthly journal reporting The Ifo Institute also publishes the results of expert on the results of the Ifo Business Survey, GfK reports that do not appear in book form in the ifo Wirtschaftsdienst Konsum- und Sparklima and Forschungsberichte and research conducted by the Ifo on consumer confi dence in the EU ( joint publication Dresden branch in Ifo Dresden Studien, which deals with GfK Marktforschung, Nürnberg); primarily with topics affecting the new German federal states and their eastern neighbours – ifo Dresden berichtet: a journal of the Ifo Dresden branch on economic policy and structural change The ifo Newsletter, a free electronic information ser- in east Germany that appears six times a year; vice, is distributed at the end of each month by email. – CESifo World Economic Survey: a quarterly publica- It reports, in German, on the latest research fi ndings, tion in English containing the results of an Ifo expert key publications, selected events, personnel particu- poll on the world economy in graphs and tables lars, important dates and many other items from the with a detailed analysis; Ifo Institute. The ifo Dresden Newsletter is a service – CESifo Forum: a quarterly English-language journal offered by the Dresden Branch of the Ifo Institute published by CESifo GmbH focusing on current that regularly reports on the latest publications and economic topics of worldwide interest with con- events organised by the branch. The newsletter is tributions by internationally renowned authors; sent out on publication of the journal ifo Dresden berichtet. In addition, the publication of new issues – CESifo DICE Report: a quarterly English-language of CESifo Forum, CESifo DICE Report and CESifo journal with articles on institutional regulations World Economic Survey is accompanied by a sum- and economic policy measures using a country- mary of contents and download options. comparative approach; – CESifo Economic Studies: a quarterly, refereed The CESifo Group also provides information on academic journal in English. Articles present the news via Twitter in German (@ifo_Institut) and results of economic research and address policy- English (@CESifoGroup). Ifo President Hans-Wer-

101 Ifo Annual Report 2015 Press, Publications, Conferences

ner Sinn also uses Twitter. Internet users can keep On 13 May 2015 the Ifo Institute together with the abreast of the latest news from the Ifo Institute German Advisory Council on the Environment, organ- and the CESifo Group via the CESifo Group’s RSS ised a symposium entitled: “The energy turnaround: feeds. what are its implications for Germany as a manufacturing location?” After the welcome speech Ifo Presi- Some of the Ifo publications are distributed by inter- dent Hans-Werner Sinn and Prof. Martin Faulstich, national, online service providers. A complete over- SRU and Technical University of Clausthal-Zellerfeld, view of the publications and ordering information is discussed the costs and advantages of the energy turn- available at www.cesifo-group.de. around for Germany. Prof. Harald Bradke, SRU Berlin; Fraunhofer ISI, Karlsruhe, and Prof. Joachim Weimann, Conferences Otto-von-Guericke University, Magdeburg, critically The Press, Publications, Conferences department is analysed effi cient ways of reducing energy consump- responsible for the organisation and realisation of tion. Prof. Karsten Neuhoff, DIW Berlin and Technical the Ifo Institute’s major conferences, the presenta- University of Berlin, and Prof. Andreas Löschel, West- tion of the institute at external conventions and fälische Wilhelms University of Münster, took a critical conferences like, for instance, the Annual General look at funding to secure competitiveness. Dr. Fritz Meeting of the Verein für Socialpolitik (Association Brickwedde, President of the German Federal Asso- for Social Politics), and for taking care of groups of ciation for Renewable, Berlin, Prof. Christoph Buchal, visitors to the institute. Key events in 2015 were the Peter Grünberg Institut, Jülich, Holger Lösch, German Key events in 2015 symposium “Energiewende: Konsequenzen für den Manufacturers’ Association, Berlin, Matthias Machnig, Industriestandort Deutschland” (with the German State Secretary in the German Federal Ministry for Advisory Council on the Environment), the sympo- Economic Affairs and Energy, and Prof. Stephan Re- sium to commemorate the 100th Birthday of Hans imelt, President and CEO, General Electric Deutsch- Möller in June, the Ifo General Meeting in June, the land, Frankfurt am Main, subsequently discussed the symposium on migration and securing skilled work- implications of the energy turnaround. ers in manual trades – potential and need for action in October, the Ifo Industry Colloquium (ifo The 11th of June 2015 marked the 100th Birthday of Branchen-Dialog) in October, the Ifo Brussels Inter- Prof. Hans Möller, to whose chair Hans-Werner Sinn national Economic Forum in November and the uni- was appointed at the University of Munich. Hans Möller versity lecture given by Hans-Werner Sinn featuring devoted himself to the theory of economic policy and a review of half a century of economic policy in De- practical policy advice and was a member of the Ger- cember. Public events are mostly livestreamed on man federal government’s Scientifi c Advisory Commit- the internet to make them accessible to members of tee from 1950 –1996. To mark the occasion, the Ifo the public who are unable to attend in person. Institute and the economics faculty of the University of Munich jointly organised the Symposium on the “De- At the suggestion of the former head of the SPD velopment of Economic policy in the Federal Republic (German social democrats party) Ludwig Stiegler, of Germany”, which was linked to the Ifo Annual Meet- the Ifo Institute invited German members of parlia- ing held on the following day. The symposium’s keynote Ifo meets with German ment from all parties to a “Parliamentary break- speakers were Prof. Knut Borchardt, Emeritus of the MPs fast” at the Bavarian Representation in Berlin for University of Munich’s economics faculty, Prof. Clau- the fi rst time in 2014. This was followed up in 2015 dia M. Buch, Vice-President of the Deutsche Bundes- with two events: in February Hans-Werner Sinn, bank, and Prof. J.-Matthias Graf von der Schulenburg, together with Ludwig Stiegler and other German Gottfried Wilhelm Leibniz University of Hannover. In MPs, met to discuss the demographic shortfall; and addition to Prof. Sinn, the Dean of the University of in September they talked about the current situa- Munich’s economics faculty, Prof. Joachim Winter, and tion in the European Union and “Migration in the Prof. Bernd Huber, President of the University of Mu- welfare state.” nich, also gave brief introductory speeches.

Ifo Annual Report 2015 102 Press, Publications, Conferences

The public part of the 66th Annual Meeting, which 66 years. Gabriel looked at the question of where was jointly organised with the Center for Economic the task of policy advice ends and where politics Policy advice vs. politics Studies (CES) in the Great Hall of the University of begins. From his point of view, politics has to reach Munich, followed on from the Hans Möller Sympo- compromises and cannot be based on “pure doc- sium. The Chairman of Ifo’s Administrative Council, trine.” Political decisions are never objectively right Dr. Peter-Alexander Wacker, opened the event and or objectively wrong, they are merely the expression informed participants that a decision had been taken of a majority or minority in parliament. regarding the Prof. Hans-Werner Sinn’s successor. He announced that Prof. Dr. Clemens Fuest, President of Following his speech, Federal Minister Gabriel and the Zentrums für Europäische Wirtschaftsforschung Prof. Sinn exchanged views in a discussion chaired (ZEW) in Mannheim, was to take over as the new by Marc Beise, Chief Economics Editor of the Südde- President of the Ifo Institute as of 1 April 2016 and utsche Zeitung, in a public discussion. The subsequent would take up a professorship at the University of expert discussion was devoted to the basic questions Munich. Prof. Bernd Huber, President of the Univer- of economic policy and policy advice in Germany. In sity of Munich, subsequently greeted the numerous a discussion once again chaired by Marc Beise, Prof. guests. Following on from the Hans Möller Sympo- Sinn, Prof. Harold James, Princeton University, Prof. sium held on the previous day, Hans-Werner Sinn Georg Milbradt, former Minister President, and Prof. gave a review entitled: “Economic policy and policy Wolfgang Wiegard, former Chairman of the German advice since German reunifi cation”. His speech fo- Council of Economic Experts, looked at the question cused on German reunifi cation, the Maastricht Trea- of what policy advisory work can achieve and the ex- ty, Germany’s crisis as a manufacturing location, the tent to which it makes sense. The second strand of fi nancial crisis, the energy turnaround and the Riester the discussion focused on Greece and the question of pension scheme. its potential exit from the euro.

Hans-Werner Sinn, Sigmar Gabriel and Marc Beise

Hans-Werner Sinn, Harold James, Wolfgang Wiegard, Georg Milbradt and Marc Beise German Economics Minister Sigmar Gabriel began his speech by paying tribute to the achievements of Hans-Werner Sinn. Sinn is one of the very few econ- In the members’ meeting held on the afternoon of omists in Germany to have occupied an outstanding 12 June 2015, Hans-Werner Sinn reported on the position in research and policy research in Germany Ifo Institute’s activities in 2014. The annual ﬁ nancial for many years. The Ifo Institute has also become an statement of accounts on 31 December 2014 pre- institution in the Federal Republic of Germany, not- sented by Ifo Executive Board Member Meinhard ed Gabriel. It has accompanied Germany’s economic Knoche was approved and the Executive Board was history with in-depth expertise and passion for over unanimously discharged.

103 Ifo Annual Report 2015 Press, Publications, Conferences

To conclude the members’ meeting – following the election of trustee board members – the Society for the Promotion of Economic Research (Friends of the Ifo Institute) Prize for Economics was awarded. The Ifo Institute Prize for Special Success in the Manage- ment of Third Party Projects was not awarded in 2015, but four special prizes for outstanding services were presented. A more detailed report on the prize awards is available in the Personnel Development Section of this report and in the ifo Schnelldienst 68(13), 2015. Panel discussion: Franz Josef Pschierer, Lothar Semper, Hans-Werner Sinn and Ursula Heller Another Ifo event with considerable public resonance was the symposium entitled “Immigration and securing skilled personnel in trades and crafts – On 28 October 2015 the Ifo Institute in coopera- Securing skilled staff in potential and the need for action” jointly organised tion with the Chamber of Commerce and Industry trades and crafts by the Bavarian Chamber of Trade and Crafts and for Munich and Upper Bavaria and funded by the the Ifo Institute on 14 October 2015. At the event Bavarian State Ministry for Economic Affairs and the participants discussed the opportunities offered to Media, Energy and Technology organised the 15th Ifo trades and crafts by immigration, the challenges to Branchen-Dialog (Ifo Industry Colloquium). This be overcome and the requirements that politics working conference aims to analyse the economy as needs to fulfi l. a whole and economic developments in manufacturing, construction, wholesaling and retailing, as well as In his introductory speech the managing director of in selected service sectors. Detailed reports on the the Bavarian Chamber of Trade and Crafts, Lothar conference are available in the Section on the Cen- Semper, noted that many trade and craft compa- ter for Industrial Organisation and New Technologies nies are already having problems fi nding qualifi ed and in the ifo Schnelldienst 68(23), 2015. staff. 15% of the apprenticeships offered in Bavaria cannot be fi lled even now due to a lack of suitable ifo Branchen-Dialog 2015 (Ifo Industry Colloquium) candidates. In his speech Ifo President Hans-Werner Sinn analysed the extent to which migration can compensate for the demographic defi cit. In addition to immediate language courses in German and professional training, Sinn proposed a suspension of the Sinn: suspend minimum minimum wage to facilitate the integration of immi- wage to help integrate grants into the German labour market. Franz Josef immigrants Pschierer, Bavarian State Secretary for Economic Af- fairs and the Media, Energy and Technology, illustrat- ed the special challenges of demographic change for Bavaria. Following on from this presentation, Ursula Heller, Bayerischer Rundfunk, chaired a discussion among the panelists of the question of which political changes are required to achieve orderly immigra- On 5 November 2015 the conference series “Ifo tion fl ows and the successful integration of migrants. Brussels International Economic Forum (Ifo BrIEF)” Their contributions were published in the ifo Schnell- was continued in Brussels with a conference entitled: dienst 68(21), 2015. “Is Europe back on a Growth Track with its Energy Union and in Promoting Innovation?” In this confer-

Ifo Annual Report 2015 104 Press, Publications, Conferences

ence series the Ifo Institute presents its latest research Internet and discusses it with high-ranking EU representa- The Ifo Institute has digitalised most of its activities tives. The European Union’s Committee of the Re- in research, policy advice and service and made this gions hosts the event. After words of welcome by Jiří information available online. This applies not only to Ifo maximizes online Buriánek, General Secretary of the Committee of the internal and external communication, to searches offering Regions, Ifo President Hans-Werner Sinn explained and to knowledge management, but also to business the problems of the German energy turnaround in a surveys, research projects and making data available European context in a panel entitled: “The German to users worldwide. The Ifo Institute’s activities are Energy Reform and the European Energy Union – Op- linked with those of its other partners in the CESifo portunities and Pitfalls.” He subsequently discussed Group. For this reason, the CESifo Group has a joint developments and potential solutions with Marc Bus- internet portal (www.cesifo-group.de) that combines sieras, Electricité de France, Karen Pittel, Ifo Institute, the information offered by the Ifo Institute, CESifo and Nils-Henrik M. von der Fehr, University of Oslo. GmbH and the Center for Economic Studies (CES). In the second panel entitled: “Towards a Sound Foun- dation for European Innovation Policy” Oliver Falck, The internet portal aims to provide the public with Ifo Institute, Albert Bravo-Biosca, NESTA, Innovation comprehensive information from the working areas Growth Lab, Henry G. Overman, What Works Cen- of the CESifo Group and to improve the general level tre for Local Economic Growth, Dirk Pilat, OECD, of knowledge in economics. It also has the goal of and Stefan Weiers, European Commission, looked at quality assurance, by enabling complete transparency the potential and meaningfulness of subsidising inno- regarding the resources and output of the members vation at various levels of the European Union. Both of the CESifo Group, so that a control function can be panels were chaired by Karl-Heinz Lambertz, First exerted by its users. Vice-President of the Committee of the Regions. The CESifo Group website: Farewell lecture http://www.cesifo-group.de

On 14 December 2015 Prof. Sinn gave his traditional end-of-year lecture for the last time as Ifo President. His review of the economic policy events that he found particularly memorable over the past 50 years was attended by an audience of 750 guests who ﬁ lled the Great Hall of the University of Munich. The lecture was also broadcast in a neighbouring lecture hall, it was livestreamed via the internet and was subse- In the internet portal of the CESifo Group, the Ifo In- quently made available in the Ifo Institute’s media stitute presents timely information on the institute, its center. services, its research topics, its economic-policy ad-

105 Ifo Annual Report 2015 Press, Publications, Conferences

vice based on this research, and its future plans. This the media with information. CESifo GmbH and CES also includes comprehensive information on the the- provide a wide range of information on their work in oretical and policy-oriented output of Ifo’s research the joint internet portal, especially with regard to the centers and its staff, as well as the media resonance CESifo Research Network and the scientiﬁ c confer- of this output. ences organised by CESifo.

The range of services for the transfer of knowledge Videos is being continuously expanded. In internet databases, Video contributions are becoming an increasingly publications can be easily searched and ordered and important instrument for conveying information. Re- some can be retrieved in full-text form. Several Ifo cordings of speeches, lectures, panel discussions and Ifo journals available in journals have also been offered as downloads in the other events document the CESifo Group’s work. .epub format .epub format as of 2014, which enables the dynamic CES and Ifo began recording events and producing adjustment of the text to the reader’s screen size and video fi lms back in the 1990s, meaning that the CE- is particularly suitable for viewing on mobile devices Sifo Group now has a vast pool of video recordings, like tablets and E-Readers. The library of the Ifo In- some of which have now acquired historical impor- stitute also makes its electronic catalogue available to tance. Users have central access to its entire offering external users. The DICE database (Database for In- of videos via the user-friendly media library. A well- stitutional Comparisons in Europe) offers information established focus of Ifo’s use of video is livestreaming, in a systematic and comparable form on institutional or the live broadcast of events via the internet, which regulations, especially within the European Union. The are subsequently made available in its media library. offering of “Visual Stories”, which offer a comprehen- This technology has signifi cantly raised the public pro- sive graphic representation of data, was also expanded fi le of CESifo events. State-of-the-art video technol- in 2015. The Ifo Resources Database, which was de- ogy now makes it possible to show the slides used in veloped and is regularly updated by the Ifo Center for lectures in a second window. Energy, Climate and Exhaustible Resources, is also frequently accessed by users. Based on tables and docu- CESifo’s Media Library also serves as a virtual audi- ments from several data suppliers, it provides a com- torium: lectures and presentations are often viewed prehensive overview of energy reserves and resources. in their entirety. The CESifo Lectures, which can be Special service offerings for researchers include the da- accessed via the CESifo website, are recordings of tabases iPEHD and GAME. The Ifo Prussian Economic lectures given by international academics at CES and History Database (iPEHD) – Ifo’s historical economics Ifo. In 2015 the lecture series: “Economics of Confl ict” database on Prussia – offers interested researchers a given by Dominic Rohner featured just a few of the systematic collection of digitalised Prussian data avail- lectures recorded. able via Ifo’s website. Ifo GAME – the database on geo- New in 2015: ifo GAME logical and meteorological events newly integrated into In addition to livestreams via the internet, a grow- Ifo’s website in 2015 – collects information on geologi- ing number of self-produced video clips will also be cal and meteorological events worldwide from 1979 to added to the media library in the future. The key fi nd- 2010 and summarises them in a structured and aggre- ings of conferences organised by the Ifo Institute will gated manner at a national level. Ifo GAME thus offers are also presented in short event reports. Recordings a unique dataset for economic analysis. of selected events have also been supplemented by short interviews with the panellists as of 2014. Numerous lectures given by guest researchers at the Center for Economic Studies (CES), as well as select- To reach a greater number of users, recordings of ed lectures at Ifo events, are made available in a video events were also made available on the video plat- format to an international audience in the CESifo form YouTube in 2014. Important speeches and in- Group’s media library. The internet platform is also terviews are selected for the Ifo Institute’s YouTube used to conduct Ifo’s business surveys and to provide channel and presented in an optimized format.

Ifo Annual Report 2015 106 Dresden Branch

Dresden Branch

The Dresden Branch, established by the Ifo Institute bers and a number of student research assistants. in 1993, conducts empirical economic research that Ifo Dresden closely co-operates with the Dresden focuses on the special conditions in the New Länder, University of Technology and the Statistical Offi ce of and especially in the Free State of Saxony. Ifo Dresden the Free State of Saxony. Co-operation agreements Cooperation agreements Branch prepares economic analyses that deal with the specifi cally cover visiting fellowships of researchers, economic developments in Eastern Germany and the joint activities and presentations. Ifo Dresden also Free State of Saxony. It offers policy advice and informa- offers project-related work experience to interested tion to the public. The branch receives fi nancial support students of economics. from the Free State of Saxony and draws on the experience of Ifo Institute, its parent institute in Munich. In addition to economic research, the Dresden Branch offers extensive services. Economic-policy Ifo Dresden’s researchers have solidly established oriented analyses are published in the journal ifo themselves in the German research landscape, and Dresden berichtet and in the book series, ifo Dresden their expertise and know-how, especially in the fi eld Studien. Ifo Dresden provides information and advice of Eastern German economic development, is highly on current economic-policy issues to policy-makers, valued by both economists and politicians. Ifo Dres- companies and business organisations. It also organ- den Branch can look back at more than two success- ises workshops and conferences. ful decades of empirical economic research. The journal ifo Dresden berichtet has been published The Dresden Branch currently works in the following every two months since 1994. In this journal, Ifo Dres- research areas: den researchers and external authors publish their Focus on economic – Business-cycle and growth in Saxony and the New current research fi ndings on the economic situation situation in New Länder Länder, in the New Länder for a wider public in politics, business and academia. The results of more comprehen- – Human capital, structural change and the position sive research projects are published in the series ifo of Saxony and the New Länder in locational com- Dresden Studien. In 2015, three volumes in the series petition, were published. – Labour market and social policy in Saxony and the New Länder, Conferences and workshops, such as the working group for the monitoring of economic activity, – Integration of Saxony and the other new Länder into the international division of labour (especially are regularly held on the premises of Ifo Dresden. with Central and Eastern Europe) and Workshops in 2015 included the 10th workshop on “Macroeconomics and the Business Cycle” organised – Public fi nance and support of economic develop- in co-operation with the Helmut-Schmidt-Univer- ment in Saxony and the New Länder. sität Hamburg (19/20 November 2015) and the 9th Events in 2015 workshop on “Political Economy” (27/28 November Ifo Dresden Branch also does research into the general 2015) together with CESifo and the TU Dresden. The topic of “implications of demographic change to the workshop on “Labour Markets and Social Policy” or- economic development”. The shrinking and ageing of ganised in co-operation with the TU Dresden (19/20 the population will have a signifi cant impact on nearly March 2015) and the workshop on “Regional Eco- all fi elds of social and economic development, and will nomics and Structural Change” together with the TU thereby pose new challenges for economic policy. Dresden and the TU Braunschweig (10/11 September 2015) were hosted by Ifo Dresden for the fi fth time. Under the management of Marcel Thum and Joachim Ragnitz, 14 economists currently engage in research at In the series Dresdner Vorträge zur Wirtschaftspoli- the branch, of which 12 are doctoral candidates. The tik, prominent economists present their latest re- team is completed by two non-scientifi c staff mem- search fi ndings in economics and fi nance. In 2015

109 Ifo Annual Report 2015 Dresden Branch

four lectures were held in this series. Giacomo Cor- Together with the Akademie für Politische Bildung Tutz- neo, Professor of Public Finance and Social Policy ing, Ifo Dresden also organised the “Tutzinger Sommer- at the Free University (FU) of Berlin, Joachim Wei- akadmie”. This conference took place from 1 September mann, Professor of Economic Policy at the Otto- to 4 September 2015 and addressed the economic, so- von-Guericke-University Magdeburg, Steffen Mül- cial and political aspects of German reunifi cation. ler, Head of the Department of Structural Change and Productivity at the Halle Institute for Economic Economic Activity and Growth in Saxony and Research (IWH) and Michael Fritsch, Professor the New Länder of Business Dynamics, Innovation, and Economic Ifo Dresden gets a signifi cant amount of media cover- Change at the Friedrich-Schiller-University Jena, age with the regular provision of its business cycle discussed their views on current policy issues with indicators. Ifo Dresden publishes the Ifo Business Sur- audience members from the fi elds of science, policy vey for Eastern Germany and the Free State of Sax- and public administration. ony on a monthly bases, and business cycle forecasts for these two regions twice a year. In 2015, the political reunifi cation of Germany cel- Special conference ebrated its 25th anniversary. To mark the occasion, The business cycle forecasts are presented in June to mark 25 years of the Ifo Institute hosted a conference in Dresden on and December at a press conference and at the reunifi cation October 9th entitled: “25 Jahre Deutsche Einheit: workshop entitled: “Ifo Working Group on the Busi- Wo stehen wir – wie geht es weiter?“. The confer- ness Outlook for Saxony”. The workshop takes place ence covered economic developments in the New at the Ifo Dresden Branch and brings together repre- Länder since 1991, key political achievements and sentatives from the Ifo Institute in Munich, the Dres- perspectives for the future. Michael C. Burda, Di- den Branch of the Ifo Institute, the Federal Employ- rector of the Institute for Economic Theory at the ment Agency, the Regional Offi ce of the Institute of Humboldt University of Berlin, Reiner Klingholz, Employment Research in Saxony, the Statistical Offi ce Director of the Berlin Institute for Population and of the Free State of Saxony, various Saxon ministries, Development, Astrid Lorenz, Professor of Political the credit reporting agency Creditreform, the Cham- Science at the University Leipzig, Georg Milbradt, ber of Crafts Dresden, the Chamber of Industry and former Prime Minister of Saxony and Professor of Commerce Dresden and others. The 35th and 36th Economics at Dresden University of Technology, workshops took place in 2015. Hans-Werner Sinn, President of the Ifo Institute, and Gert Wagner, board member at the German Insti- In addition to its biannual business cycle forecasts, Ifo tute for Economic Research (DIW) Berlin, provided Dresden Branch provides monthly reports featur- insights into the successes and failures of German ing the regional results of the Ifo Business Survey for unifi cation. Eastern Germany and the Free State of Saxony. The results for Eastern Germany are published as monthly press releases and as articles in the journal Wirtschaft + Markt. The outcomes of the Ifo Business Survey for the Free State of Saxony are published on a monthly basis as the socalled “Sachsenbarometer” in the daily newspaper Sächsische Zeitung. In 2015, the Sächsische Zeitung launched a new quarterly magazine called “WIRtschaft in Sachsen – Das Entscheidermagazin”. In order to widen the readership of the “Sachsenba- rometer”, the Sächsische Zeitung asked the Ifo Dres- den Branch together with Creditreform Dresden to comment on the “Sachsenbarometer” in this new Hans-Werner Sinn addresses conference participants magazine. Four issues were published in 2015.

Ifo Annual Report 2015 110 Dresden Branch

Ifo Business Climate Eastern Germany (Index) was published in the journal Review of Economics. Since

Index 2005 = 100, seasonally adjusted by X-13ARIMA-SEATS indicators have different publication lags, the set of in- 120 formation for a forecaster changes within each quarter. 115 In this article, Steffen R. Henzel, Robert Lehmann and Regional economic

110 108.7 Klaus Wohlrabe look at different points in time in each forecasting 108.5 106.5 105 quarter and ask whether the forecast for the current and following quarter become more precise the more 100 information is available. This is particularly important 95 in forecasting practice. It turns out that regional indi-

90 Eastern Germany cators are exceptionally good at forecasting regional Germany economic development. The paper’s key results were 85 Saxony also published in ifo Dresden berichtet 4/2015. 80 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 a) Manufacturing, construction, wholesailing and retailing. Economic forecasting is not exclusively restricted to a Source: Ifo Business Survey. prediction of total output. In their paper: “Forecasting Employment in Europe: Are Survey Results Helpful?” According to the Ifo Institute’s forecasts, private con- Robert Lehmann and Antje Weyh (Regional IAB Of- sumption will provide a major stimulus for economic fi ce Saxony) ask whether business survey results have a growth in 2015. However, a signifi cant portion of private predictive power in forecasting employment growth. For consumption is debt-fi nanced, bearing an increasing risk most of the 15 European states under consideration, sur- of over-indebtedness. Carolin Fritzsche and Michael We- vey results are a powerful tool in predicting employment. ber of the Dresden Branch analysed the regional degree The article is available as Ifo Working Paper No. 182. of and reasons for over-indebtedness in Germany, using a new data set released for the fi rst time by the Federal Exports are a major demand side component of GDP Statistical Offi ce. They conclude that the risk of over-in- and transfer international shocks into the domes- debtedness in Eastern Germany and in the Free State of tic economy. Thus, the forecasting accuracy of GDP Saxony is not higher than in Germany as a whole. Their depends on the unbiasedness of export forecasts. results were published in issue 4/2015 of the journal ifo Forecasting literature has intensively discussed private Dresden berichtet in a paper entitled: “Zuviel Konsum auf consumption, whereas studies of export forecasts Survey-based vs. hard fact Pump? Überschuldung im regionalen Vergleich“. are rather scarce. The article: “Survey-based Indica- indicators tors vs. Hard Data: What Improves Export Forecasts The doctoral candidates at Ifo Dresden also published in Europe?” by Robert Lehmann fi lls this gap. It sets several articles in academic journals. One of the essays up a forecasting competition between indicators from in Robert Lehmann’s PhD thesis, “Forecasting GDP at surveys (for example, export expectations) and those the Regional Level with Many Predictors”, was pub- based on hard facts like price and cost competitiveness lished in the German Economic Review, the journal of against major trading partners. This article focuses on the German Economic Association. The article, writ- export growth forecasts for 20 European countries, ten together with Klaus Wohlrabe, asks which indica- as well as the aggregates EA-18 and EU-28. Robert tors or methods are able to reduce the forecasting Lehmann fi nds that survey-based indicators outper- error for regional GDP compared to simple bench- form hard data for most of the countries in the sample. mark models. For Baden-Württemberg, Saxony and The forecast accuracy of survey results, however, var- Eastern Germany they fi nd that regional indicators, as ies considerably between countries depending on the well as variables that mirror regional economic struc- countries’ export composition. The article is available as tures, have the highest forecasting accuracy. Ifo Working Paper No. 196 and was presented at both the 2015 Annual Congress of the German Economic The companion paper to this study “Nowcasting Re- Association (Münster) and at the 55th Congress of the gional GDP: The Case of the Free State of Saxony” European Regional Science Association in Lisbon.

111 Ifo Annual Report 2015 Dresden Branch

Human Capital, Structural Change and the sons for Dresden’s poor economic growth rates since Position of Saxony and the New Länder in 2005. The authors conclude that the poor growth Locational Competition dynamic of the semiconductor industry, which is one This research features studies of regional dispari- of the main growth drivers in Dresden, is partly re- ties and different regional growth prospects. The sponsible for the city’s relatively weak growth devel- research focuses on regional policies to foster the opment. In Europe, in particular, but also globally, the harmonization of inter-regional living conditions or to whole semiconductor industry has fallen below its deal with demographic change. This analysis examines growth levels of the last decade. The results of this the economic convergence process of Eastern Ger- study will be published in ifo Dresden berichtet. many. Furthermore, the long-lasting economic effects of past political events has become one of the main An article by Christian Ochsner in ifo Dresden berich- research topics in recent years. tet (5/2015) analysed regional differences in the credit volumes committed by the KfW-Mittelstandsbank The project entitled: “Effects of the Demographic (Kreditanstalt für Wiederaufbau). Prior to the great Change in Germany as an Immigration Country”, that recession in 2009, credit commitment volumes per was conducted on behalf of the Friedrich-Ebert-Stif- worker increased steadily in Eastern and Western tung (FES) and fi nished in 2015, places an emphasis Germany. Since the year 2009, absolute credit com- on how people with a migration background infl u- mitment volumes have increased. Regional distribution ence demographic developments, as well as the labor has also changed in favour of Eastern Germany. How- market and social security systems. Besides purely ever, regional differences within Eastern Germany are economic aspects, the study also focuses on the im- considerable. The Free State of Saxony and Thuringia Migrants and their impact pact of an increasing share of people with a migra- benefi t less from the special funds issued by the KfW- on local public services tion background on local public services and urban Mittelstandsbank to defend the credit crunch and to societies. The project was carried out jointly with promote renewable energy and energy effi ciency. Alexander Kemnitz, Professor of Economic Policy and Economic Research at TU Dresden, and Gesine Mar- Loan Committment by KfW-Mittelstandsbank quardt, Professor of Social and Health Care Buildings from 2000 to 2014 per Member of Working Population in Economic Sector A – N and Design at TU Dresden. The results of this study in euro per member of working population (A-N) are published by the FES and were presented at a 1,600 conference of the Friedrich-Ebert-Stiftung in Berlin 1,400 on 28 September. A summary of the main results will 1,200 also be published in ifo Dresden berichtet. 1,000 Furthermore, the Dresden Branch worked on the re- 800 search project: “Homes-uP – Single-Family Homes un- 600

der Pressure”, funded by the Leibniz Association. The 400

focus of the project was to analyse the mechanisms in 200 the housing market hampering a regular price adjust- 0 ment. Another topic examined the challenges facing 2000 2002 2004 2006 2008 2010 2012 2014 Western German Länder (incl. Berlin) local decision-makers when maintaining county roads Eastern Flächenländer (excl. Saxony) in a region with a large share of single-family homes. Saxony Source: KfW annual reports; VGR working group of the federal government and the Länder; calculations of the Ifo Institute. Within the scope of a project conducted on behalf of the City of Dresden, Jan Kluge and Marcel Thum focused on the city’s economic development. The proj- On the occasion of the 25th anniversary of German ect is a follow-up of an earlier Ifo project conducted reuniﬁ cation, Ifo Dresden reviewed the economic dif- in 2012 (ifo Dresden Studie 64) and concerns the rea- ferences between Eastern and Western Germany.

Ifo Annual Report 2015 112 Dresden Branch

Jan Kluge and Michael Weber investigate the devel- the growth rate volatility of highly diversifi ed districts opment of the East-West wage gap between 1996 only amounts to 41% of the volatility in highly special- and 2010. They fi nd that the Eastern German median ized districts. Hence, sectoral diversifi cation can be in- daily wage is 35% lower than in Western Germany. terpreted as an insurance that allows regions to trade In addition, this gap does not close over time. Fur- growth for stability. The article (“Sectoral Diversifi - thermore, the authors elaborate on the determinants cation as Insurance against Economic Instability”) was of this persistent wage gap. One half of this gap can published as ifo Working Paper No. 206. be explained by differences in worker, establishment and regional characteristics. One quarter can be ex- In two articles, Joachim Ragnitz describes the current plained solely by regional price differentials and differ- status of the convergence process of Eastern Germany ences in establishment sizes. Differences with respect 25 years after reunifi cation (Wirtschaftsdienst 6/2015 to the age- and qualifi cation structure of workers, “25 Jahre Deutsche Einheit: Eine Erfolgsgeschichte: Re- different labour market participation rates of women alistische Erwartungen an den Aufbau Ost” and Berliner Eastern Germany’s and productivity differentials at the establishment Debatte Initial 2/2015: “Ostdeutschland im Schatten economic convergence level play only a minor role. The results of this study gesamtwirtschaftlicher Entwicklung – Kann die ‘Anglei- (“Decomposing the German East-West Wage Gap”) chung der Lebensverhältnisse’ noch gelingen?”). Both were published as ifo Working Paper No. 205. articles conclude that the economic convergence of Eastern Germany has stopped at around 75 % of the Jan Kluge – jointly with Gunther Markwardt, BTU level seen in Western Germany. It is unlikely that fur- Cottbus-Senftenberg, and Christian Thater, formerly ther convergence will take place in the near future for Ifo Dresden, – analysed the political budget cycles in a number of reasons. Among the well-understood rea- Saxon municipalities. Using a data set of 458 munici- sons for the relatively small average establishment units in palities between 1994 and 2010, the authors show Eastern Germany and their weak export and R & D (Re- how elected politicians adjust their spending policy search and Development) focus, Joachim Ragnitz cites to the election schedule. Powerful parties that face historical factors that still apply today. Firstly, Eastern only weak opposition in their local councils tend to Germany – especially its northern parts – was tradition- increase expenditure prior to elections. Accordingly, ally a producer of agricultural goods, which still shapes politicians compensate for this by cutting back expen- the current “mentality” of its citizens. Secondly, many diture after the elections. Furthermore, they tend to industrial fi rms were resettled towards Western Ger- increase spending on items that are visible to voters many after World War Two. This has mainly affected at the cost of reducing expenditure, on administrative the southern parts of Eastern Germany to date. Joachim tasks that are less visible. The fi ndings of this study Ragnitz concludes that policymakers should rethink the (“Self-preserving Leviathans – Evidence from Region- target of equalizing living standards within Germany. al-level Data”) are published as CESifo Working Paper No. 5177. A shortened version with a slightly different Labour Markets and Social Policy in Saxony focus was published in ifo Dresden berichtet 5/2015. and the New Länder In the research fi eld “labour markets and social pol- Furthermore, Jan Kluge presented a paper on the im- icy” Ifo Dresden Branch regularly publishes reports Easten German labour pact of sectoral diversifi cation on the economic stabil- on developments in the labour markets of the Free markets ity of regions. Using a data set containing all German State of Saxony and Eastern Germany. The analyses districts and urban municipalities between 2000 and are based on data from the Federal Employment 2012, he investigates whether more diversifi ed regions Agency. In 2015, additional reports and journal con- achieve higher stability, i. e. lower volatility of gross tributions focused on current political topics such as value added growth rates, for any given level of overall the statutory minimum wage, which was introduced growth. It can be shown that the most diversifi ed de- in Germany on 1 January, 2015, and the effects of the cile of the regions achieves growth rates of only 81% German Hartz reforms, which were implemented in compared to the most specialized decile. However, the years 2003 to 2005.

113 Ifo Annual Report 2015 Dresden Branch

In November 2014, the Ifo Institute conducted an the long-term unemployed. Michael Weber analysed, company survey asking whether ﬁ rms were affected how the structure of welfare recipients and the long- by the statutory minimum wage and how the estab- term unemployed differed across regions in the tenth lishment planned to react to the increase in labour year after the reform. He identiﬁ es a clear East-West costs. Robert Lehmann, Joachim Ragnitz and Michael pattern in the share of welfare recipients in different Weber presented the regional results of this survey demographic groups, but a less clear pattern regard- for Eastern Germany in their article “Mindestlohn ing the structure of the welfare recipients and the in Ostdeutschland: Firmen planen Preiserhöhungen unemployed. The results were published as: “Regio- und Personalabbau”, which was published in issue nale Strukturunterschiede bei den erwerbsfähigen 1/2015 of the journal ifo Dresden berichtet. Leistungsberechtigten” in issue 3/2015 of the journal ifo Dresden berichtet. Companies Affected by the Minimum Wage

43% Another aspect of the Hartz IV reform was the im- Total 24% plementation of “job-centers”, new one-stop public employment services for the long-term unemployed and welfare recipients. In 2012, some municipali- 39% Manufacturing ties took over the job placement activities in these 16% job-centers. Michael Weber demonstrates in his re- 41% Services 29% search project entitled: “The Short-run and Long-

61% run Effects of Decentralizing Public Employment Retailing 39% Services” that these municipalities are less effi cient 49% Wholesaling than the Federal Employment Agency with regard 18% to job placements and that they are less likely to 010203040506070% impose sanctions upon the misbehaviour of their Western Germany Eastern Germany clients. Source: Ifo Business Survey. Integration of Saxony and Eastern Germany in the International Division of Labour Additional insights into the effects of the statutory EU enlargement has intensifi ed the competitive pres- minimum wage will be gained from another estab- sure on Saxon fi rms – especially with fi rms from lishment survey to be conducted in 2016. Ahead of Czech Republic and Poland – but has also created this survey, the Ifo Dresden Branch has developed new opportunities for Saxon fi rms at the same time. and successfully tested a questionnaire. This work The regional integration and cross border relations was part of the project “The Impact of the Statutory between Saxony, the Czech Republic and Poland are Minimum Wage Act in Saxony – Preparing a Survey” topical themes. conducted on behalf of the Chamber of Commerce and Industry Chemnitz. In 2015, the Ifo Institute continued and completed a major project for Croatia as a new EU member. Exactly ten years prior to the introduction of the The Munich and Dresden Branches of the Ifo Insti- statutory minimum wage Germany implemented tute worked together to develop a comprehensive one of its most painful reforms of the labour mar- reform agenda for sustainable growth and employ- Ten years of Hartz ket: the German Hartz IV reform. In a commentary, ment generation. Ifo Dresden focused on structural reforms “Zehn Jahre Hartz-Reformen in Deutschland”, pub- reforms regarding the Croatian infrastructure and lished in issue 1/2014 of the journal ifo Dresden beri- labor market. The results will be published as an chtet, Joachim Ragnitz highlighted the need for this Ifo Forschungsbericht in 2016. A short version will reform. One of the measures featured in the reform be published in issue 1/2016 of the journal CESifo was to reduce the unemployment compensation of Forum.

Ifo Annual Report 2015 114 Dresden Branch

Public Finance and the Promotion of Eco- der medizinisch-technische Fortschritt selbst?“, Per- nomic Development in Saxony spektiven der Wirtschaftspolitik, forthcoming). The As in previous years, Ifo Dresden provided the Saxon paper: “Incentive Pay and Bank Risk-Taking: Evidence State Ministry of Finance with a long-term projec- from Austrian, German, and Swiss Banks” co-au- tion of Saxon public revenues. A signifi cant decline thored by Johannes Steinbrecher looks at the incen- in revenues is expected due to the expiration of the tive effects of bonus payments on the risk behaviour Bonuses and their impact solidary agreement II (Solidarpakt II) in 2019. The of bank employees in capital market divisions. It shows on risk-taking by bankers diminishing population will lead to further revenue that high bonus payments led to an excessive amount decreases up to 2025. The results of the projection of risk taking in the period from 2003 to 2007. In times enter the medium-term fi nancial planning of the Free of lower bonus payments during the crisis period State of Saxony. They are presented in further detail (2008 to 2011), the correlation between bonus pay- in Ifo Dresden’s publications. ments and risk taking cannot be confi rmed. The paper was published in Journal of International Economics (96), A project commissioned by the Ministries of Finance pp. S123 – S140, 2015. To increase the impact of the of Saxony and Thuringia focused on the question of paper in the banking sector, the results were also pub- whether the need for special transfers arises for some lished in the journal Die Bank (03/2015) in a paper Länder due to their demographic development. The entitled “Optimale Vergütungsstrukturen in Banken” study also discussed reasons for the moderate eco- and in ifo Schnelldienst 03/15. nomic performance of Saxony and Thuringia. A special issue of ifo Dresden berichtet on the fi nancing Several studies published in the journal ifo Dresden of universities in Eastern Germany was published in berichtet were concerned with local differences in 2015. The effi ciency of universities and universities of social welfare expenditure and local tax competi- applied science in Eastern Germany, as well as their tion in Germany. The results indicate that drastic cuts fi nancing structure were discussed in several articles. in local business tax rates lead to tax decreases in The articles leaned on a previous project published neighbouring municipalities, indicating tax competi- in ifo Dresden Studien 75. The results show that the tion. Further studies spotlighted local government higher education sector differs substantially within debt (“Hoch gepokert, hoch verschuldet: Kurzfristige Eastern Germany. Local politics, as well as the uni- Fremdwährungskredite der Kommunen in Deutsch- versities themselves, are therefore asked to further land“ and “Geballte Schuldenlast: Wie ungleich sind improve their unique advantages in order to maintain die kommunalen Schulden in Deutschland verteilt?“). their attractiveness. Both papers show that municipalities in Germany carry unequally distributed debt burdens. Highly-in- Linked to this Ifo Dresden research area is the article: debted cities in Western Germany in particular use “On the Political Economy of National Tax Revenue unsecured foreign currency loans in borrowing. Forecasts – Evidence from OECD Countries” by Be- ate Jochimsen (Berlin School of Economics and Law) Further publications in this area focused on the fi - and Robert Lehmann. In this article the authors asked nancing of universities (issue 02/2015 of the journal whether national tax revenue forecasts in 18 OECD Political bias and national ifo Dresden berichtet, as well as ifo Dresden Studien countries are biased by political distortions. The pa- tax revenue forecasts 75 “Hochschulfi nanzierung in Mecklenburg-Vorpom- per tests four hypotheses, namely if national tax rev- mern”), the reform of fi scal federalism in Germany enue forecasts are biased in line with the electoral (Joachim Ragnitz: “Anmerkungen zur Neuordnung cycle, with the political colour of the incumbent, in der föderalen Finanzbeziehungen”, Sachsenlandkurier more fragmented governments or parliaments, or if 01/15) as well as the fi nancial feasibility of medical ad- the reelection is unlikely. The robust estimation strat- vances within statutory health insurance (Alexander egy clearly reveals two results. Firstly, left-wing gov- Karman, Felix Rösel and Markus Schneider: “Produk- ernments produce positive markups of estimated tax tivitätsmotor Gesundheitswirtschaft: Finanziert sich revenues compared to right-wing incumbents. And

115 Ifo Annual Report 2015 Dresden Branch

secondly, more fragmented governments or parlia- Projects Completed in 2015 ments produce more pessimistic forecasts. Thus, the authors rebut the classical “common pool” problem. The Impact of the Statutory Minimum At the opposite end of the scale, the electoral cycle Wage Act in Saxony – Preparing a Survey and the probability of reelection do not explain tax M. Thum, M. Weber for the Chamber of Commerce revenue forecast errors. The article is available as Ifo and Industry (Industrie- und Handelskammer, IHK) Working Paper No. 198 and was presented at the Chemnitz, January 2015 to April 2015. Annual Congress of the German Economic Associa- tion (Münster). On January 1st 2015, Germany implemented a statutory minimum wage of 8.50 euros per hour. Ex-ante The Free State of Saxony has set up a commission analyses indicate that the minimum wage will affect to evaluate the allocation of human resources in the regions and industries to differing degrees. Ex-post Human resources in the public sector and to develop proposals for necessary analyses, which can be started in a few months, will public sector adjustment processes. Around half of the current em- measure the actual impacts by conducting establish- ployees in the Free State of Saxony’s administration ment surveys. To lay the ground for such surveys, this will retire by 2030. However, due to demographic project develops and tests a questionnaire. changes and increased competition for high-skilled employees, the labour supply will decrease quanti- Effects of Demographic Change in Germany tatively. Joachim Ragnitz was appointed to the com- as an Immigration Country mission as a scientifi c member. The commission will J. Kluge, W. Nagl, M. Thum in cooperation with A. deliver a fi nal draft of policy proposals to the govern- Kemnitz and G. Marquardt, Dresden University of ment of the Free State of Saxony in January 2016. Technology, for the Friedrich Ebert Foundation, De- cember 2014 to May 2015, publication as M. Thum et The paper: “Tax Evasion, Corruption and Market al., Auswirkungen des demografi schen Wandels im Ein- Entry” by André Seidel and Marcel Thum examines wanderungsland Deutschland, Friedrich-Ebert-Stiftung, the impact of tax policy on the market entry of fi rms Berlin 2015. in the presence of corruption and tax evasion. The results indicate that higher taxes and stricter enforce- Demographic change covers population ageing and ment of taxation can have a double benefi t if certain decline, as well as the growing ethnic diversity of conditions are met. Up to a certain threshold, for society. Both past and future migration affect demo- which a simple rule is developed, stricter enforce- graphic change in across all of these dimensions. This ment increases market entry and reduces tax evasion. project analysed demographic developments up to These fi ndings will be published in the Scottish Journal 2030, with special reference to people with a migra- of Political Economy. tion background and potential future immigration.

It also examined the impact of immigration on the labour market and social security systems. The project looked at which sectors, regions and skill levels are particularly affected by demographic change. Further- more, the labour income of Germans and foreigners living in Germany were compared and the differing rates of labour force participation were analysed.

The municipal social, health and education services and the living conditions of elderly migrants were also discussed. The changing demographic situation and the higher proportion of people with a migration

Ifo Annual Report 2015 116 Dresden Branch

background in society are creating new challenges for Economic Reform Agenda for Sustainable municipal social, health and education services. The Growth and Employment in Croatia possible change in demand for elderly care was inves- J. Ragnitz, J. Steinbrecher, M. Weber in cooperation tigated by a survey. Examples of best practice in suc- the Ifo Institute Munich for the Croatian Statehood cessfully handling a greater degree of social hetero- Foundation, September 2014 to September 2015, geneity (multi-minority communities) were analysed. publication in Ifo Forschungsbericht, 2016; CESfo Forum 17(1), 2016. Long-term Projection of the Revenue Development of the Saxon State Budget In this project, Ifo Institute Munich and Dresden until 2025 in 2014 and 2015 Branch developed a comprehensive reform to im- A. Eck, C. Fritzsche, J. Ragnitz, J. Steinbrecher for the prove the international economic competitiveness Saxon State Ministr y of Finance, July 2014 to November of Croatia. Ifo Dresden Branch focused on structural 2015, publication in ifo Dresden berichtet 21(1), 2015. reforms regarding the Croatian infrastructure and labour market. Since 2009, the Dresden Branch of the Ifo Institute provides projections on an annual basis for the public SWOT-Analysis and Strengths-Weaknesses- revenues of the Free State of Saxony up to the year Profi le 2025. The forecast shall contribute to the design of a J. Ragnitz, M. Weber for the City of Leipzig (Stadt sustainable fi scal policy in Saxony. As transfers specially Leipzig), July 2015 to December 2015. designed to benefi t the Eastern German Länder will cease, the Saxon state revenues will signifi cantly de- The Ifo Institute, Dresden Branch, developed a SWOT- cline until the year 2020. Although the current results Analysis on behalf of the City of Leipzig. Currently, are more optimistic than the results from 2014, the Leipzig’s economy and population are growing, due drop in revenues until 2020 will still not be compen- to Leipzig attractiveness particularly for the young and Leipzig’s economy lacks sated by increasing tax revenues until 2025. The results the logistic industry. However, Leipzig’s economy lacks diversity of this projection are published in the medium-term diversity, making it vulnerable to business cycle fl uc- fi nancial planning of the Free State of Saxony, Saxon tuations and increases in labour costs. Furthermore, State Ministry of Finance (2015): „Mittelfristige Finanz- Leipzig’s enterprises generate comparably small tax planung des Freistaates Sachsen 2014–2018“, Dresden. revenues. Leipzig needs to attract new, higher-value industries to continue its growth path in the medium run. Long-term Projection of the Revenue Development of the Saxon State Budget until 2025 Economic Development of Dresden

in Mill. Euro M. Thum, J. Kluge for the City of Dresden (Lande- 17 000 Ifo 2014 (May) shauptstadt Dresden), October 2015. Ifo 2014 (Nov) 16 500 This project concerns the economic development of

16 000 the City of Dresden. It is based on an earlier project of the Ifo Institute in 2012, in which the authors conclude 15 500 that Dresden has been suffering from growth rates below the Saxon average since 2005. In the 1990s, 15 000 Dresden had been one of the major growth drivers

14 500 in Saxony. This sudden decline had been triggered by global ﬂ uctuations in the semiconductor industry. 14 000 Dresden’s specialization on this sector allowed partici- 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 pating in the global growth opportunities. However,

Source: Saxon State Ministry of Finance; calculations of the Ifo Dresden’s economic development also suffers from Institute. the high ﬂ uctuations in this high-tech industry.

117 Ifo Annual Report 2015 Dresden Branch

The current project shows that the below average Current Projects development has continued until today. Although the service sectors account for the bulk of gross value Homes-uP – Single-Family Homes under added and employment growth in Dresden, the Pressure much smaller manufacturing sector (which the semi- C. Fritzsche, M. Thum, L. Vandrei for the Leibniz As- conductor industry belongs to) triggers high fl uctua- sociation (Leibniz-Gemeinschaft), January 2015 to tions that have not been compensated by enhanced December 2017. growth rates since 2005. In many countries, single-family homes constitute the The currently bright prospects for the global semi- majority of residential buildings. Economic and fi nan- conductor industry may lead to the expectation that cial crises, demographic and social structural change, Dresden’s growth rates will be above the Saxon aver- and changes in user preferences, are raising new chal- age in the years to come. However, the specialization lenges in this segment of the housing stock. Outside on this high-tech industry also comes with a consider- core regions of economic growth, stagnating or drop- able dependence on the development of this highly ping prices, diffi culties in selling, and even vacancies, volatile international market. are no longer a rarity in this segment in many regions. Nonetheless, these developments, and their possible The results of this study will to be published in the related consequences, have hardly been investigated. journal ifo Dresden berichtet. Studies from a number of relevant perspectives are needed, including economics, ecology, settlement- structure and the social situation.

Together with the Leibniz Institute of Ecological Urban and Regional Development (IÖR, Dresden), the Research Institute for Regional and Urban Development (ILS, Dortmund), the Institute for Social-Ecological Research (ISOE, Frankfurt/ Main) and the Centre for European Economic Research (ZEW, Mannheim), we pursue three key objectives: – To provide a description of trends and changes in the development of traditional and novel single- family homes user groups and their housing preferences and the characteristics of current single- family homes building stocks. – To deepen our understanding of the effects of these changes. We are interested in the implications for market outcomes, and particularly for prices and vacancies; we also study implications for the use of natural resources. – The identiﬁ cation of possible development scenarios and approaches to action.

Investigations of the situation in Germany will be supplemented by comparative studies inside Europe, as well as in Japan and the United States. The international perspective is underpinned by several inter-

Ifo Annual Report 2015 118 Dresden Branch

national cooperating partners and an international sector. The ﬁ nal part of the project will survey the advisory board. Publication of the results is planned current system of funding instruments and regulatory on completion of the project. measures and discuss reform options.

Commission for the Comprehensive Industry Reports Evaluation of Public Services and Public C. Boede, U. Mandalka for the Volks- und Raiffeisen- Staff in Saxony banken, since 2006 on-going. J. Ragnitz for the Saxon State Chancellery, April 2015 to March 2016. As part of Ifo project “Branchen special”, Ifo Dres- den produces reports for 15 selected branches The Free State of Saxony has set up a commission twice a year. Analyses and forecasts are prepared in to evaluate public services and staff. The tasks of a standardised form on the structure of the branch, this commission are twofold: on the one hand, the its business prospects, profi ts and competitiveness. number of employees in public administration in The information of these special reports can indicate Saxony is still higher than in many other German intermediate-term prospects for re-spective branch- federal states, resulting in the need for a well-de- es as well as chances and risks within the structural signed downsizing of its public staff base. On the transformation. The “Branchen special” reports are other hand, about half of Saxony’s current staff employed primarily by co-operative banks in their is set to retire by 2030, when new, qualifi ed em- lending and consulting business. Company consultants ployees will need to be recruited. However, due to are provided with a survey of prospects and risk pro- demographic change, the labour supply in Saxony fi les for individual branches. is expected to decrease quantitatively and qualitatively in the future. The commission will develop suitable concepts for dealing with these challenges and will deliver them to the State government by spring 2016.

Impact of Demographic Developments on the Eastern German Housing Market J. Ragnitz, C. Fritzsche, J. Kluge, M. Thum, L. Vandrei in cooperation with the Leibniz Institute of Ecological Urban and Regional Development and G. Marquardt, Dresden University of Technology, for the Federal Ministry of Economic Affairs and Energy, November 2015 to October 2016.

Conducted on behalf of the Federal Ministry for Eco- nomic Affairs and Energy, this project analyses the extent to which the Eastern German housing market is prepared for current and future demographic developments such as a shrinking and ageing society. In a ﬁ rst step, the present situation of the Eastern Ger- man housing market and the socio-economic characteristics speciﬁ cally relevant to the housing market will be analysed. In a second step, trends and possible challenges for the Eastern German housing market will be presented, especially with respect to the care

119 Ifo Annual Report 2015

GmbH

Munich Society for the Promotion of Economic Research – CESifo GmbH

The CESifo Group, which consists of the Center for The joint appointment of professors who work both at Economic Studies (CES) of the University of Munich the Ifo Institute and also have a chair at the LMU remains (LMU), the Ifo Institute and CESifo GmbH, bundles particularly important. These endowed professorships Endowed professorships its resources into an internationally active research are a central means of attracting outstanding research- attract top talent alliance and enhances the public economic policy ers to become center directors at the Ifo Institute and debate with contributions based on excellent theo- to take up chairs at the LMU. These joint appointments retical and empirical scientifi c research, supports the not only strengthen the links between the Ifo Institute economic policy decision-making process with high and the LMU in research, but also in the teaching and quality policy advisory work and supplies the public promotion of Ph.D. students. A total of eight endowed with highly acclaimed economic information like the professorships have been jointly established by the Ifo Ifo Business Climate Index. Its research activities are Institute and the LMU to date, with CESifo GmbH con- closely linked with major contributions to the teach- tributing to the fi nancing of two of them. ing and promotion of junior economists. Research Network The CESifo GmbH (co-founded in 1999 by the Uni- The CESifo Research Network is primarily composed versity of Munich and the Ifo Institute), provides the of economists who cooperate with researchers from platform for the joint activities, promoting the inter- either CES or Ifo in the context of joint projects. In nationalisation of research and co-ordinating an inter- 2015 the CESifo Research Network grew to a total national research network. of 1,219 members, most of whom have been guest researchers at CES and the Ifo Institute. CESifo Re- The main tasks of CESifo GmbH, which were actively search Network members are subdivided into af- pursued in 2015, include the: fi liates and fellows. Affi liates are young promising researchers in the earlier stages of their career. Fel- – Support of exchanges between the LMU and the lows are senior researchers who typically hold a full Ifo Institute and the promotion of junior economists, professorship at a university. By the end of October – Administration of the worldwide CESifo Research 2015, the CESifo Research Network numbered 265 Network, affi liates and 954 fellows. – Analysis of economic events in the European Union and the provision of impulses in the debate Most of the fellows come from Europe and North over European economic policy, America. However, the network also has members in CESifo enjoys worldwide a large number of countries, which ensures that the recognition – Publication of economic research, CESifo Group’s products are well-known and used – Organisation of conferences and seminars. worldwide. The network members come from 41 countries and their fi elds of expertise span most ar- 2015 was the last calendar year that CESifo GmbH eas of economics. To guarantee the internationality of the network, the network has a strict quota for Ger- was led by its founder and managing director Prof. man members, who account for a maximum of 20%. Hans-Werner Sinn. Despite the upheaval with the change in presidency of the Ifo Institute and manage- CESifo Research Network members by region: ment of CESifo GmbH, the company completed an ambitious work programme in the reporting year and in % raised its international profi le even further. North America 29.70 362 Exchanges between the LMU and the Ifo Germany 19.85 242 Institute Rest of Europe – total 46.60 568 CESifo GmbH supports the active participation of re- – Western and Southern Europe 36.26 442 – Scandinavia 10.34 126 searchers from the LMU and the Ifo Institute in vari- Others 3.85 47 ous academic conferences.

123 Ifo Annual Report 2015 CESifo Activities

To guarantee an intensive exchange of ideas be- identify promising young researchers and to estab- tween its members and to strengthen cooperation lish early links to the CESifo Network. between the CESifo Research Network and the corresponding Ifo Centers, the network is subdivided CESifo Research Network members by research into several areas. These are headed by internation- area: ally renowned economists, or so-called “Area Direc- tors”, who contribute to the network with their in- Research area in % Number ternational standing and expertise. Applied Microeconomics 14.36 175 Behavioural Economics 7.05 86 The network’s area directors are: Economics of Education 6.48 79 Employment and Social Protection 10.34 126 – Christian Gollier, University of Toulouse, Area Dir- Energy and Climate Economics 6.07 74 ector of Applied Microeconomics Global Economy 11.98 146 Macro, Money and International Finance 18.05 220 – Ernst Fehr, University of Zurich, and Klaus Schmidt, Public Sector Economics 25.67 313 LMU, Area Directors of Behavioural Economics – Eric Hanushek, Stanford University, Area Director of the Economics of Education CESifo Distinguished Affi liates of 2015 are: – Kai A. Konrad, Max Planck Institute for Tax Law and – Applied Microeconomics: Public Finance, Munich, Area Director of Employ- Daniel F. Garrett, Université Toulouse 1 Capitole ment and Social Protection – Behavioural Economics: – Michael Hoel, University of Oslo, Area Director of Supreet Kaur, Columbia University, New York the Energy and Climate Economics – Economics of Education: – John Whalley, University of Western Ontario and Lesley J. Turner, University of Maryland University of Warwick, and Peter Egger, ETH Zurich, Area Directors of Global Economy – Employment and Social Protection: Massimo Anelli, Universita’ Bocconi, Milan – Paul De Grauwe, University of Leuven and London School of Economics, Area Director of the area of – Energy and Climate Economics: Macro, Money and International Finance Katinka Kristine Holtsmark, University of Oslo – Rick van der Ploeg, University of Oxford, Area – Global Economy: Director of Public Sector Economics Benedikt Heid, University of Bayreuth – Macro, Money and International Finance: The international reputation of the area directors has André Kallåk Anundsen, Norges Bank, Oslo boosted the attractiveness of the CESifo Research – Public Sector Economics: Network, which is refl ected in its growing number Dominika Langenmayr, LMU, Munich of members. The close links between the members of the CESifo CESifo GmbH provides network members with the Group and external researchers are further strength- English-language publications of the CESifo Group. ened by the CESifo Visitor Programme. In 2015, 26 Together with the Ifo Institute, it organises numer- international researchers were welcomed to Munich ous international conferences. The annual Area in order to initiate or continue joint projects with Conferences provide a platform for lively discussions members of the CESifo Group, and especially with among network members. As part of each of the Ifo Institute staff. These guests included Raj Chetty, Area Conferences, the “CESifo Distinguished Af- Harvard University; Andrei A. Levchenko, University fi liate” prize has annually been awarded to a young of Michigan; Wilhelm Kohler, Eberhard Karls Univer- economist since 2008. The aim of this prize is to sity of Tübingen; Henrik Jordahl, Research Institute

Ifo Annual Report 2015 124 CESifo Activities

of Industrial Economics (IFN); Randall Reback, Co- economists from several European countries and the lumbia University; Martin R. West, Harvard Gradu- USA, namely: ate School of Education; Eric A. Hanushek, Stanford – Torben Andersen, Aarhus University University – Hoover Institution; Stephan Heblich, University of Bristol; and Lutz Killian, University – Giuseppe Bertola (Vice-Chairman), EDHEC Business of Michigan. The signifi cant drop in the number of School, University of Turin guests versus last year (2014: 42) was due to the – John Driffi ll (Chairman), Birkbeck College, Uni- fact that several Ifo department heads were on sab- versity of London batical at foreign universities and a large number of – Harold James, Princeton University post docs were invited to visit renowned universities, mainly in the USA. – Hans-Werner Sinn, LMU Munich – Ifo Institute – Jan-Egbert Sturm, KOF, ETH Zurich The Visitor Programme is closely linked to the evolution of the research network, as a successful visit is – Branko Urosevic, University of Belgrade typically a prerequisite for any invitation to join the network. The EEAG releases an annual report in which it not only analyses the current state of the European Analysis of Economic Developments in economy, but also provides an in-depth evaluation of the European Union and Participation in the several other economic-policy issues of topical impor- Debate on European Economic Policy tance for Europe. EU topics are becoming increasingly important for the future of Europe’s citizens. The discourse at the The 2016 EEAG report explores issues associated European level, which centres on Brussels, is leading with equity between generations, educational policies EEAG 2016 to a new political reality that is changing Europe. It in Europe, the possible role of Denmark as a model is important that economists participate in this dis- for Europe, and the Western Balkans, in particular the course, as much of what happens has an economic conditions for, and effects of, potential EU member- dimension, costs a lot of money and leads to fi scal ship. Released on 22 February 2016, it also provides redistribution in Europe. CESifo GmbH was founded a thorough analysis of, and forecast for, the world’s to provide economic-policy impulses at the European major economies. level and the latters’ importance is growing steadily. As in previous years, the EEAG Report was pre- As part of CESifo’s activities, numerous documents sented at press conferences in a number of European have already been released in past years that engage capitals, and was made available to policymakers and critically with possible developments in the EU, and experts in science, economics, and politics through- especially in the euro area. Network members, as out Europe. well as CES and Ifo staff, have engaged intensively in the European debate, which is gradually shaping a Various Ifo research centers contribute to the report new form of state. with background research, as well as editing and type- setting. The European economic forecast is prepared A particularly important role in this debate has been almost entirely by the Ifo Institute. The EEAG also played by the European Economic Advisory Group at draws on the Database for Institutional Compari- CESifo. The EEAG is a European council of economic sons in Europe (DICE) compiled by the Ifo Institute. experts that provides policymakers and the general The Munich Economic Summit is a joint initiative of public with an independent and scientifi cally-based the BMW Foundation Herbert Quandt and the CESifo assessment of on current economic developments in Group Munich, held in cooperation with two leading the EU. The EEAG is unique in both its composition and European newspapers – The Times and Handelsblatt – its focus. This year’s council members are outstanding and with the support of leading European institutions

125 Ifo Annual Report 2015 CESifo Activities

and businesses. Aimed at bringing together academic Their popularity among invited guests from business, scholars and decision-makers in politics, business and public administration, academia and the press dem- ﬁ nance, as well as media representatives, to discuss onstrates the great demand for accessible discussion vital European topics, the Summit is a widely acknowl- of economic problems and solutions. In 2015 a total edged forum for the substantive discussion of Euro- of 18 Munich Seminars were organised. Highlights pean policy issues. of the series in 2015 included seminars by Václav Klaus, President of the Czech Republic from 2003 to EEAG Report on the European Economy 2016 2013, Dr. Jens Weidmann, President of the Deutsche Bundesbank, Professor Motoshige Itoh, President of the National Institute for Research Advancement (NIRA), Prof. Yanis Varoufakis, former Minister of Fi- nance of Greece, and Timotheus Höttges, CEO of Deutsche Telekom AG.

Full reports on all Munich Seminar lectures are published in the Süddeutsche Zeitung, making their ﬁ ndings accessible to a wide readership. This, in turn, enhances the standing of the Munich Seminars and helps attract renowned personalities for future presentations.

Conferences and Events As in past years, a major focus of the activities of CESifo GmbH was the organisation and administration of academic conferences. With the goal of strengthening Munich’s standing as a science and research location and supporting empirical and theoretical research in economics, CESifo organised 23 scientiﬁ c conferences and events in 2015.

CESifo hosts two categories of conferences. In addition to the established annual area conferences re- The 2015 Summit was devoted to competitiveness lating to the individual areas of the CESifo Research and innovation, the latter both productive and social, Network, CESifo also hosts conferences that are initi- and to looking for ways to foster both as the only vi- ated and supported by network members and deal able strategy to stay ahead of competitors. Speakers with topical issues in the ﬁ eld of economic research. included French Prime Minister Manuel Valls, EU Vice- These include the CESifo Venice Summer Institute, as President Valdis Dombrovskis, EU Commissioner Gün- well as large policy-oriented conferences such as the ther Oettinger, Huawei CEO Ken Hu, and SAP CEO Munich Economic Summit. Bill McDermott, amongst others. The 2015 Summit was made possible by the generous support of UBS The Musgrave Lecture in honour of Richard Musgrave Germany, Roland Berger Strategy Consultants, PWC, was a special highlight in 2015. The associated prize is Swiss Re, Norton Rose Fulbright, and Brähler ICS. awarded to an internationally renowned economist working in the area of public ﬁ nance, following a se- The Munich Seminars, jointly organised by CESifo lection by the President of the Ifo Institute and the and the Süddeutsche Zeitung, one of Germany’s lead- President and Vice-Presidents of the International In- ing dailies, are also part of the regular event calendar. stitute of Public Finance (IIPF). Professor Raj Chetty,

Ifo Annual Report 2015 126 CESifo Activities

William Henry Bloomberg Professor of Economics at – CESifo Area Conference “ Public Sec tor Economics”, Harvard University, was awarded the prize in 2015 April 2015 and delivered a lecture on “Behavioral Economics – CESifo Area Conference “Employment and Social and Public Policy: A Pragmatic Perspective”. Protection”, May 2015 – CESifo Area Conference “Global Economy”, May 2015 – CESifo Area Conference “Economics of Education”, September 2015 – CESifo Area Conference “Energy and Climate Economics”, October 2015 – CESifo Area Conference “Behavioural Economics”, October 2015 In addition, CESifo assisted partner organisations with several of their scientiﬁ c events including:

Award of Richard Musgrave Visiting Professorships to Raj Chetty – “FDI & Sustainable Development”, with UNCTAD (centre) by Hans-Werner Sinn (President CESifo, right) and Michael and Federal Ministry for Economic Affairs and B. Devereux (IIPF President, left) Energy, April 2015 – “Workshop on Public Opinion and the Political Economy of Education”, with Ifo and PEPG at Har- The CESifo Venice Summer Institute has become a vard Kennedy School, May 2015 tradition in the CESifo event calendar and has earned a solidreputation among international economists. In – “CEMIR Junior Economist Workshop on Migration 2015, the Venice Summer Institute comprised of ﬁ ve Research”, with Ifo, May 2015 workshops, dealing with the following topics: – “CESifo-Delphi Conference: Current Account Ad- – “International Currency Exposure”, organized by justments”, with Athens University, May 2015 Yin-Wong Cheung and Frank Westermann – “Re-Thinking Sovereign Debt”, with CES and JA- – “The World Trade Organization and Economic PONICA, July 2015 Development “, organized by Ben Zissimos – “Pension Taxation, Population Ageing and Globali- – “New Developments in Global Sourcing”, organized sation”, with CEPAR, Australia, September 2015 by Wilhelm Kohler and Erdal Yalcin – Norwegian German Seminar, with Norwegian – “Rethinking the Need for a Fiscal Union in the Center for Taxation at NHH, and Oslo Fiscal Stu- Eurozone”, organized by Roel Beetsma and Shaﬁ k dies at UiOl, November 2015 Hebous – “Ifo Dresden Political Economy Workshop”, with – “The Economics of Entrepreneurship: Bringing the TU Dresden and Ifo Dresden, November 2015 Entrepreneur Back into Economics”, organized by – “Ifo Survey Data”, with Ifo, December 2015 Oliver Falck, Stephan Heblich and Olmo Silva

In 2015, CESifo also organised eight area conferences: These international conferences beneﬁ t the CESifo Group in two ways: ﬁ rstly, they offer CESifo Group – CESifo Area Conference “Macro, Money and Inter- researchers an opportunity to interact with re- national Finance”, February 2015 searchers from all over the world and establish co- – C E S i f o A r e a C o n f e r e n c e “A p p l i e d M i c r o e c o n o m i c s ”, operations; and secondly, the events promote the March 2015 international reputation of the CESifo Group.

127 Ifo Annual Report 2015 CESifo Activities

Publications The CESifo Seminar Series with MIT Press publishes CESifo has developed a number of publications refereed contributions from selected CESifo con- aimed at contributing to the discussion of economic ferences. In 2015, three new books were published issues in Europe. An important role is played by the on “Emissions Trading Systems as a Climate Policy CESifo Working Paper Series, which disseminates Instrument”, “Political Economy and Instruments of the early-phase fi ndings of academic research con- Environmental Politics” and “The Economics of Infra- ducted by network members, making them available structure Provisioning”. for professional discussion. In addition, the CESifo Book Series with MIT Press In 2015, a total of 539 papers were published in this is the series for monographs, which are typically “tan- 539 CESifo Working series. All papers are distributed electronically to a dem projects” between internationally renowned Papers published in 2015 large number of libraries throughout the world. More economists from the CESifo Network and research- importantly, they are disseminated worldwide via ers from the Ifo Institute or the Center for Econom- CESifo Group’s website and various online databases. ics Studies. All books cover a topical policy issue in This year the CESifo Working Paper series clocked economics and are subjected to a careful, multi-stage around 64,998 downloads through SSRN (Social refereeing process. The most recent book in this Sciences Research Network), 40,333 downloads series was published in early 2015 and is on “The through RePEc, the world’s largest online repository Knowledge Capital of Nations”. It is a tandem proj- of economics publications, and nearly 108,500 down- ect between Eric Hanushek, Stanford University, and loads through Econstor, the Open Access server of Ludger Woessmann, ifo. the German National Library of Economics – Leibniz Information Centre for Economics by mid-October. The CESifo Group website is a portal of choice in its fi eld. It contains a wealth of information on the entire Cumulative Working Paper Downloads of the range of products and activities of the CESifo Group in Leading International Research Networks Through German and English, documents the combined research the Social Sciences Research Network (SSRN) output of CES, Ifo and CESifo as far as conferences, since its Inception in 1995 seminars and publications are concerned, and offers 1.000.000 a wide spectrum of further topics that are of interest 900.000 800.000 to economists, politicians and the business community. 700.000 More detailed information on the website is provided in 600.000 the Press, Publications, Conferences section. 500.000 400.000 In short, the research cooperation between the Ifo 300.000 200.000 Institute, the LMU and the international scientifi c 100.000 community continued to fl ourish very successfully in 0 2015. The CESifo Group provides a unique platform NBER CESifo IZA CEPR in Europe for exchange among economists and for public discourse. It has now secured an outstanding international reputation that extends well beyond Eu- The CESifo Newsletter, distributed electronically, ropean borders. In light of the epochal changes that provides up-to-date information and commentary are taking place in the EU, this kind of platform is now for a wide spectrum of readers, ranging from aca- more important than ever before. demics to members of the European Commission and the media. It also reports on CESifo events Further details of CESifo’s activities can be found in and provides articles on selected CESifo Working the German online version of the Annual Report on Papers in a form that is easily accessible to the non- pages 228 –246 (http://www.cesifo-group.de/Jarhes- specialist reader. bericht).

Ifo Annual Report 2015 128 Conferences, Publications and External Relations of the Ifo Institute

Information on the Ifo Institute’s events, publications, ticipants are researchers from the Ifo Institute, CES, teaching activities and links to institutions/individuals, the University of Munich and. CES visitors. as well as further details of CESifo’s activities can be found in the German online version of the Annual In 2015 a large number of Ifo staff members gave Report on pages 163 –246 (http://www.cesifo-group. 146 papers and presentations at external confer- de/Jahresbericht). ences.

Conferences Publications Besides regular events, like the Annual Meeting, Ifo publications include: Euroconstruct, Ifo Industry Colloquium (ifo Branchen- – ifo Schnelldienst – a journal on policy issues, Dialog), a number of special conferences, workshops research results and forecasts; twice monthly and press conferences were held during 2015. These included: – ifo Konjunkturperspektiven – a monthly publication presenting in detail the results of the Ifo Business – Workshop on “Policy Scenarios for the Future of Survey the European Electricity Sector” – ifo Dresden berichtet – a bi-monthly report on the – Workshop on “Economic Reform Agenda for economy, structure and economic policy in the Sustainable Growth and Employment Generation” State of Saxony – Workshop on “Labour Market and Social Policy” – CESifo Forum – a quarterly English-language – Research seminar on “Economics of Education” magazine focusing on major current topics of international interest, including European policy – “EGIT – Economic Geography and International issues and economic trends Trade” – CESifo DICE Report – a quarterly English-language – Conference on “Foreign Direct Investments” journal for institutional comparisons – Workshop on “Public Opinion and the Political – CESifo World Economic Survey – a quarterly Economy of Education” English-language journal publishing the results of – Symposium on “Turnaround in Energy Policy: Con- the Ifo Institute’s quarterly poll of international sequences for Germany” economic activity – Workshop on “Economic Reform Agenda for – CESifo Economic Studies – a quarterly refereed Sustainable Growth and Employment Generation” journal in economics – Workshop on “Economics of Education” – ifo Beiträge zur Wirtschaftsforschung – a series in which important research projects of the Ifo – Workshop on “Assessing the Green Paradox” Institute are published – Workshop on “Political Economy” – ifo Forschungsberichte – other studies of the – Workshop on “Macroeconomics and Business Institute are documented in this series and made Cycle” available to the public – Conference on “25 Years of German Unity” – ifo Dresden Studien – studies of the Ifo Dresden branch which deals primarily with topics affecting – Conference on “Macroeconomics and Survey Data” the new German federal states and their eastern – Conference on “International Migration and Eu- neighbours rope” – Ifo Working Papers Lunchtime Seminars are held on a weekly basis. They serve the purpose of putting current research and new economic developments up for discussion. Par-

129 Ifo Annual Report 2015 Conferences, Publications and External Relations of the Ifo Institute

Teaching and external relations Hans-Werner Sinn (University of Munich) A number of Ifo staff taught or presented lectures at Johannes Steinbrecher (Dresden University of Tech- universities in 2015: nology) Christian Breuer (University of Applied Sciences, Marcel Thum (Dresden University of Technology) Erding) Lars Vandrei (Dresden University of Technology) Francesco Cinnirella (University of Munich, University of Bayreuth and University of Barcelona) Simon Wiederhold (University of Munich) Marcus Drometer (University of Munich) Ludger Wößmann (University of Munich) Oliver Falck (University of Munich) Klaus Wohlrabe (University of Munich) Gabriel Felbermayr, (University of Munich) Timo Wollmershäuser (University of Munich) Xenia Frei (Dresden University of Technology)

Christa Hainz (European Fourm Alpbach) The Ifo Institute was host to 40 visiting researchers Alexandra Heimisch (University of Munich) from a variety of countries. 58 students in Munich and nine students in Dresden were able to gather initial Julia Heller (Dresden University of Technology) experience in empirical economic research. Steffen Henzel (University of Applied Sciences, Munich) Christian Holzner (University of Munich) Björn Kauder (University of Munich) Meinhard Knoche (University of Applied Sciences, Weihenstephan-Triesdorf) Johannes Koenen (University of Munich) Philipp Lergetporer (University of Munich) Volker Meier (University of Munich) Chang Woon Nam (University of Applied Sciences, Erding) Till Nikolka (University of Munich) Natalie Obergruber (University of Munich) Marc Piopiunik (University of Munich) Karen Pittel, University of Munich) Niklas Potrafke (University of Munich) Panu Poutvaara (University of Munich Helmut Rainer (University of Munich) Felix Rösel (Dresden University of Technology) Jens Ruhose (University of Munich) Judith Saurer (University of Munich) Bastian Schulz (University of Munich)

Ifo Annual Report 2015 130 Personnel, Finances and Organisational Bodies

Personnel Development

Personnel Development Trends in Employee Numbers The most important personnel matter for the Ifo The total number of staff employed at the Ifo Institute Institute in 2015 was the search for a successor to on the reference date of 31 December 2015 rose by Ifo President Hans-Werner Sinn, due to retire on 31 seven persons versus the previous year to 197. Five March 2016, via the joint appointment procedure of of these additional new employees were academic the University of Munich (LMU) and the Ifo Institute. staff recruited by Ifo’s research centers (research- To this end, the Ifo Institute’s Administrative charged ers, doctoral students and specialists). Although the a coordination group led by Council Chairman Pe- number of researchers fell by one person, six doctoral Six additional doctoral ter-Alexander Wacker with the task of preparing students joined the institute, meaning that a total of students joined Ifo in 2015 the offi cial appointment and/or selection procedure 46 doctoral students were employed by the Ifo Insti- for the future president in compliance with German tute on 31 December 2015. The number of specialists civil service regulations; and in particular to identify remained unchanged. Specialists are academically- potential successors to Prof. Sinn. Following the suc- trained staff who are appointed to central positions cessful completion of the process of fi nding a succes- at the interface between research and services that sor, for which the University of Munich’s Presidential require a high degree of staff continuity. Like last year, Board set up a high-ranking, international selection 20 clerks and technical staff employed by the centers. committee, the Administrative Council of the Ifo In- A total of 53 employees were employed in Ifo Institute stitute designated Prof. Clemens Fuest as the new infrastructure on the reference date of 31 December President of the Ifo Institute as of 1 April 2016 in its 2015, which was 2 higher than the previous year’s fi g- meeting on 20 May 2015. The presidency is linked ure. The number of trainees remained unchanged at 3. to a professorship at the economics faculty of the University of Munich. The number of part-time staff increased by 5 to 89 persons. This increase can be attributed to growth There were no changes in Ifo’s research depart- in the number of doctoral students, as the number ment heads in 2015. The Ifo Institute’s eight research of part-time staff remained unchanged in all other centers are headed by professors who are jointly staff groups. The doctoral students and researchers appointed by the Ludwig Maximilian University of (post-docs) employed by the Ifo Institute are given Munich (LMU) and hold a chair at the LMU parallel fi xed-term contracts in line with Academic Fixed- to their position as head of an Ifo Research Center. Term Contract Law. They can only be given indefi nite The Ifo Centers for Industrial Organisation and new contracts for really outstanding scientifi c achieve- Technologies, as well as for Business Cycle Analysis ments and if further requirements are satisfi ed. The and Surveys, whose previous heads resigned in 2014, conditions for this procedure are set out in guidelines continued to be led by interim department heads in by the Executive Board. These career guidelines also 2015 to enable the new Ifo President to have a say in specify the conditions that must be satisfi ed to move their appointment. into a higher compensation category. Overall, the number of limited duration contracts rose by four to Leading academics from the Ifo Institute receive 85. With one exception, this increase only applies to offers from domestic and foreign universities ev- the research departments. The share of fi xed-term ery year. In 2015 Prof. Oliver Falck, Interim Direc- contracts among academic staff (including the doctor of the Ifo Center for Industrial Organisation toral students) declined slightly from 77.9% in 2014 and New Technologies, refused an offer from the to 77%. Specialists only have fi xed-term contracts Christian Albrecht University of Kiel. Dr. Steffen when they are employed to cover staff on leave. As in Henzel, a researcher at the Ifo Center for Business 2014, there were no fi xed-term contracts among the Cycle Analysis and Surveys, accepted an offer from institute’s clerks and assistants in 2015. The number the Hochschule für angewandte Wissenschaften in of persons with fi xed-term contracts as a share of Munich. total staff remained almost the same (2014: 42.6%; 2015: 43.1%).

133 Ifo Annual Report 2015 Personnel Development

The number of women at the Ifo Institute rose by nine being appointed by the Ifo Institute. This means that to 102. This took the number of women as a share 24 % (2014: 22.1%) of Ifo’s academic staff were for- of total employees to 51.8 %, which edged over the eigners or Germans who had previously held a positon 50 % marker for the ﬁ rst time ever (2014: 48.9%). The or were studying abroad prior to joining the Institute. increase in the share of women was mainly due to the higher number of female doctoral students at the Number of Staff at Year-End of 2015 and 2014

institute, which increased from 37.5% to 47.8 %. This Total staff Women

Ifo comes closer to means that Ifo has almost achieved its long-term goal 2015 2014 2015 2014 gender-balance goal of striking a gender balance among doctoral students. Research and service This means that the Institute is more likely to continue Scientific staff 54 55 10 10 to employ female academic staff as researchers after Doctoral students 46 40 22 15 Specialists 21 21 11 12 they have successfully completed their doctoral thesis. Technical staff/assistants 20 20 19 19 Ifo therefore stands a better chance of boosting the Infrastructure number of female post-docs at the institute, which Non-scientific staff 53 51 37 36 barely changed in the reporting year (2015: 18.5% ver- Of which staff with management responsibilities** 12 12 8 8 sus 2014: 18.2%). There were still more women than Trainees 3 3 3 1 men among the institute’s specialists on 31 December Total 197 190 102 93 2015, despite the fact that the share fell from 57.1% Part-time Limited duration to 52.4%. Among Ifo’s infrastructure employees the workers contracts number of women among non-scientifi c staff fell by 2015 2014 2015 2014 one and rose by two among trainees. Research and service Scientific staff 13 13 31 34 Doctoral students* 45 40 46 40 Another of the Ifo Institute’s personnel policy goals Specialists 4 4 1 1 is to gradually increase the number of post-docs as a Technical staff/assistants 12 12 0 0 share of total academic staff to 100%. In the report- Infrastructure Non-scientific staff 15 15 4 3 ing year this share increased from 81.8% to 90.7%. If Of which staff with management respon- doctoral students are included in the fi gure, a total sibilities** 3 3 1 1 Trainees 0 0 3 3 of 95% of academic employees (2014: 89.5%) either Total 89 84 85 81 held a doctorate, or were working on their doctoral Post-docs/habilita- Of which thesis on the reference date of 31 December 2015. tions, professors women

There was an increase in the share of professors and 2015 2014 2015 2014

researchers with their habilitation, which rose from Scientiﬁc staff 49/13 45/12 6/1 5/1

* ** 21.8% in 2014 to 24.1% in 2015. Without guest doctoral students. – Non-scientific staff compensated according to TV-L E 13 and upwards. The international orientation of the Ifo Institute is also refl ected in the fact that a growing share of scientifi c staff are either foreigners, or Germans who have pre- Further Education for Researchers viously held a position or studied abroad and have The Ifo Institute is a very attractive employer for returned to take up a position at the Ifo Institute. On policy-oriented research economists. It does every- Ifo boasts increasingly the reference date of 31 December 2015 this fi gure thing in its power to attract excellent researchers by international staff mix rose by 3 persons from 21 to 24. Four of the heads providing the ideal conditions for excellent perfor- of Ifo’s research centers are foreign or held positions mance. Creating a productive environment for top in foreign universities before being appointed by the researchers is a comprehensive strategic task that Ifo Institute. Moreover, there were also nine foreign- goes beyond personnel policies and instruments. ers (2014: eight /seven) and three “returnees” (2014: This applies, for example, to the close cooperation two). Like last year, fi ve doctoral students are foreigh with universities, which is a precondition for the joint and another three (2014: two) studied abroad before appointment of Ifo department heads as mentioned

Ifo Annual Report 2015 134 Personnel Development

initially, to international orientation and cooperation, Integrating doctoral students in empirical research and as well as to the recognition of special achievements in work on policy-oriented projects strengthens the through bonuses. Meanwhile, the central sphere of empirical side of their economic education. As a rule, activity is the consistent support of scientifi c profi le they complete their doctorates at the Economics Fac- formation of the researchers employed in the insti- ulty of the University of Munich, become members of tute at all levels, which includes making contacts with the Munich Graduate School of Economics and also at- other researchers from around the world, and, above tend graduate school courses there. In addition to many Seminars enable all, promoting a culture of discussion at a very high other interested members of the Ifo staff, the doctoral doctoral students to scientifi c level within the institute. The foundations students all attend the lunchtime seminars of the Cen- exchange views for this comprehensive strategy for scientifi c and pro- ter for Economic Studies and the Ifo Institute. The regu- fessional further qualifi cation in the Ifo Institute are lar research seminars held within each department also laid by a works agreement. play an important role for doctoral students.

Another important element of further education is The joint appointment of all departmental heads as the promotion of young academics. Ifo’s programme professors at the University of Munich has made it for junior economists aims to promote the next gen- possible for almost all Ifo doctoral students’ work to eration of young scientists in the fi eld of empirical eco- be supervised by their department heads. The situa- nomic research. This training lays the foundations for tion is similar at the Dresden branch of the Ifo Institute both an academic career and for a practice-oriented since its Director holds a chair at the Technical Uni- role in business or public administration. Only a small versity of Dresden (TUD) and his Deputy Director, percentage of doctoral students have the opportunity Joachim Ragnitz, has an honorary professorship there. to continue their professional career at the Ifo Insti- tute. That is why Ifo’s Executive Board offers strong Supported by department heads and experienced support with their next career move to doctoral stu- post-docs, the students are introduced early on to dents who complete their PhD at the Ifo Institute. presenting research fi ndings at international forums. Presentations at high-level economic conferences The high level of the graduate training now offered with selection procedures prepare the young aca- by the Ifo Institute is shown by the huge range of demics at an early stage of their career to publish ar- peer-refereed scientifi c publications that Ifo doctor- ticles in internationally renowned refereed journals. ates contribute to year after year. The high number Despite a limited travel budget, Ifo researchers gave of doctoral students active at the Ifo Institute, which 146 presentations at top conferences. The further Ifo will strive to maintain high, was fi nancially pos- qualifi cation of doctoral students is also supported sible thanks to a series of DFG projects, success- by internal training seminars, professional editing of ful bids in the competitive tendering process of the English-language papers and participation in external Leibniz Association (SAW projects) and projects summer schools and workshops. Doctoral students fi nanced by private foundations (including Deutsche can also take advantage of supplementary training Telekom Foundation, Thyssen Foundation). Doc- measures. Courses on assertion and confl ict resolu- Ifo offers students toral students receive support not only from their tion, and communication and presentation training, customised training respective department heads and post docs, but for example, were offered. Ifo also organised cus- also from “doctoral student offi cers” with cross- tomised training measures like, for example, on the department responsibilities. Dr. Marc Piopiunik and preparation of deep econometric work. Sixteen male Dr. Timo Hener, both former doctoral students at Ifo researchers and four female researchers are cur- the Ifo Institute, are highly dedicated to this task. In rently working on their habilitation. the reporting year the Executive Board decided to increase the compensation of doctoral students. As Several researchers at the Ifo Institute teach at uni- of September 2015 almost all doctoral students had versities with which Ifo cooperates closely, which 75% positions. gives them the opportunity to constantly revise and

135 Ifo Annual Report 2015 Personnel Development

expand their own expert knowledge base. In the share of women among interns the Ifo Institute wish- summer semester 2015 and in the winter semester es to interest as many women as possible in applied Ifo staff gave 93 university 2015/2016 93 university lectures were given by Ifo and policy-oriented economic research in order to lectures in 2015 staff. This is particularly advantageous for the sub- increase the long-term number of female applicants jects that are empirically oriented. Additionally, all for doctoral positions. researchers at the Institute are given the opportunity to keep abreast of research developments by Further Education for Non-Researchers attending the appropriate lectures and seminars at The further education of staff working in the non- the University of Munich. An important contribution research areas also has a high priority for the Institute. to the exchange of new research ideas is provided The above-mentioned agreement with the Works’ by the weekly lunchtime seminars – a forum for the Council regulates all aspects of the professional edu- discussion of current research and research fi ndings cation of non-research personnel. The further educa- as well as new developments in economics. Speakers tion of non-research staff is aimed at providing them and attendees are primarily from the Ifo staff and the with the optimal qualifi cations for managing their cur- University of Munich. In addition, two annual inter- rent tasks and preparing them for future ones, there- nal conferences are held at which Ifo researchers can by insuring that their individual qualifi cations keep present their new work, or use the events to prepare pace with the demands of their respective positions. for submitting papers to peer-reviewed journals or international conferences. To this end the qualifi cation requirements of all staff members are systematically surveyed at the beginning Academic competence is developed primarily in re- of each year. Overall, 166 further training measures search projects. Here, internal Ifo competence is ex- were approved in 2015, of which 132 were also con- tended in cooperation with external experts. Guest ducted in that year. Some of the training measures researchers play a special role in this respect. The had to be postponed until 2015 or were cancelled number of guest researcher stays totalled 43 in 2015 due to illness. A large share of the training mea- (2014: 47). This decline compared to previous years sures requested are usually in the fi eld of comput- was mainly due to the fact that several Ifo depart- ers, whereby the focus lies on schooling for the spe- ment heads themselves took research leave at foreign cifi c IT requirements of individual employees. These universities and a higher number of researchers were measures were complemented by further training for granted several months of leave to conduct research doctoral students and junior economists cited above. at top American universities (including Harvard, Customised courses were also organised to deal with Princeton, Stanford). Research stays at top univer- challenges encountered in individual roles. Further Research stays sities benefi t the academic performance of Ifo’s re- qualifi cation related to innovation and problem solv- abroad boost academic search departments, since the academics on leave can ing and can be directly integrated into professional performance further deepen their academic expertise during their activities, is becoming increasingly important. This research stays abroad, can pave the way for new joint takes place both individually (in the form of individual projects with foreign co-authors and, at the same, can coaching, for example) and in teams (in the form of continue to work on their ongoing projects. workshops or group training).

The promotion of junior economists begins in the The Institute also endeavours to promote young staff Ifo Institute with the employment of interns. Their in the non-academic area. It regularly offers an Of- importance for the institute should not be underes- fi ce Communication trainee programme. In 2015 two timated, since former interns often apply successfully young staff members successfully completed their train- for posts as doctoral students. A total of 76 interns ing. Both left the Institute at the end of their programme gained their fi rst experiences of empirical economic to begin studies at university. In September 2015 two research in 2015 (2014: 76). Almost half were female new trainees were recruited who are now following the students (2015: 49.3 %; 2014: 42.1%). With its high modifi ed: “Offi ce management trainee programme”.

Ifo Annual Report 2015 136 Personnel Development

Awards opportunity offi cer in Munich and a woman’s repre- The Society run by the Friends of the Ifo Institute sentative at the Dresden Branch. The current equal awards prizes to researchers at the institute who opportunities plan, which is valid until autumn 2017, is have attracted attention thanks to their outstanding primarily aimed at gradually reducing the under-rep- scientifi c achievements. A prize can only be awarded resentation of women at all levels of the scientifi c ca- Equality remains top if a scientifi c article was published in an internationally reer ladder. Improving the working conditions and the priority renowned peer-refereed journal. In 2015 this prize advancement, especially of female researchers with was awarded to Prof. Oliver Falck, Director of the young children, and generally improving the chances Ifo Center for Industrial Organisation and New Tech- for professional development by means of further nologies, for his article: “E-lections: Voting Behavior qualifi cations are intended to make work at the Ifo and the Internet”, which he published together with Institute more attractive and to increase the share of Stephan Heblich and Robert Gold in the American women on the research staff. Ifo’s internal rules on Economic Review 104(7), 2014. equality also form part of its certifi ed management system, which is annually audited by external auditors. The annual prize outstanding achievement in third- This means that the continued certifi cation of Ifo’s party research was not awarded in 2015. Instead the Ifo management system depends on the monitoring and Institute awarded four special prizes for special achieve- continued further development of rules on equality. ments that were not directly linked to specifi c third- party funded projects. The fi rst prize went to Horst The Ifo Institute is particularly keen to qualify female Penzkofer, a researcher at the Ifo Center for Industrial researchers for management positions in academia. It Organisation and New Technologies, for his numerous expressly supports the application for projects in the expert reports on the impact of trade fairs commis- Leibniz tendering process that serve to promote wom- sioned by the German Messewirtschaft. Mr Penzkofer en to leadership positions in academia. This Leibniz line has being working alone on these expert reports for of funding aims to particularly increase the likelihood years and has established himself as the branch’s “Trade of the respective female project/working group heads fair pope”. The second special prize went to the former being appointed as W2 or W3 positions. The Ifo In- doctoral student Erik Hornung, who has now left the stitute was successful with such project applications in Ifo Institute. He received a prize for writing the paper: the Leibniz tendering procedure of 2015 and 2016. “Immigration and the Diffusion of Technology: The Hu- guenot Diaspora in Prussia”, which was published in the The promotion of equal opportunities for men and American Economic Review 104(1), 2014, during his women with scientifi c positions also supports the set- time as a doctoral student at the institute. The special ting of fl exible target quotas along the lines of the cas- third prize went to the project team consisting of Prof. cade principle of research oriented equality standards Ludger Wößmann, Ulrike Baldi-Cohrs, Marc Piopiunik, established by the Deutschen Forschungsgemein- Jens Ruhose and Ruth Maria Schüler from the Ifo Cen- schaft (DFG). At the recommendation of the Leib- ter for the Economics of Education for their continuous niz Association, the Ifo Institute anchored this kind of Flexible target quota supervision of the “European Expert Network on the fl exible target quota for the compensation levels of introduced for senior Economics of Education” (EENEE) since 2003 on be- senior scientifi c staff in its programme budget, which staff half of the European Commission. Finally, as the fourth forms the basis of its institutional support by the fed- special prize, all members of the CESifo GmbH team eral government and the Länder. The time frame for were invited to attend a dinner to thank them for their these target quotas extends until 2017. valuable support in organising prestigious international events over the past 16 years. As already mentioned above, Ifo increased its share of female researchers in 2015 and the number of The Ifo Institute has actively promoted equal oppor- male and female doctoral students almost balanced tunities for men and women for many years. In this out in 2015. Dr. Christa Hainz, an experienced re- area the Executive Board is supported by an equal searcher from the Ifo Center for International Insti-

137 Ifo Annual Report 2015 Personnel Development

tutional Comparisons and Migration Research, helps male academics. Three of the nine members of the Ifo Ifo’s Executive Board to improve the general condi- User Advisory Council are women and 12 members tions for female doctoral students’ activities in her of the Ifo Institute’s Board of Trustees (total: 72) are role as mentor for female doctoral students. She is now women. their contact person and deals with the special issues of young female economists like for example, quali- The Institute’s cooperation with the Dual Career fi cation events that are exclusively aimed at female Offi ces of the Munich universities is also important doctoral students. for both sexes. This service is becoming increasingly signifi cant in terms of attracting renowned research- The availability of part-time positions remains a key ers to the institute. Moreover, support from the Dual component of the family-friendly organisation of work Career Offi ce of the Technical University of Munich at the Ifo Institute. The number of part-time positions has already met with success. Number of part-time staff did not rise quite as strongly as the total number of continues to grow staff (part-time staff: +5, total staff: +7). The number of women as a share of part-time employees was 65.2%. If doctoral students are excluded from the number of part-time positions, then this fi gure was as high as 81.8 % (2014: 79.5%). The Ifo Institute will also continue to offer part-time employment so that its employees are given the opportunity to combine a career with having a family more effectively.

The option of tele-working is also part of the family- friendly organisation of work at the Ifo Institute. The framework conditions for tele-working are laid out in a works agreement, which also covers its offer to staff on parental leave to continue to use the opportunities provided by the institute for further training. To enable parents to resume their careers swiftly, the Ifo Institute signed a cooperation agreement in 2013 with a municipal operator of child care facilities on corporate childcare. The institute ﬁ nances the pro- spective entitlement to three places for children that are offered to its employees. At the moment three Ifo staff members enjoy a nursery place at a reasonable municipal price.

An important contribution to equal opportunity at the Institute is that women are increasingly being ap- Ifo welcomes more pointed to the various boards. In the Administrative women onto its boards Board, the supervisory body of the Ifo Institute, this is not determined by the Institute as the majority of seats are linked to an external function. Neverthe- less, 40% of the Administrative Board members, who are chosen at the Annual Meeting, are women. The Scientiﬁ c Advisory Council, which formerly was comprised only of men, also now has two respected fe-

Ifo Annual Report 2015 138 Financial Development

The Ifo Institute is a non-profi t institution that aims euros, inventory –377 thousand euros, liquid funds to serve academia and research. The Ifo Institute’s –1,039 thousand euros). objective is to provide research and services as public goods, and not to generate fi nancial profi ts. This On the liabilities side, an increase was seen in both the Assets rose also applies to contract research conducted on behalf Institute’s assets (+187 thousand euros) and in proof state or private institutions. Ifo’s fi ndings are also visions (+1,109 thousand euros). There was, by con- made public, which strengthens the foundations of all trast, a decline in liabilities vis-à-vis banks (–5 thousand of the Institute’s work. The Institute’s fi nancial strat- euros), down-payments received (–415 thousand eu- egy aims to achieve a balanced long-term cost and ros) and other liabilities (–700 thousand euros). earnings structure that permits a large service and research output that benefi ts the general public. Suf- From the annual surplus of 187 thousand euros, fi cient fi nancial reserves help offset income fl uctua- 171 thousand euros was channeled off into re- tions and allow a fl exible reaction to special demands. search reserves, bringing the latter up to a total of 1,281 thousand euros by 31.12. 2015. Voluntary pay- Summary of key developments ments beyond membership fees, which are managed The Institute’s fi nancial statement for 2015 shows a by the Ifo Institute’s Administrative Council, amount- surplus of 187 thousand euros. This was channelled ed to 16 thousand euros. This sum was added, in ac- into reserves, increasing the Institute’s assets to a to- cordance with the Ifo statutes (Art. 4. Sec. 2), to the tal of 2,069 thousand euros as of 31 December 2015. earmarked reserves, which totalled 788 thousand euros. This increased the Institute’s assets to a total of In 2015 the Ifo Institute received public funds totalling 2,069 thousand euros by 31.12. 2015. 10,493 thousand euros as part of research promotion based on Art. 91b Basic Law (German constitution). Of Balance Sheet of the Ifo Institute for 2015 in this amount 10,178 thousand euros was used for cur- Thousand Euros (abridged version) rent operations and 315 thousand euros was used for in- 31.12.2015 31.12.2014 vestment. The funds for current operations include 510 Assets thousand euros in special funding for a four-year limited Fixed assets 163 197 period to build up the Energy, Climate and Ex-haustible Current assets Inventory 590 967 Resources research area. A cash balance of 500 thou- Receivables and accruals 2,812 1,186 sand euros, which was accumulated in 2014 and carried Liquid funds 3,290 4,329 over into 2015, also remains at the disposal of the Ifo Total assets 6,855 6,679 Institute. The sum of 10,843 thousand euros in institu- Liabilities tional funding was granted to the Ifo Institute in 2015, Net worth Earmarked funds 788 773 of which 350 thousand euros was not used. Thanks to withdrawals/ 0 0 savings, particularly in terms of personnel expenditure, additions 16 17 and to high income from commissioned activities, the Research reserves 1,281 1,109 withdrawals/ 0 0 Institute did not need to use 850 thousand euros of its additions 171 1 institutional funding. This sum was accumulated in a cash Short-term debt balance that will be carried forward to next year. Reserves 3,445 2,336 Liabilities vis-à-vis banks 10 15 Down payments received 816 1,231 Assets and Finances Other liabilities 515 1,215 The balance sheet total rose by 176 thousand euros Total liabilities 6,855 6,679 (+2.6%) versus last year to 6,855 thousand euros. On the asset side, this was due to the fact, that within the fl oating as-sets, short-term receivables and accruals and Liquid funds were available at all times throughout 2015. deferred income increased by 1,626 thousand euros, The stock of liquid assets fell compared to the preced- while other asset items fell (fi xed assets –34 thousand ing year by 1,034 thousand euros to 3,280 thousand

139 Ifo Annual Report 2015 Financial Development

euros. Both cash fl ow from current operations (–997 sorgungsanstalt des Bundes und der Länder) in 2015 thousand euros) and cash fl ow from investment activ- amounting to 492 thousand euros. Another reason ity (–37 thousand euros) were negative in 2015. This was that, as in 2014, two scientifi c management posi- negative cash fl ow from current operations was due to tions were fi lled by internal staff as an interim solution, the retroactive reimbursement of the personnel costs leading to savings in personnel costs. of endowed professorships at the University of Munich. Regular depreciations (54 thousand euros) refer to Income fi xed assets fi nanced out of the Institute’s own funds, Operating income grew signifi cantly by 589 thousand while unscheduled depreciations (184 thousand eu- Upturn in operating euros in 2015 to reach a total of 16,738 thousand ros) correspond to the investment subsidies received income euros. The upturn was largely due to an increase in in the reporting year from public research funding public fi nancial support consisting of the institutional bodies. Other operating expenses (balanced by other support of the Ifo Institute as part of the collective re- operating income) fell by 40 thousand euros to 2,693 search funding received from the federal government thousand euros. and the Free State of Bavaria according to Art. 91b Basic Law on the one hand, and the support of the This means that income exceeded costs by 712 thou- Dresden Branch by the Free State of Saxony on the sand euros (income from on-going business). This was other. This support increased by 499 thousand euros offset by -503 thousand euros in negative neutral and to 11,223 thousand euros. The cash balance men- out-of-period results due to a change in provisions. tioned at the beginning of this report is not included The Institute also had to pay taxes of 22 thousand in this sum. It will only enter the annual fi nancial state- euros, giving it an annual result of 187 thousand euros. ment when and to the extent that it is used. Profi t and Loss Statement of the Ifo Institute Income from third-party activities, comprising of for 2015 in Thousand Euros (abridged version) revenue from publications and database services, earmarked subsidies and contract research as well 31. 12. 2015 31. 12. 2014 as the corresponding changes in inventory, rose Institutional support 11,223 10,724 from 5,270 thousand euros in 2014 to 5,366 thou- Earmarked financial support 1,866 1,831 Obligatory membership fees 133 138 sand euros in 2015 (1.8%). Voluntary membership fees 16 17 Income from publications and data bank services, conferences The number of Association members fell from 362 229 263 Income from commissioned activities 3,651 3,033 in 2014 to 354 on 31 December 2015. Income from Change in stocks of non-invoiced services –380 143 membership fees (obligatory and voluntary) there- Operating income 16,738 16,149 Expenditure for material and purchased fore decreased slightly from 155 thousand euros to services 1,440 1,389 149 thousand euros. Personnel expenditure 11,655 11,683 Regular depreciation 54 36 Unplanned depreciation 184 295 The increase in revenues from commissioned activi- Other operating expenses minus income 2,693 2,733 Higher revenues from ties was accompanied by a corresponding increase Operating expenses 16,026 16,131 commissioned activities in the cost of materials and related services totalling Operating profit 712 13 51 thousand euros versus 2014. Financial profit 0 1 Taxes on income and profit –22 –5 Neutral income and income unrelated to Personnel expenses, by contrast, dropped by 28 thou- the accounting period –503 9 sand euros (0.2 %) to 11,655 thousand euros, despite a Profit for the year 187 18 0 0 2.1% increase in compensation under collective wage Withdrawals from research reserves Additions to research reserves 171 1 agreements as of March 2015. This development in Withdrawals from statutory reserves 0 0 personnel costs was primarily due to a surprising re- Additions to statutory reserves 16 17 imbursement of contributions paid to the VBL (Ver- Profit brought forward 0 0

Ifo Annual Report 2015 140 Financial Development

For the output that the Ifo Institute produces in research, policy consulting and services as an institution of the Leibniz Association, it receives institutional support from the federal government and the federal states as part of the collective research support according to Art. 91b Basic Law. Institutional support from the Bavarian State Ministry for Economic Affairs, Transport and Technology as well as from the Bavar- ian State Ministry for Finance and Energy amounted to 10,843 thousand euros. It also had reserves of 500 thousand euros from 2014. The sum of 10,178 thousand euros of available funds was used for day-to-day operations and 315 thousand euros was spent on investments and maintenance. As already mentioned, the funds granted totalling 850 thousand euros were not used, as permitted by the funding guidelines. This sum was accumulated as a cash balance that will be carried forward to next year.

In addition to this basic public support, the Dresden Branch receives separate institu-tional support from the Free State of Saxony according to Art. 91b Basic Law. After deduction of the surplus, the institutional support of the Dresden Branch by the Saxon Ministry for Economic Affairs and Labour amounted to 730 thousand euros.

The Institute’s ﬁ nancial statements were audited by KPMG Deutsche Treuhand-Gesellschaft AG, Munich, and received unreserved certiﬁ cation.

141 Ifo Annual Report 2015