Ifo Annual Report 2017

2017 A n n u a l R e p o r t

Presented at the 69th ifo Annual Meeting on 28 June 2018 Published in 2018 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 2017

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 ...... 23 ifo Center for Labour and Demographic Economics ...... 27 ifo Center for the Economics of Education ...... 31 ifo Center for Industrial Organisation and New Technologies ...... 43 ifo Center for Energy, Climate and Exhaustible Resources ...... 55 ifo Center for International Economics ...... 62 ifo Center for Macroeconomics and Surveys ...... 72 ifo Center for International Institutional Comparisons and Migration Research ...... 85 ifo Center of Excellence for Migration and Integration Research – CEMIR ...... 89

Research Group Taxation an Fiscal Policy ...... 90

Library ...... 94

Press, Publications, Conferences ...... 95

Dresden Branch ...... 105

Munich Society for the Promotion of Economic Research – CESifo GmbH ...... 117

Conferences, Publications and External Relations of the ifo Institute ...... 123

Personnel, Finances and Organisational Bodies

Personnel Development ...... 129

Financial Development ...... 135

Organisation of the ifo Institute ...... 138

ifo Annual Report 2017 3

The ifo Institute 2017

The Goals and Tasks of ifo Institute

Since its foundation in January 1949 ifo has provided as a bridge between academic research and practical both information and research, hence its name ifo = politics. It concentrates on applied, policy-oriented Information and Forschung (research). Its legal form is economic research with the goal of achieving greater that of a registered, non-proﬁ t association. The Ifo Insti- stability, growth and societal cohesion. The research of tute is one of Europe’s leading economic research insti- the ifo Institute increasingly deals with European and Growing focus on tutes and is also the most frequently cited institute in the global issues. It strives to meet the highest academic European and global media. A cooperation agreement links ifo closely with the standards and contributes to policy advice and the issues University of Munich (LMU), and in 2002 ifo was oﬀ icially economic-policy debate. It is committed to providing proclaimed an “Institute at the University of Munich”. services for research and the general public.

The Center for Economic Studies (CES) of the LMU, the Research at the Ifo Institute is guided by setting socially ifo Institute and the Munich Society for the Promotion recognised goals. These targets include maintaining the of Economics – CESifo GmbH pool their resources with- performance levels of the social market economy, rising in the CESifo Group to form an international research to the demographic challenges ahead, ensuring the sta- alliance. The group aims to enrich the public debate bility of the economy and the fi nancial system, surviv- based on excellent theoretical and empirical econom- ing global competition against a background of growing ics research, to support economic policy-making de- technological change and protecting the environment. cisions with high-quality policy advice, and to provide the public with economic information like the ifo Busi- Like all other Leibniz institutions, the ifo Institute is ness Climate Index. One of ifos’s central tasks is also to subject to tough evaluations that are conducted once promote junior economists. It cooperates closely with every seven years by the Leibniz Association Senate. ifo undergoes regular the LMU in this area, which involves signifi cant contri- As in past evaluations, the ifo Institute also performed evaluations butions to teaching activities. excellently in its latest evaluation, which was completed with the Statement of the Leibniz Association As a member of the Leibniz Association the ifo Institute dated 17 July 2013. is an institution that receives public funding from the federal and state governments on the basis of Article In this statement the Leibniz Senate established that 91b of the German Constitution. On 1 September 2011 the ifo Institute had very successfully achieved its man- the name of the ifo Institute was modifi ed by means of date of conducting: “applied policy-oriented economic a change to its Articles of Association. Since then its of- research, providing research results, data and infor- fi cial name has been: ifo Institute – Leibniz Institute for mation to interested individuals from academia, busi- Economic Research at the University of Munich. ness, politics and the general public.” It found that the ifo Institute makes: “signifi cant research contributions The ifo Institute also coordinates the European re- that are internationally recognised and acts as an im- search network EconPol Europe – European Network for portant bridge between academic research and policy Economic and Fiscal Policy Research – a collaboration of advisory work […] The amount of research, service and policy-oriented research university and non-university advisory work done has developed excellently. The ifo research institutes, which are contributing their scien- Institute is now one of Europe’s leading economic re- tifi c expertise help shape the future European Union. search institutes.” The network was founded by the ifo Institute in spring 2017 on behalf of the German Federal Ministry of Fi- The Leibniz Senate and the international group of ex- nance together with eight other renowned European re- perts commissioned by it attest the institute’s excellent search institutes as the new voice of science in Europe. performance at all levels and in all fi elds of work – from The aim of this network is to promote the further de- research and policy advisory work to services, the pro- ifo strives for velopment of European Economic and Monetary Union motion of junior researchers and infrastructure. The excellence in research with scientifi c analyses and policy recommendations. work done in the ifo Institute’s eight research departments was evaluated as very good overall, and as excel- ifo is an independent institution that makes its services lent in some cases. The quantity and quality of the in- available to all groups of society regardless of their po- stitute’s publications has improved further since the last litical orientation. It is a European think tank that serves evaluation and is now excellent.

ifo Annual Report 2017 7 THE GOALS AND TASKS OF THE IFO INSTITUTE

ifo’s 8 research centers – Public Finance and Political ic policy ideas and concepts. With its research results Economy, Labour and Demographic Economics, The and policy recommendations, it is helping to develop Economics of Education, Industrial Organisation and reform ideas and make Germany fi t for the future.” ifo’s New Technologies, Energy, Climate and Resources, policy work is also refl ected in a large number of expert International Economics, International Institutional reports commissioned by public and private sector cli- Comparisons and Migration Research and Macroeco- ents on topical economic policy issues. ifo was among nomics and Surveys – cover research topics that are the institutes to submit a successful bid for the joint also highly relevant for policy advice. The ifo Dresden economic forecast tender, issued for the fi rst time at branch, founded in 1993, works in areas that are of spe- a European level in 2007; and bid successfully again in cial interest to the Free State of Saxony, from which it the 2010 and 2013 tenders. The ifo Institute also makes receives its funding. its expertise available to the public sector institutions of other countries. In its international activities the ifo Institute cooperates very closely with CESifo GmbH and the CESifo In addition to its research and policy advice, the ifo In- researcher network supervised by the latter. As the stitute also provides the public with data, information Close cooperation Leibniz Senate confi rmed in its Statement of 17 July and other services. This takes place especially in con- with CESifo 2013, CESifo GmbH has an important role to play in the nection with its project-related and its regular surveys cooperation between the ifo Institute and the Center of national and international business. Every month, for Economic Studies (CES) at the LMU. The coopera- the ifo Business Climate Index, an established leading tion with CESifo is an important element in the inter- indicator of the business cycle derived from the ifo Busi- national profi le of the scientifi c research conducted by ness Survey, is awaited with great anticipation by the ifo and the LMU. media, investors, and business leaders. The results of the ifo World Economic Survey, the Institute’s quarterly ifo’s junior research staff also benefi t tremendously poll of international economic activity in 120 countries, from the network eff ects within the CESifo Group. ifo are published in the ifo World Economic Survey, a jour- employs more than 50 doctoral students, most of which nal launched in 2002. Since its launch in 1999, the Da- participate in the institute’s graduate programme and tabase for Institutional Comparisons in Europe (DICE), are also members of the Munich Graduate School of which currently contains around 3,800 tables, graphs Economics (MGSE) at the University of Munich. Ifo’s and short reports, has grown signifi cantly and enriched doctoral programme is particularly attractive thanks the range of services provided by the ifo Institute. to the fact that it combines academic research with the institute’s practical, policy-orientation. ifo also off ers a broad range of information via the internet, which are available in German and English, and The scientifi c research carried out at the ifo Institute is publishes several journals and book series. Internation- subject to the “Rules of good scientifi c practice” draft - al publications are becoming increasingly important. ifo intensively ed by the German Research Foundation (DFG), as well supports young as to the gender equality standards established by it. Every year the CESifo Group organises a number of female academics The ifo Institute is seeking to gradually address the international conferences at the Ifo Institute, and existing under-representation of women among its re- has become the second largest research network in searchers through its particularly intensive support of economics worldwide with over 1,450 researchers young female academics. in 41 countries. The CESifo Working Papers written by members of this research network again took top Politics and the general public benefi t from the close places among all economic research institutions in a link between the ifo Institute and the university, as this worldwide comparison of downloads from the website link reinforces the institute’s academic performance of the Social Science Research Network. and fi rst-class research is the foundation for the policy work that the institute sees as its core task. The report ifo’s work is characterised by its cooperation with uni- (2013) of the Leibniz Senate group of experts states: versities and renowned researchers in Germany and “As part of its policy advisory work, Ifo participates abroad. Its cooperation with the University of Munich very actively in public debates over the best econom- occupies a special place in ifo’s work. ifo and the LMU

8 ifo Annual Report 2017 THE GOALS AND TASKS OF THE IFO INSTITUTE

jointly created the “Economics & Business Data Center” tus: 31 December 2017) and more than 40 guest pro- (EBDC), whose main task is to supply a continuously up- fessors annually from all over the world, with whom dated data set of German companies to feed new areas Ifo researchers collaborate on joint projects. The Sci- of research in economics and business administration. entifi c Advisory Council and the User Advisory Council ifo works closely with The EBDC provides researchers with corporate data, play a particularly important role. Both bodies assist external experts a combination of ifo survey data and other corporate the Institute in its planning, as well as evaluating its data sources, and is the main contact and coordina- performance, and therefore help to maintain the sci- tor for scientifi c databases at the enterprise level. In entifi c quality of the ifo Institute’s services. The ifo In- December 2013 a Research Data Center branch of the stitute is very grateful to the external researchers who Bavarian Federal Statistics Off ice was opened in the are involved in the CESifo Group and members of its EBDC. Researcher can now access federal statistics advisory bodies. survey data on the EBDC premises. The Scientifi c Advisory Council and the User Adviso- Another expression of the close cooperation between ry Council are especially important, as they not only ifo and LMU is the joint appointment of department advise the institute on its strategic planning, but also head positions at the ifo Institute. This applies not only evaluate its performance and help to ensure the scien- to the president, but also to all ifo directors of the re- tifi c quality of its work. The ifo Institute is particularly search centers. A total of eight endowed professorships obliged to the external academics who are actively in- are available to this end. In addition to these jointly ap- volved in the CESifo Group, as well as the members of pointed professors, other ifo Institute researchers are its advisory boards, which include the Administrative also active in terms of teaching. Council and the Board of Trustees.

Close cooperation with the LMU and the joint appointment of ifo’s department heads are central aspects of the eﬀ orts made by the ifo Institute to provide its researchers with the optimal framework conditions for achieving outstanding results in their research and policy advisory work. To aﬀ irm this personnel policy, the ifo Institute has signed up to the “Code of Conduct for the Recruitment of Researchers” featured in the European Commission’s “European Charter for Researchers”.

Cooperation with other partners – in particular the Universities of Augsburg, Dresden, Konstanz, Münster, Passau, Regensburg – enriches the work of the Insti- tute. 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 for International Research on Economic Tendency Surveys), the EENEE (European Expert Network of Educational Economists) and EUROCONSTRUCT.

The ifo Institute cooperates closely with external economists and other established experts to assure the quality of its research. This particularly applies to its 49 research professors and 8 research aﬀ iliates, research associates and senior research associates (sta-

ifo Annual Report 2017 9 Report of the Executive Board

The year 2017 was characterised by major personnel oﬀ ice. Five academics were appointed as new Scientiﬁ c developments at the ifo Institute. At the end of August Advisory Board members: Prof Richard Blundell, Univer- Prof Meinhard Knoche, who was reponsible for manag- sity College London, Prof Alessandra Casarico, Universi- ing operations on the ifo Institute’s Executive Board, tà Bocconi, Prof Abigail Payne, University of Melbourne, retired aft er 22 years at the Institute. He was succeeded Prof Ricardo Reis, London School of Economics, and by Dr. Stephanie Dittmer on 1 September 2017. Prof Rolf Tschernig, University of Regensburg.

In honour of Prof. Meinhard Knoche the thematic focus of the 68th Annual Meeting held on 28 June 2017 was 13 2017 “Germany as a Science and Innovation Base.” Guest 13. Juli 2017 70. Jahrgang speakers included Georg Schütte, Permanent State Secretary, Federal Ministry of Education and Research,

and Prof. Matthias Kleiner, President of the Leibniz As- 68. IFO JAHRESVERSAMMLUNG 2017 sociation. Chaired by Marc Beise, Süddeutsche Zeitung, "210 %)+!)0&00"+0 %×0Ě Meinhard Knoche the discussion of Germany as a science and innovation und Innovationsstandort retires base was deepened by an expert panel that, in addition Grußworte – Peter-Alexander Wacker, Clemens Fuest &00"+0 %ƞ2+!&/10 %ƞ3"/+"171ǿ "*"&+0*"2"00 %ƛ"+Ȕ ",/$ %Ų11" to Clemens Fuest and Meinhard Knoche, also featured "*"&+0*#,/0 %"+)0 ++,31&,+001/1"$&"Ȕ11%&0)"&+"/ Milagros Caiña-Andree, Executive Board Member BMW &$&1)"/+!")2+!&)!2+$ǿ %)Ų00")#(1,/"+(Ų+ƞ&$"+,%)01+!0Ȕ"&+%/!+, %" AG, and Prof. Angelika Niebler, European Member of Zum Abschied Parliament. Meinhard Knoche opened the debate with a von Meinhard Knoche short statement. At this point we would like to express +0Ȓ"/+"/&++Ǿ11,&"0%"2Ǿ"/+%/! %4 Ǿ /&17"*-1"/Ǿ&)%")*&*0,+Ǿ , &+,!46Ǿ, "/1 3"*+Ǿ00#7&+2+! "&+/& %/0-/2+$Ǿ our deepest gratitude to Meinhard Knoche for his re- ,)+!"/$"/Ǿ1"-%+2--/" %12+!+#/"!&11"+01"&+Ǿ Ų/$"+1/(Ǿ Ų/$"+ ,#*++Ǿ ,)#0 %"/+&$Ǿ)"*"+0 2"01Ǿ2!$"/ņŧ*++Ǿ)&3"/ ) (Ǿ+!/"0"& %)Ǿ ")*21&+"/Ǿ markable dedication and outstandingly successful work /"+&11")Ǿ /&") ") "/*6/Ǿ 0*&+ /ņ0 %)2+!/!)) &+Ǿ+2,213/Ǿ ")&5ņ0")2+!/ ")%2*Ǿ)20,%)/ "2+!&*,,))*"/0%ê20"/Ǿ&()0,1/#("Ǿ +#/"! %ņ-"Ǿ")+&"&"-"+0 %+"&!"/Ǿ/1&+11"+Ǿ/01"+ (")Ǿ%&)&--1"&+ "/$Ǿ as a member of ifo’s Executive Board. In over 20 years at )#"00"/Ǿ%,*0,%)Ǿ +0Ȓ"/+!/,0&20 ifo he decisively shaped the Institute and made a crucial contribution to its exceptionally positive development.

Aft er the Annual Meeting a special issue of ifo Schnell- dienst was published documenting contributions by speakers and panel members at ifo’s Annual Meeting and featuring tributes from Meinhard Knoche’s colleagues and contemporaries in the second section.

Andreas Peichl joins On 1 June 2017 Prof. Andreas Peichl took over as Direc- The following is an overview of the results achieved by ifo as Center Director tor of the ifo Center for Macroeconomics and Surveys ifo in research, the promotion of junior economists, (formerly the ifo Center for Business Cycle Analysis and policy advisory work and research services Surveys). The department head position is linked to a Chair for Macroeconomics and Business Cycle Analysis at RESEARCH AND THE PROMOTION OF JUNIOR the Ludwig Maximilians University of Munich (LMU). Prof. ECONOMISTS Timo Wollmershäuser, who was Interim Director, will re- Publications in international, peer-reviewed journals main at the Center as Head of Economic Forecasting. with an external referee process are a central indicator of scientifi c achievement. The year 2017 was another There were also several changes to ifo’s off icial bodies outstanding year in terms of the output of ifo’s research in 2017: Ms Christiane Benner (Deputy Chairman of IG staff . A total of 100 papers submitted by ifo economists Metall) joined the Administrative Council and the Board to internationally-recognised refereed journals were of Trustees as a new member. At the end of May Prof accepted for publication. 12 of these articles were pub- Wendy Carlin, Prof. Carlo Carraro, Prof Ottmar Eden- lished in high-ranking category A+ to B journals. In ad- hofer, Prof David Laidler and Prof Raymond Riezman left dition, ifo staff presented their research results by de- the Scientifi c Advisory Council of the ifo Institute and livering 209 papers at international conferences with a CESifo marking the end of their second and fi nal term of referee system.

10 ifo Annual Report 2017 REPORT OF THE EXECUTIVE BOARD

Table 1: of 2017 Clemens Fuest, together with co-author Jo- Publications in Peer-Reviewed Journals from 2006 hannes Becker, published the book “The Odysseus to 2017 Complex – A Pragmatic Solution to the Euro Crisis” 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (in German) with the Hanser Verlag. In their book the Articles in peer- reviewed journals 33 60 81 53 44 55 68 63 57 56 58 70 authors develop a plan to reform the Eurozone. They Reforming the Euro- Of which those in categories A+ to B suggest a way of strengthening member states’ re- zone * (as of 2009) 15 19 24 31 32 22 28 24 12 sponsibility for solid state fi nances and eff ective eco- *Taking into account the new classification in the Handelsblatt ranking. nomic policy, which does not overstretch willingness to transfer competences to a European level and makes The following researchers successfully published private investors liable for the costs of restructuring articles in top academic journals in the A +/A categories: the public fi nances of heavily-indebted states, without – Ludger Wößmann (with Eric A. Hanushek and Jens destabilising the fi nancial markets. This would make Ruhose), “Knowledge Capital and Aggregate In- the monetary union less prone to crises and would de- come Diff erences: Development Accounting for U.S. fuse confl icts between member states. States”, American Economic Journal: Macroeconomics 9(4), 2017, 184–224; In the CESifo Seminar Series published by MIT Press – Francesco Cinnirella (withJochen Streb), “The Role four books were published in 2017 with the following of Human Capital and Innovation in Economic titles: “Social Economics: Current and Emerging Ave- Development: Evidence from Post-Malthusian Prus- nues”, “International Currency Exposure”, “Energy Tax sia”, Journal of Economic Growth 22(2), 2017, 193–227; and Regulatory Policy in Europe – Reform Priorities” and “Demographic Change and Long-Run Develop- – Ludger Wößmann (with Sascha O. Becker und Markus ment”. This series features the results of joint projects Nagler), “Education and Religious Participation: by CESifo researchers and acknowledged external ex- City-Level Evidence from Germany’s Secularization perts. It aims to off er an overview of the latest devel- Period 1890–1930”, Journal of Economic Growth opments in research in areas that are relevant to the 22(3), 2017, 273–311; current policy debate. – Ludger Wößmann (with Eric A. Hanushek, Guido Schwerdt und Lei Zhang), “General Education, The publication successes enjoyed by ifo researchers Vocational Education, and Labor-Market Outcomes are also refl ected in the scientifi c rankings of the over the Life-Cycle”, Journal of Human Resources RePEc network (RePEc – Research Papers in Econom- 52(1), 2017, 48–87; ics). In the RePEc ranking of international scientifi c ci- tations of institutes based in Germany, Munich-based – Jens Ruhose (with Matthias Parey, Fabian Waldinger economists once again occupied top rankings at ifo performs strongly and Nicolai Netz), “The Selection of High-Skilled the end of 2017: ifo Institute (3), CESifo (4) and LMU in rankings Emigrants”, Review of Economics and Statistics 99(5), (6). The IZA Network (Institute of Labor Economics, 2017, 776–792; Bonn), which comprises well over a thousand re- – Timo Hener und Helmut Rainer (with Stefan Bauern- searchers from all over the world, and the European schuster), “When Labor Disputes Bring Cities to a Central Bank (based in Frankfurt am Main) received Standstill: The Impact of Public Transit Strikes on the top rankings. Traff ic, Accidents, Air Pollution, and Health”, American Economic Journal: Economic Policy 9(1), In the corresponding RePEc ranking of scientifi c cita- 2017, 1–37; tions of individual researchers, ifo researchers also performed very strongly. Hans-Werner Sinn took – Christian Holzner (with Gautier Pieter A.), “Simul- taneous Search and Eff iciency of Entry and Search third place among the German economists, with Intensity”, American Economic Journal: Microecono- Ludger Wößmann behind him in fi ft h place. Ifo Pres- mics 9(3), 2017, 245–282. ident Clemens Fuest ranked 35. Five other ifo Center Directors ranked among the top 100 economists (see ifo’s fl agship publications also include monographs Table 3): Gabriel Felbermayr (36), Niklas Potrafke (51), published by renowned international publishers and Andreas Peichl (71), Panu Poutvaara (95) and Oliver subject to a rigorous review process. At the beginning Falck (96).

ifo Annual Report 2017 11 REPORT OF THE EXECUTIVE BOARD

Table 2: Table 4: Economic Research Institutes and Economics Faculties Ranking of ifo Researchers in the Handelsblatt in the RePEc-Ranking in December 2017 Ranking 2017

Ranking Institution Average Ranking Top economists – lifetime achievement 1 IZA, Bonn 1.55 Ranking Name Age Points 2 ECB, Frankfurt/Main 1.64 14 Hans-Werner Sinn 69 14.21 55 Ludger Wößmann 44 9.11 3 ifo Institute, Munich 4.00 95 Clemens Fuest 49 6.52 4 CESifo, Munich 4.20 154 Gabriel Felbermayr 41 5.18 5 DIW, Berlin 4.29 173 Panu Poutvaara 44 4.93 6 LMU, Munich 6.74 215 Niklas Potrafke 37 4.32 7 University of Frankfurt/Main 7.40 Top economists – current research output 8 University of Bonn 8.65 19 Ludger Wößmann 44 3.09 9 University of Mannheim 9.20 25 Gabriel Felbermayr 41 2.95 95 Niklas Potrafke 37 2.01 10 Deutsche Bundesbank 9.48 192 Helmut Rainer 44 1.44 12 ZEW, Mannheim 11.28 197 Andreas Peichl 38 1.41 15 IfW, Kiel 14.90 208 Hans-Werner Sinn 69 1.36 23 RWI, Essen 26.76 209 Oliver Falck 43 1.36 29 IWH, Halle 31.21 Top economists – aged under 40 3 Niklas Potrafke 37 4.32 44 Andreas Peichl 38 2.31 Table 3: Individual Researchers in the RePEc Ranking of December 2017 Table 5: Ranking Person* Institution Average ranking Handelsblatt Ranking 2017 of Institutes with Highest 1 Luc Laeven ECB, Frankfurt/Main 2.47 Research Output in German-Speaking Countries 2 Urs Fischbacher University of Constance 4.57 Rank Institution Points 3 Hans-Werner Sinn ifo Institute 5.15 4 Armin Falk University of Bonn 5.32 1 ECB 66.9 5 Ludger Wößmann ifo Institute 7.03 2 Deutsche Bundesbank 44.2 6 Marcel Fratzscher DIW, Berlin 7.50 3 DIW, Berlin 42.8 7 Klaus M. Schmidt LMU 8.89 4 Bank for International Settlements 40.8 8 Martin F. Hellwig MPI, Bonn 10.84 5 ifo Institute 35.6 9 Andres J. Oswald IZA, Bonn 11.30 6 IfW, Kiel 32.3 10 Axel Dreher University of Heidelberg 12.83 7 IAB, Nürnberg 23.0 35 Clemens Fuest ifo Institute 41.08 8 Wifo, Wien 20.5 36 Gabriel J. Felbermayr ifo Institute 41.40 9 ZEW, Mannheim 17.3 42 Dennis Snower IfW, Kiel 43.43 10 Swiss National Bank 16.6 51 Niklas Potrafke ifo Institute 59.66 11 RWI, Essen 14.6 52 Reint E. Gropp IWH, Halle 60.47 12 Austrian National Bank 13.1 56 Christoph M. Schmidt RWI, Essen 64.85 13 IWH, Halle 12.5 71 Andreas Peichl ifo Institute 76.26 14 IZA, Bonn 9.5 95 Panu Poutvaara ifo Institute 102.97 15 Institute for Higher Studies Vienna 8.7 96 Oliver Falck ifo Institute 103.91 258 Achim Wambach ZEW, Mannheim 261.57 279 Helmut Rainer ifo Institute 279.41 The ifo Institute’s strong scientiﬁ c position is reﬂ ect- 735 Karen Pittel ifo Institute 722.11 ed in its succesful acquisition of research projects * Bold: Presidents of the respective economics institutes. Italics: Department awarded by competitive tender. The research funding heads at the ifo Institute (2017). acquired via competitive tender in 2017 had a dual ef- fect on the ifo Institute: it created greater scope for ba- As shown in Table 4, ifo researchers were also highly sic theoretical research on the one hand; and facilitat- placed in the Handelsblatt Ranking 2017 in the categories ed work on basic, policy-oriented issues on the other; of lifetime achievement and current research output Ta- thus consolidating the basis for the ifo Institute’s policy ble 5 shows the ranking of the institutes in German-speak- advisory work. This is shown by the following two ex- ing countries with the highest research output. amples.

12 ifo Annual Report 2017 REPORT OF THE EXECUTIVE BOARD

Decisions over education are key determinants of la- CES Fellow. Feodora Teti was also one of the three par- bour market opportunities, social mobility and eco- ticipants selected to present their work in “Your Lec- nomic growth. The project sponsored by the German ture”. The Summer School on the topic of: “The Global Research Foundation: “Education Decisions, Market Economy: Searching for a New Equilibrium” took place Structure and Education Outcomes” (a sub-project of from 17 to 24 June 2017. the SFB/Transregio 190: “Rationality and Competition: the Economic Performance of Individuals and Compa- As part of the 4th IIPF Doctoral School held from 23 to nies”), researched by experts from the ifo Center for 25 May junior economists exchanged views on the dy- ifo organises doctoral the Economics of Education, focuses on the question namics of inequality, analysed relevant facts and dis- school of the extent to which traditional models explain the cussed topical questions and methods in this research education decisions of utility-maximizing induividu- area. Uwe Sunde, LMU, and Matteo Cervellati, Universiy als like, for example, the decision between vocation- of Bologna, were responsible for the academic super- al training and higher education. The project is being vision of the conference. The event was organised in carried out in cooperation with the Wissenschaft szen- cooperation with CESifo, IIPF, ZEW, Mannheim, OTPR, trum Berlin. Michigan, and CTB, Oxford.

In the project funded by NORFACE entitled: “The In- ifo’s researchers also contribute to the promotion of fl uence of Childhood Environment on Individual young economists by holding lectures and seminars. Chances of Success over the Life Cycle” experts from In the year under review, ifo staff took on 80 teaching the ifo Center for Macroeconomics and Surveys look at assignments and supervised 99 bachelor’s and mas- the infl uence of childhood circumstances on individ- ter’s theses, 58 dissertations and 21 habilitations. ual life choices in the transition from adolescence to adulthood, as well as the infl uence of these decisions The institute’s academic performance is also infl u- on subsequent socio-economic success in life. To this enced by its very close links with external researchers. end, they use the concepts of intergenerational mobil- In 2017 Monika Schnitzer, LMU, Uwe Sunde, LMU, Simon ity and equal opportunities. This project also aims to Wiederhold, University of Eichstätt-Ingolstadt, Daniela identify causal eff ects and features cross-border com- de Boca, University of Torino, and Yoto V. Yotov, Drex- parisons. el University Philadelphia, joined ifo as new research professors, bringing the total number of external re- ifo works Together with research, the promotion of junior econ- searchers linked to the ifo Institute as research profes- with 49 research omists has also emerged as one of the ifo Institute’s sors up to 49 by 31 December 2017. Inga Heiland, Uni- professors core tasks. On the 31 December 2017 the ifo Institute versity of Oslo, was made a research associate in 2017. employed 58 doctoral students. A total of four doctoral students completed their doctorates at ifo in the A particularly important aspect of international net- course of 2017: Bernhard Enzi, Yvonne Giesing, Felix Rö- working is the support for research stays by ifo re- sel and Larissa Zierow. searchers, especially at top foreign universities. A total of 19 research stays were made by ifo staff in 2017, The 6th Lindau Meeting on Economic Sciences was including at Stanford University and Yale University in held from 22 to 26 August 2017. In a tender procedure the USA. the ifo researchers Jasmin Gröschl, Alexandra Hei- misch, Felix Rösel, Judith Saurer, Bastian Schulz and Every year, the CESifo Group organises numerous con- Christian Wittneben were selected to participate in the ferences, workshops and seminars that create the ide- meeting. This gave them the opportunity to exchange al conditions for promoting the exchange of ideas and views with 19 Nobel prizewinners and 400 other junior networking between researchers. Particularly note- economists. worthy are the Area Conferences, as well as the CESifo CESifo organises Venice Summer Institute. In total, the CESifo Group held 28 conferences As part of the I.S.E.O Summer School the ifo doctoral 28 international scientifi c conferences during the re- students Feodora Teti, Thomas Steinwachs and Martin porting year, most of which took place at the ifo Insti- Braml held intensive discussions with Jean Tirole, win- tute’s conference rooms. The following fi ve workshops ner of the Nobel Prize for Economics and Distinguished were held at the CESifo Venice Summer Institute: “New

ifo Annual Report 2017 13 REPORT OF THE EXECUTIVE BOARD

Evidence on Consumption, Household Behaviour, and Inequality”, “Exchange Rate Adjustment in the Euro Area”, “Place-Based Policies”, “Dynamics of Confl ict – Results from Theory and Experiments” and “Fiscal Competition and Mobility: Theory and Empirics”. These conferences and workshops mainly aim to promote scientifi c exchanges between the members of the CESifo Research Network, but they also off er ifo researchers CESifo Network the opportunity to exchange their ideas, especially with expands to members of the CESifo Research Network. This network 1,455 members expanded to include 1,455 members from 41 countries by the end of 2017.

Ludger Wößmann receiving the Gustav Stolper Prize 2017 Several prizes were awarded at the 68th Annual Gen- eral Meeting of the ifo Institute. The Society for the Promotion of Economic Research (Friends of the ifo Andreas Peichl, Director of the ifo Center for Macroeco- Institute) awarded a prize for outstanding academic nomics and Surveys, and Mathias Dolls, researcher at achievement in the ﬁ eld of empirical economic re- the ifo Institute, together with their co-authors Philipp search to Natalia Danzer, a researcher at the ifo Center Dörrenberg and Holger Stichnoth were awarded the for Labour and Demographic Economics, for her article Schmölders Stift ung Prize 2017 for their article: “Do “The Long-Run Consequences of Chernobyl: Evidence Savings Increase in Response to Salient Information on Subjective Well-Being, Mental Health and Welfare”, about Retirement and Expected Pensions?” The prize, co-authored with Alexander M. Danzer and published sponsored by the Schmölders Stift ung for behavioural in 2016 in the Journal of Public Economics. The prize research in economic life, was awarded by the Finance for special achievements in commissioned projects Commitee of the Verein für Socialpolitik. in 2015 went to the project team consisting of Markus Zimmer, Karen Pittel, Gabriel Felbermayr, Rahel Aic- Helmut Rainer, Director of the ifo Center for Labour hele, Anna Sophia Ciesielski, Julian Dieler, Ana Maria and Demographic Economics, together with his co-au- Montoya Gómez, Jasmin Gröschl, Inga Heiland and Til- thors Dan Anderberg, Jonathan Wadsworth and Tanya man Rave, which, with the support of Ulrike Budel, suc- Wilson, won the Royal Economic Society Prize 2016 cessfully worked on the project: “Integrated Evaluation for the paper “Unemployment and Domestic Violence: of the Instruments and Fiscal and Market-Based Incen- Theory and Evidence”. The prize is awarded for the best tives of International Climate Policy and its Impact” on article published in the Economic Journal in 2016. The behalf of the German Federal Ministry for Education prize was awarded at the Royal Economic Society Con- and Research. ference in April 2017.

To mark the Annual Conference of the Verein für So- The German Federal Statistics Off ice awarded Michael cialpolitik in Vienna, Ludger Wößmann, Director of the Weber, ifo Dresden and TU Dresden, with the Gerhard- Wößmann wins ifo Center for the Economics of Education and Profes- Fürst-Preis 2017 for his thesis on “Wages and Unem- Gustav Stolper Prize sor at the LMU, was awarded the Gustav Stolper Preis ployment before and aft er the German Hartz Reforms”. 2017. According to the Verein für Socialpolitik, Ludger The Federal Statistics Off ice awards the prize on an Wößmann has helped to communicate and make the annual basis for outstanding scientifi c work that draw application of economic nmethods accessible to the extensively on off icial statistics. public in an exemplary way with his contributions on the economics of education. He is one of the fi rst Ger- Gabriel Felbermayr, Alexander Sandkamp and Erdal man economists to make international comparative Yalcin from the ifo Center for International Economics analyses of education systems and to look at the issue were awarded with the FEC Best Paper Award at the of equal opportunities and the economic eff ects of ed- 2017 Annual Meeting of the Canadian Economics As- ucation. He also participates actively in the public de- sociation (CEA) for their article: “The Trade Eff ects of bate over education issues. Anti-Dumping Duties: Firm-level Evidence from Chi-

14 ifo Annual Report 2017 REPORT OF THE EXECUTIVE BOARD

na”. The prize was awarded by Frontiers of Economics In its annual report published in March 2017 entitled: in China in cooperation with the Canadian Economics “The Economics of Populism” the European Economic Association and is given for outstanding work dealing Advisory Group at CESifo (EEAG), a body of experts sup- with Chinese issues. ported by CESifo that assesses economic developments in Europe, focused on the rise of populism in several Eu- At the suggestion of the President of the Leibniz Asso- ropean countries, Brexit and its consequences for the ciation, Erdal Yalcin, Deputy Director of the ifo Center EU, as well as the economic implications of immigration. for International Economics, was appointed by the The report attracted a great deal of media attention Leibniz Steering Committee to join the Leibniz Stra- and received coverage in Le Monde, Le Point, Die Zeit, tegic Forum for European Research. The aim of this EurActiv and BBC World. forum is to determine the current political and social challenges facing Europe. The articles published in the ifo Institute’s periodica are regularly cited in the public debate. In the year under Andreas Peichl, Director of the ifo Center for Macro- review, ifo published 24 publications of the ifo Schnell- economics and Surveys, and Panu Poutvaara, Director dienst, 12 issues of ifo Konjunkturperspektiven, six is- of the ifo Center for International Institutional Com- sues of Ifo Dresden berichtet, four issues and a special parisons and Migration Research, were made aff iliated issues of CESifo Forum, as well as four issues each of ifo Overview of 2017 researchers by the VATT, Institute for Economic Re- DICE Report and the ifo World Economic Survey. Thirteen publications search, Helsinki, (Valtion Taloudellinen Tutkimuske- ifo Forschungsberichte and one ifo Dresden Studien as skus), Finland’s leading economics research institute. well as fi ve ifo Beiträge zur Wirtschaft sforschung were published as monographs, while 12 issues appeared in CONTRIBUTIONS TO POLICY ADVICE AND THE the ifo Working Papers series. Moreover, the ifo Institute POLICY DEBATE also produces the scientifi c quarterly CESifo Economic Studies, which is published by Oxford University Press. The ifo Institute is a think tank for economic policy and In addition, 546 issues appeared in the CESifo-super- uses its research competence and data to actively par- vised series CESifo Working Papers. This series features ticipate in the public debate on the best economic policy articles by members of the CESifo Research Network. ideas and concepts. It aims to communicate its theoret- In addition, fi ve papers were published in the new fünf ical and empirical fi ndings in economics to policy-mak- EconPol Working Paper series, as well as four EconPol ers, and in turn, derives its research topics from the Policy Reports. Further details of the new publication policy debate. In 2017, the ifo Institute was once again series bearing the EconPol logo are provided later in heavily involved in policy advice and the policy debate. this section. It pursued this goal both via the periodicals of the ifo In- stitute, as well as through an abundance of press releas- The events organised by the ifo Institute also generat- es, interviews, press articles and public events. The ifo ed a great deal of media attention and contributed to Viewpoints (brief commentaries on topical issues) origi- the economic policy debate in 2017. Special highlights Event highlights nally launched by Hans-Werner Sinn were continued by included the 2017 ifo Annual Meeting mentioned at Clemens Fuest in the reporting year. The ifo Viewpoints the beginning of this section, which marked Meinhard 2017 dealt with the topics of: “The Minimum Wage : Time Knoche’s retirement. The 2017 event, held in coopera- to Take Stock”, “The Trump Tax: a Revolution in Interna- tion with the LMU in the Great Hall of the University as tional Corporate Taxation”, “Brexit Negotiations: Germa- in previous years, was devoted to the topic of “Germa- ny Must Make a Case for Free Trade with Britain”, “What ny as a Science and Innovation Base.” It Will Cost Us if Donald Trump Is Serious”, “The Brexit Bill: a Useful Political Bargainaing Chip not an Exact Sci- The eleven Munich Seminars organised by CESifo to- ence”, “How Germany Can Cooperate with Emmanuel gether with the Süddeutsche Zeitung were also very Macron to Reform the Eurozone”, “Smart Tax Compe- well-received in 2016. This series off ers renowned tition and the UK’s Withdrawal from the EU”, “Populist speakers from business, academia and politics an op- Blackmail and the EU”, “Germany’s “Jamaica” Coalition portunity to speak on topical economic issues. Partic- and its Economic Policy,” and “Sustainable Fiscal Policy ularly noteworthy was the now traditional pre-Christ- Calls for More Restrictive Debt Rules for the Eurozone.” mas lecture by Hans-Werner Sinn, at the LMU. In Sinn’s

ifo Annual Report 2017 15 REPORT OF THE EXECUTIVE BOARD

lecture was entitled: “How Much Fluctuating Power historical debate over import duties in England and Can the Network Take? Remarks on Germany’s Energy Ricardo’s inﬂ uence over the current economic policy Turnaround.” The event was supported by the Associa- debate. Insights from the conference were published tion of the Bavarian Economy, whose President Alfred in ifo Schnelldienst. Gaﬀ al gave an introductory welcome speech. Ricardo@200

Clemens Fuest and Meinhard Knoche, ifo Annual Meeting 2017

In March 2017 another parliamentary breakfast was held at the Bavarian Representation in Berlin. Clemens Fuest discussed the rise of populism with German MPs and oﬀ ered an overview of the economic situation in the Eurozone.

The “ifo Industry Colloquium”, organised in cooperation with the Chamber of Commerce and Industry for Munich and Upper Bavaria, which focuses on analysing current economic trends, was continued in 2017. Fur- ther details of the colloquium are available in the sec- Due to the redesign of the event, there was no Munich tion on the ifo Center for Industrial Organisation and Economic Summit (MES) in 2017. In the future the Mu- New Technologies. nich Economic Summit will be held every two years and will focus more intensively than previously on the fu- In cooperation with the CCI for Munich and Upper Ba- ture and cohesion of Europe. The event’s new format varia and the Committee for International Econom- aims to bring together top politicians, high-ranking ic Theory and Policy of the Verein für Socialpolitik, representatives from business and the European me- the ifo Institute organised a conference in honour of dia, as well as some of the world’s leading academics Conference to honour David Ricardo, one of the founding fathers of mod- and engage them in an expert, solution-oriented dia- David Ricardo ern economics. In his book “Principles of Political logue on the major challenges facing Europe. The 2018 Economy and Taxation” David Ricardo presented MES entitled “Reshaping Europe” will focus on the ma- the theory of comparative advantage. All countries jor challenges facing Europe, the future of the Europe- stand to beneﬁ t from breaking down trade barriers, an Union and Europe’s role and competitiveness in a even those with absolute productivity disadvantages new world order. The event will spotlight challenges compared to their trade partners. Ricardo’s insight like Brexit, the threat of protectionism, international laid the intellectual foundation for the gradual mar- migration, digitalisation, securing the stability of the ket liberalisation that has brought major prosperity ﬁ nancial sector, as well as populist and autoritarian gains since the Second World War. However, many of movements in Europe, as well as the internal structure today’s politicians seem to have forgotten Ricardo’s and integration process of the EU and European Eco- lessons. The conference Ricardo@200 reviewed the nomic and Monetary Union.

16 ifo Annual Report 2017 REPORT OF THE EXECUTIVE BOARD

In addition to the self-initiated contributions to the The network consists of the ifo Institute as the policy debate, the ifo Institute also contributed to coordinator solely responsible for the network, as well policy advice by producing a number of commissioned as fi ve other European economics institutes and three expert reports. The projects are documented in universities from a total of seven countries: the department sections of this annual report. The – ifo Institute (Munich), following is a selection of commissioned reports that were part of its policy advisory work in 2017: – Centre for European Policy Studies (CEPS, Brussels), – Framework contract for the completeion of eco- – Centre for European Economic Research (ZEW, Mann- nomic studies (Chamber of Commerce and Industry heim), for Munich and Upper Bavaria), – Valtion Taloudellinen Tutkimuskeskus (VATT, Hel- – Implications of a bann on vehicles with combustion sinki), engines ( Automobile Industry Association), – Centre D’Études Prospectives et D’Informations In- – The new anti-dumping method proposal from a ternationales (CEPII, Paris), comparative perspective: how can it be eff ectively – Institute for Advanced Studies (IHS, Vienna), developed (European Parliament), – Toulouse School of Economics, – Economic evaluation of various welath tax concepts (German Federal Ministry for Economics and Energy), – University of Oxford, – InnovationsWerkstatt Dresden-Verbundvorhaben: – University of Trento. Reinforcing cooperation between with small and medium-sized enterprises (SMEs) (German Federal Ministry for Education and Research), EconPol Europe has an off ice in Brussels. The following publications were newly-created for the network: – The Implications of a Protectionist US Trade Policy EconPol Opinion, Working Papers, Policy Reports and (Bertelsmann Stift ung), Policy Briefs. EconPol Europe is also present in the me- New publications for – Accountability and School Institutions in Cross- dia via press releases, contributions to social media EconPol Country Perspective (Outcomes Research Institute). platforms, publication alerts, a network newsletter as well as newspaper and blog contributions. EconPol The contract to build up a European research network Europe organises several events in Brussels each year to promote cross-border research into fi scal and eco- that are livestreamed via the internet, including a large nomic issues awarded to the ifo Institute in March 2017 annual conference and scientifi c workshops on spe- by the German Federal Ministry of Finance is of key cialist topics. importance to ifo’s internationalisation. The unique EconPol Europe – European Network for Economic Media coverage is a key benchmark for measuring the and Fiscal Policy Research, was set up in June 2017 relevance of work to politics and society. According to in Brussels and its founding conference took place Media Tenor, the ifo Institute was once again the most in November 2017. EconPol Europe takes an interdis- frequently cited economics research institute in the ciplinary approach to pressing fi scal and economic German media. At a European level the ifo Institute is policy questions related to European integration. The also one of the most frequently cited research insti- ifo retains high media network’s mission is to use insights from science more tutes. In Spain, in particular, the ifo Institute signifi - profi le intensively in the further development of the Euro- cantly raised its media profi le in 2017. pean Economic and Monetary Union via fact-based contributions. EconPol Europe will focus on four top- The very good results achieved by ifo experts in re- ics that are particularly relevant for Europe from the search and the public policy debate led to a very strong network’s point of view: sustainable growth and best performance in the FAZ Ranking 2017 of the most in- practice, EU policy and budget reform, capital markets fl uential economists active at universities or research and regulation of the fi nancial sector, governance and institutes. As shown by Table 6, ifo President Clemens the macroeconomic policy of the European Monetary Fuest topped the FAZ Ranking and was followed by oth- Union. er ifo experts with excellent rankings.

ifo Annual Report 2017 17 REPORT OF THE EXECUTIVE BOARD

Table 6: schungsstelle (KOF) der Eidgenössischen Technischen Researchers in the FAZ Ranking for 2017 Hochschule (ETH) Zurich together with the Instituto na- Rank Name Points zionale di statistica (Istat) and the ifo Institute have pro- 1 Clemens Fuest 511 duced the forecast. 3 Hans-Werner Sinn 332 10 Ludger Wößmann 109 In 2017 the Foundation for Family Businesses commissioned the ifo Institute to build up a Family Business 36 Gabriel Felbermayr 43 Database and to conduct regular corporate surveys, 45 Niklas Potrafke 33 the results of which are stored in the database. This da- 55 Andreas Peichl 27 tabase has a dual goal: on the one hand, it is supposed 63 Klaus Wohlrabe 24 to enable the foundation to perform its statutory tasks 76 Timo Wollmershäuser 18 more comprehensively than to date. On the other hand, 77 Marcel Thum 18 the database will enable scientiﬁ c reseach into family companies and will also be available to third parties for research purposes.

SCIENTIFIC SERVICES DEVELOPMENT OF THE IFO INSTITUTE AS AN ORGANISATION The ifo Institute off ers a wide range of services to all groups in society interested in economic issues. The The ifo Center for Business Cycle Analysis and Business services include the collection, preparation and deliv- Surveys was renamed the in ifo Center for Macroeco- ery of economic data and information, the compilation nomics and Surveys in 2017. This refl ects an expansion of materials for international institutional comparison of the department’s focus areas following the appoint- and the collection and preparation of additional mac- ment of Andreas Peichl as Center Director on 1 June roeconomic data. In 2017 the range of services was ex- 2017. The center’s main working areas, especially busi- tended by the following: ness cycle research and forecasting, remain unaff ected by the department’s change in name. In the future A survey to produced the ifo Education Barometer the center’s work will focus on: business cycle analysis was also carried out for the fourth successive year. A and forecasting methods, economic policy analyses, special focus in the reporting year was on the topic of inequality and redistribution. Its services will focus on digitalisation. One of the survey’s central fi ndings is economic indicators and forecasts, survey data and that Germans are surprisingly confi dent about digital- competences in methodology. Timo Wollmershäuser re- isation: 54% see themselves as winners and only 16% mains at the Center as Head of Forecasting and Business see themselves as the losers of digitalisation. Cycle Research, while Klaus Wohlrabe remains Head of Surveys. The center’s new focus area of inequality and The “ifo Hands-On High-Quality Journalism Days” event redistribution will be led by Mathias Dolls. series launched in 2015 also continued in the reporting year. In 2017 16 students from the Deutsche Journalis- Work on the project mentioned last year: “The Develop- tenschule and nine editors from the Bayerische Rundfunk ment, Implementation and Professionalisation of Knowl- took part in the event. More information is available in the edge-Transfer Concepts in Non-university Economic Re- Section on Press, Publications, Conferences. search”, funded by the Federal Ministry of Education and Research, continued in the reporting year. In the course In 2017 the ifo Institute also started publishing its press of the analysis of information services that began in 2016 releases in French. These press releases are sent to al- continued in the reporting year, with a strength-weak- most 600 French-speaking economics journalists from ness analysis in 2017 to identify optimisation potential. France, Switzerland, Belgium, Luxemburg and Quebec. As far as the ifo Konjunkturperspektiven are concerned, there has already been a product optimisation. In the Eurozone Economic Outlook – an economic forecast for the euro area published on a quarterly basis – The project also includes an analysis of the DICE Da- there was a change in the cooperation partners in the tabase: Database for Institutional Comparisons in Eu- reporting year. As of September 2017 the Konjunkturfor- rope. This database off ers cross-country information

18 ifo Annual Report 2017 REPORT OF THE EXECUTIVE BOARD

on institutions, regulations and its implications – in schools. In addition, ifo doctoral students are given the other words, it outlines the “rules-of-the-game in a so- opportunity to attend training courses. ifo’s non-aca- ciety.” In the reporting year there was a gradual conver- demic staff is also off ered on-going training: a total of sion of the database. In addition to technical updates, 190 approved training measures, of which 118 weree this also involved statistical analysis tools to be off ered conducted at home. to users in the future. The concentration of the whole organisation of the ifo The DVD on “Economics”, produced in cooperation with Institute on excellence in all areas constitutes the basic the Fachverlag MedienLB, received the 2017 Comenius philosophy of ifo’s management system, which is certi- EduMedia Award from the Gesellschaft für Pädagogik, fi ed according to DIN ISO 9001 and whose functionality Information und Medien (GPI). Further information on is audited annually by external auditors. In the recerti- ifo adopts the information transfer project is available in the sec- fi cation audit carried out in January 2017, the external systematic approach tion of this report on Press, Publications, Conferences. auditors once again confi rmed the excellent function- to excellence ing of ifo’s management system, which they again de- The importance of access to data is growing steadily in scribed as exemplary for a non-university research in- empirical economic theory. The importance of big data stitution. The professional subsystems, and particularly that can be econometrically evaluated has been grow- target management and the incentive system, person- ing for years. There are already several large datasets nel development and the personnel and fi nancial man- that individual researchers have gathered, prepared agement, make a decisive contribution to stabilising and evaluated for their scientifi c work. This develop- the ifo Institute’s performance at a very high level. ment has prompted the ifo Institute to invest heavily in hardware. Since big data research will continue to A special feature of the certifi ed quality management sys- grow very fast, the requirements of both the technical tem is that it includes the gender equality policy of the infrastructure, analysis tools and data management will ifo Institute and the rules of this policy. Compliance with rise very sharply in the future. These developments have these rules was examined and confi rmed in all external implications for the Economic & Business Data Center audits. In 2017, eff orts to shape working conditions at the (EBDC) jointly founded and operated by the LMU and ifo Institute with a view to achieving a more balanced gen- the ifo Institute. In addition to the recruitment of extra der structure among academic staff paid off . The share of staff and the organisation of seminars on the methods of female doctoral students rose 2017 to 51.7% (52.5%, if Over 50% of ifo’s machine learning, negotiations were also started in 2017 those doctoral students who were on parental leave as of doctoral students are to transfer further corporate data from the ORBIS data- the cut-off date are included in this fi gure). As a result, an female base into the EBDC. Moreover, the archiving of the re- important goal of the Executive Board was reached. The search data and programming codes that form the basis ifo Institute’s equality policy aims to increase the number of the published research results of individual research- of female doctoral students that remain at the Institute ers and which cannot be reproduced without them, has as post-docs in order to achieve a more balanced gender also become another key aspect of the EBDC’s activities. relationship among the academic staff .

As already mentioned in last year’s Annual Report, the The ifo Institute joined the Family Pact for Baveria in 2017. CESifo Group’s new Corporate Design was relaunched With the Family Pact for Bavaria Bavaria’s State govern- in April 2017. This featured a facelift for the website of ment, the Bavarian Chamber for Commerce and Industry the CESifo Group. A complete relaunch of the website (BIHK), the vbw – the Bavarian Business Association, and is planned for 2018. the Bayerische Handwerkstag (BHT) aim to steadily improve the compatibility of family and job in Bavaria. In creating ideal conditions for top research, the further qualifi cation of researchers is important. Numer- Personnel capacity expanded compared to the pre- ous visits by ifo researchers, especially to top American vious year. As of 31 December 2017 the total number universities, were particularly important in 2016. ifo of staff employed by ifo rose by ten to 220. The total researchers also once again presented papers at inter- number of academic staff employed in the research national, refereed conferences (209), and numerous ifo departments (researchers, doctoral students and area doctoral students expanded their expertise at summer experts) rose by six: the number of researchers in-

ifo Annual Report 2017 19 REPORT OF THE EXECUTIVE BOARD

creased by fi ve, while the number of doctoral students CESifo GmbH also developed positively in 2017. Found- increased by two, and the number of specialists de- ed in 1999 CESifo GmbH (full name: Munich Society for creased by one. The number of non-academic employ- the Promotion of Economics – CESifo GmbH) links the ees rose by a total of fi ve people. Details are presented economics faculty of the Ludwig Maximilians Universi- in the section on Personnel Development. ty of Munich und the ifo Institute with the international research community. CESifo GmbH supports the inter- Developments in fi nances in the reporting year are national CESifo Research Network, which continued to presented in detail in the section on Financial Develop- grow in 2017 and had 1,455 members by the end of the ifo’s fi nances remain ment. Here are the key points: the fi nancial situation year. The members of the CESifo research network are solid of the ifo Institute remains solid. The Institute posted divided into a total of nine research areas, which are led an annual surplus of EUR 179,000 in 2017. This sum was by internationally renowned academics, or Area Direc- channelled into earmarked reserves, increasing the re- tors. In the reporting year the ninth Areacalled the “Eco- serves to EUR 2.37 million by 31 December 2017. nomics of Digitization” was set up under the leadership of Stephen P. Ryan, Professor at the Olin Business As part of joint research funding by the German feder- School in St. Louis, USA. Its founding conference was al government and the Länder according to Article 91b held in November 2017. A separate chapter in this an- of German constitutional law, the ifo Institute received nual report is devoted to the activities of CESifo GmbH. public funding of EUR 11.13 million in 2017. Of this sum, EUR 10.81 million EUR was spent on ongoing costs and Finally, we would like to extend our special thanks to EUR 315,000 on investments. In the year under review, all of the ifo Institute’s staff . It is thanks to their out- the funds for ongoing operations included EUR 523,000 standing eff orts and competences that the ifo Institute under “special circumstances” for the temporary, four- once again enjoyed a highly successful year in 2017. We year expansion of research in the area of energy, climate also face major challenges in the reporting year ahead, and resource economic. In addition, the ifo Institute had since developments in both 2018 and 2017 will count carried-forward reserves of EUR 1.25 million into 2017. towards the next evaluation in 2019. Together, howev- This sum was spent in the fi rst quarter of 2017. Thanks to er, we have laid a very solid foundation for mastering further cost savings of EUR 850,000 in personnel, the in- future challenges. stitutional funding granted to the Institute in 2017 was not fully used. This sum was therefore carried forward to 2018 as a reserve, as provided for in the funding conditions. Munich, May 2018

The Executive Board

Prof. Dr. Dr. h.c. Clemens Fuest (President) Dr. Stephanie Dittmer

20 ifo Annual Report 2017 Research and Service Departments ifo Center for Public Finance and Political Economy

The research activities of the ifo Center for Public Fi- The global best practices of strategic and operational nance and Political Economy focus on fi scal policy, the public debt management were examined and put in the development of public budgets under conditions of high specifi c context of Islamic countries. The importance mobility at national and local levels and political econ- of medium-term debt management strategies and a Managing public debt omy. Its research includes model-based and empirical centralised debt management off ice were discussed. analyses, including an examination of international Using time-series data, the refi nancing, exchange rate experiences. More specifi cally, the department’s activi- and interest rate risks as the main challenges for public ties focus on public debt in Germany and Europe, the as- debt management were quantitatively analysed on the sessment of fi scal and taxation policy, fi scal federalism global level, as well as specifi cally for the OIC country and local public fi nances. There is a special focus on the group. Practical policy recommendations regarding motives behind policy decision-makers’ actions from a the public portfolio management of government debt public choice and political economics point of view. were listed under consideration of appropriate market operations. The center was active in examining reforms of the income tax schedule. Against this background the de- Proposals for developing or strengthening domestic partment contributes to public debate over the reform debt markets were also put forward. In addition to com- of the German taxation and transfer system with compliance with transparent good governance practices, mentary and scientifi c analyses. these recommendations included the empowerment of a suitable legal framework and coordination with The ifo Center for Public Finance and Political Econo- other macroeconomic policies. The regulatory struc- my also conducts the ifo and Frankfurter Allgemeine ture of Islamic fi nance products, and especially Islamic Using Islamic fi nance Zeitung (FAZ) economists panel, which surveys a rep- sukuk bonds, was explained. The study discussed the products in OIC resentative group of economics professors at German opportunities and challenges of implementing these fi - countries universities on current economic policy issues on a nancial instruments in public debt management in the monthly basis. The panel’s aim is to off er the public a OIC member countries, taking the strengths and weak- diff erentiated perspective on economists’ views on key nesses of these products into account. Finally, detailed challenges facing Germany. statistics for 15 selected OIC member states from the African, Arab and Asian regions were calculated and The center examined politicians’ behaviour – including evaluated, and country-specifi c policy recommenda- roll-call voting in the German national parliament and tions were draft ed with the input from regional and salary increases in the German states. The research re- international experts. The case studies of Iran, Oman, sults were transferred to the public debate. Kazakhstan and Indonesia were supplemented by on- site fi eld visits

The study was presented and discussed at the 8th Projects Completed in 2017 meeting of the COMCEC Financial Cooperation Working Group in Ankara/Turkey (March 30th 2017) with dele- Project presentation Improving Public Debt Management in the OIC gates of the OIC member countries, as well as repre- in Ankara Member Countries sentatives of the World Bank, the OECD and the Islamic B. Kauder, N. Potrafke, M. Mosler, M. Riem, A. Steiner, Development Bank. S. Schönherr, T. Wllmershäuser, in cooperation with G. Schulze for the Ministry of Development of the Re- Duration of Legal Proceedings in Germany public of Turkey (COMCEC Coordination Off ice), July N. Potrafke, M. Reischmann, M. Riem, C. Schinke, internal 2016 to March 2017. project, January 2016 to March 2017, published as ifo In- stitute, Evaluierung der Eff izienz von Gerichtsverfahren in The main purpose of the project was to examine public Deutschland, February, ifo Institute, Munich, 2017. debt developments and public debt management practices in the member countries of the Organisation of Is- This project focused on how German codes of legal lamic Cooperation (OIC) and to develop appropriate rec- proceedings give rise to potentially long delays in con- ommendations for improving public debt management. cluding legal proceedings and examined the eff iciency

ifo Annual Report 2017 23 IFO CENTER FOR PUBLIC FINANCE AND POLITICAL ECONOMY

of German district courts in civil law. To measure the ef- Income Tax Reform: the Rate Levied by the fi ciency of the legal system the settlement rate, i.e. the Federal State of Lower Saxony number of cases pending as a share of all cases fi led, C. Fuest, B. Kauder, S. Gäbler, L. Lorenz, M. Mosler for and the time taken to settle these cases were used as the Ministry of Finance of the Federal State of Lower key benchmarks. Saxony, February 2017 to May 2017, published as ifo For- schungsbericht No. 82, ifo Institute, Munich, 2017. By European comparison, the German legal system performs well in terms of its eff iciency in civil and The present income tax rate is leading to rapidly rising commercial matters. In 2012, for example, the settle- marginal tax rates on low and medium sized incomes. Measuring ment rate of 66.6 percent was higher than the average Against this background, there are repeated calls to the performance of fi gure of 59.7 percent, while the average case duration reduce the tax burden on low and medium income the German legal of 6.1 months was well below the European average earners. This project explored various reform options system of 9.3 months. However, Germany is not among the for lowering the tax burden on low and medium income frontrunners in any of the eff iciency indicators ana- earners and quantifi ed their impact on households and lysed. Countries like Luxemburg, Austria, Denmark public budgets. and Sweden have higher settlement rates, shorter case duration periods and fewer cases pending at the Individual Impact of Tax Relief under Reform Option I, end of the year. for individually assessed taxpayers with no children Gross income Income tax relief Relief (solidarity tax) Total relief Relief Within Germany the number of new cases related to civ- in euros in euro in euros in euros in % il matters fi led annually fell from 1.4 million to 1.1 mil- 20,000 155.83 32.62 188.45 0.94 lion between 2002 and 2014. Despite the falling number 30,000 313.29 184.18 497.47 1.66 of new cases, the number of cases pending at the end 40,000 154.47 350.33 504.81 1.26 of the year remained relatively constant, totalling 50,000 19.00 502.56 521.55 1.04 490,516 at the end of 2014. The overall settlement rate in 60,000 –147.69 712.64 564.94 0.94 Germany fl uctuated between 72.5 percent in 2005 and 100,000 –1,400.11 1.572.09 171.99 0.17 69.3 percent in 2014. The average settlement duration of 150,000 –3,812.50 2.620.33 –1.192.17 –0.79 cases rose slightly. Source: Calculations of the ifo Institute using the ifo Income Tax Simulation Model taking into account tax rate changes due to projections through 2020 of anonymous wage and income tax statistics 2010 (anonymous wage and income tax statistics The average eff iciency of the legal system in individ- of the Official Statistics Offices of the German federal government and the Länder 2017). ual German states diff ers signifi cantly in some cases. The number of cases settled by the end of the year per inhabitant is higher in the city states than in the rural This study investigated four reform options that lead states. Bavaria has one of the highest settlement rates to tax relief for low and medium-income earners, while at 72.7 percent, followed by Baden-Württemberg at moderately burdening higher income-earners. The sol- Case settlement rate 71.9 percent, and Hamburg at 70.7 percent. Thuringia idarity surcharge is abolished. The minimum exempted ranking has one of the lowest settlement rates at 63.5 percent, income and the lowest marginal income tax rate re- followed by Bremen at 64.7 percent and Mecklenburg main unchanged in all scenarios. The upper limit of the Western Pomerania at 66 percent. Baden-Württem- second tax bracket is always increased to 58,000 euros, berg and Bavaria (4.1 months respectively) and Berlin whereas the upper limit of the third tax bracket (the (4.6 months) boast the shortest average settlement amount as of which the “wealth tax” has been applied duration. The longest average settlement duration to date) is dropped to 150,000 euros. The marginal tax rates are seen in Thuringia with 6.1 months, Bremen rates at the second and third borders are increased to with 5.7 months and the Saarland with 5.6 months. 45 and 49%, respectively. In reform option I, for example, the end of the fi rst bracket is shift ed from 14,000 We also analysed eff iciency at the next lower level i.e. euros to 25,000 euros and the marginal tax rate is at individual district courts in 13 German Länder, which raised from 24% to 30.5%. Taxpayers in the lower and provided data for the years 2011–2014. This revealed middle income tax brackets are far better off . For child- diff erences in settlement rates and case durations be- less (single) individuals the tax burden increases when tween and within individual German states. their gross income exceeds 112,500 euros. Relative to

24 ifo Annual Report 2017 IFO CENTER FOR PUBLIC FINANCE AND POLITICAL ECONOMY

their gross income, taxpayers in the seventh income digital form. The panel takes national and internation- decile beneﬁ t the most. The ﬁ scal costs of this scenar- al issues into account, primarily focuses on qualitative io amount to 10.7 billion euros. For reform option II, information and asks economists for their appraisals which completely removes the middle-class bulge, the and expectations. In 2017 the following topics were Economists Panel losses in tax revenues, by contrast, would be 39.3 bil- addressed: Inheritance tax reform, income tax reform, addresses topical lion euros. Childless (single) taxpayers would only bear Agenda 2010 and the impact of Donald Trump’s presi- issues an additional burden if they earn more than around dency. The survey results are prepared and published 160,000 euros in gross income. The maximum relative in the Frankfurter Allgemeine Zeitung as well as on ifo’s relief occurs in the eighth income decile, and the only homepage. A more detailed analysis of the results is tax increase occurs in the tenth decile. also published in the ifo Schnelldienst.

Evaluation of Tax Concessions C. Fuest, F. Neumeier, B. Kauder, L. Immel, S. Gäbler Current Projects in cooperation with FiFo, Cologne, the Centre for Eu- ropean Economic Research (ZEW), Mannheim, and ifo and FAZ Economists Panel Fraunhofer Institute of Applied Information Technolo- N. Potrafke, F. Dorn, S. Gäbler, B. Kauder, M. Krause, gy (FIT), Sankt Augustin, for German Federal Ministry of L. Lorenz, internal project, on-going, published in Frank- Finance, June 2017 to July 2018. furter Allgemeine Zeitung, ifo’s homepage in ifo Schnell- dienst 70(1), 2017; ifo Schnelldienst 70(15), 2017; ifo According to the guidelines for government subsidies Schnelldienst 70(21), 2017, ifo Schnelldienst 70(23), 2017. (“erweiterte subventionspolitische Leitlinien”) issued by the German federal government, all government grants need to be evaluated on a regular basis. This Importance of Agenda 2010 To what extent have Agenda 2010 reforms contributed to current applies to both direct subsidies and tax concessions. In developments in the German labour market? 2007 and 2008, 20 of the most important tax concessions were evaluated. Now, the remaining 32 conces- Very strongly sions currently eff ective are to be examined. The aim 4% 9% Strongly is to quantify and evaluate those concessions with re- 21% Evaluating Weakly spect to several factors, including their eff ectiveness, eff iciency, transparency and sustainability. government grants Don't know Fiscal Sustainability and Distributional Issues: Studies in Public Finance and Political Economy F. Dorn, ongoing doctoral project.

In this ongoing doctoral project various topics at the interface of public ﬁ nance and political economy are 66% examined. The project focuses on the analysis of the im-

Source: Economic Panel July 2017. © ifo Institute pact of policies and institutions as well as globalisation and European integration on the sustainability of public fi nance and the distribution of income and assets. The Economists Panel jointly conducted by ifo and the Frankfurter Allgemeine Zeitung (FAZ) surveys a repre- Studies on Taxation, Public Finances and sentative group of economics professors at German Regional Economics universities on current economic policy issues on a S. Gäbler, ongoing doctoral project. regular basis. The panel’s aim is to off er the public a diff erentiated perspective on economists’ views on This PhD thesis addresses various topics in the fi eld of key challenges facing Germany. The economists are the public sector’s taxation and expenditure structure, surveyed on diff erent topics every two months and in including regional interrelations at a Länder and mu- the light of current events via standardised surveys in a nicipal level.

ifo Annual Report 2017 25 IFO CENTER FOR PUBLIC FINANCE AND POLITICAL ECONOMY

Studies on Taxation and Political Economy L. Lorenz, ongoing doctoral project.

This doctoral thesis looks at several diff erent topics at the interface between public fi nance and political economy. One of its focal points is the analysis of the economic burden eff ects of taxes in view of the institutional and political framework conditions in both a national and international context.

Fiscal Sustainability in Public Finance M. Mosler, ongoing doctoral project.

This ongoing doctoral project examines the ﬁ scal sustainability of public budgets using quantitative methods, primarily from times series and panel data econometry. There is a special focus on public debt management in developing countries and the development of tax simulation models.

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. Its key focus is to analyse the fi scal federalism schemes on local and municipal levels and possible reforms of the current regulations. It also examines political determinants that infl uence the budget composition of the German states.

26 ifo Annual Report 2017 ifo Center for Labour and Demographic Economics

The Center’s current research addresses several press- veloping countries perspective, the Center conducts ing, yet under-researched, societal issues; it combines research into the role of economic factors and public theoretical analyses with state-of-the-art causal infer- policy in preventing violence against women and chil- ence methods, and draws upon unique data sources. dren. A focus lies on two critical determinants of do- Key determinants of mestic violence: women’s position in the labour market domestic violence The ifo department, previously known as the ifo Cen- and the policy interventions that infl uence it. Drawing ter for Labour Market Research and Family Economics, upon both administrative and survey data, the Center’s changed its name on 1 February 2017 to the ifo Center for research uses quasi-experimental designs and exploits, Labour and Demographic Economics to more accurately inter alia, recent reforms in the public child care sector, refl ect the department's key long-term research areas. parental leave interventions and tax-benefi t changes.

ECONOMIC UNCERTAINTY AND THE FAMILY IMMIGRANT INTEGRATION Can changes in the fertility decisions of couples be at- Immigrant children constitute the fastest-growing seg- tributed to demand-induced changes in labour mar- ment of the population in many European countries, ket opportunities? Are people more likely to marry in thus shaping the future of these societies. This makes recessions or in booms? Does youth unemployment the successful integration of immigrant children into aff ect intergenerational relations? To improve our un- host societies an issue of paramount social importance. derstanding of the relationship between business cy- In 2015, the Center together with external collaborators cles and family-related decisions in Europe, the Center collected data on over 4,500 15-year-old pupils at almost has set up the working group EcUFam (Economic Un- 60 secondary schools in Germany. Respondents partic- certainty and the Family). Deploying a variety of meth- ipated in both a classical survey and a behavioural ex- ods and datasets, the group conducts research into the periment (a trust game). This data collection represents extent and importance of economic uncertainty as in- the fi rst attempt to combine a large-scale survey with a duced by poor macroeconomic conditions for key fam- behavioural experiment. In the years ahead, it will allow ily outcomes including fertility, marriage and divorce, the Center to provide a comprehensive picture of im- intergenerational relationships, gender-role attitudes migrant children’s integration into the host society in- and infant health. The working group is located at the cluding traditional outcomes, such as their educational Integrating immigrant ifo Institute, but both the scope of its research and its achievements, aspirations and expectations, ethnic children scientifi c network are European, with project partners identity, social network, civic and social engagement, and supporting institutions in Italy, Sweden and the and political interests, as well as novel experimental United Kingdom. October 2017 marked an important measures such as trust and trustworthiness. The new- milestone of the project: an international scientifi c ly-collected data will also allow for a fi rst application workshop with renowned experts, during which cur- of causal inference methods to experimental data on rent research results of the EcUFam group were pre- social behaviour, thus unearthing policy interventions sented and discussed and the Center’s network was that foster or hinder immigrant children’s integration. further strengthened. SOCIAL IMPACT OF ENVIRONMENTAL POLLUTION ECONOMIC DETERMINANTS OF DOMESTIC VIOLENCE One of the most pressing issues in agglomerated ar- Studies estimating the global cost of violence come to eas around the world is pollution. As one of the main the conclusion that domestic violence is more costly externalities of economic activity, the eff ects of pol- than warfare or homicide, both in terms of lives lost and lution on health, productivity and human interaction money spent. The main reason is that the prevalence are highly relevant for policymakers, but not yet fully Causal links between of domestic violence is very high: possibly as many as understood. The Center analyses the impact of man- pollution and health, 16 percent of all children are punished using violent made environmental pollution, and focuses on em- productivity and methods and about 30 percent of all partnered wom- pirically establishing causal links from air, soil and human interaction en experience intimate partner violence during their noise pollution to population health, education, early lifetime. There is, however, little research into how a re- child development, productivity and behaviour. The duction in domestic violence can be achieved. Against research uses survey, administrative and big data in this background, and from both a developed and de- novel ways.

ifo Annual Report 2017 27 IFO CENTER FOR LABOUR AND DEMOGRAPHIC ECONOMICS

Projects Completed in 2017 through the PEA with the lower wages possible at the PEA. This explains why only a fraction of fi rms use the PEA as a search channel, although it is free of charge. Search Frictions and Labour Market Policy C. Holzner, habilitation project, publication of partial The sixth paper analyses how employment protection results in American Economic Journal: Microeconom- aff ects the investment into innovations and thereby ics, 2017; Labour Economics, 2017; Journal of Macro- dampens the negative labour misallocation eff ect of economics, 2010; CESifo Economic Studies, 2010; Euro- employment protection. To do so we developed an pean Economic Review, 2010. equilibrium matching model with an imperfect labour and innovation market. If employment protection is in- Labour market policies are implemented in a bid to troduced, fi rms’ willingness to pay for product or pro- reduce the negative consequences of market imper- cess innovations increases. This shift s economic activ- fections. The labour market is characterised by many ity towards fi rms specialising in process and product imperfections: Information asymmetries, market pow- innovation and triggers the entry of new start-ups. The er, externalities and coordination frictions. Before pro- seventh and eighth papers constitute joint work with posing to use certain labour market policies in order to Volker Meier from the ifo Institute and Martin Werd- alleviate the consequences of market imperfections, ing from the Ruhr-University Bochum. They analyse it is important to understand the conditions under labour market policies in an eff iciency wage model, which a decentralised market is or is not constrained where asymmetric information on the work eff ort of eff icient. The fi rst two papers, co-written with Pieter employed workers forces fi rms to pay wages above the Gautier from the VU Amsterdam, analyse the question market clearing level to ensure that employees have no of which wage mechanism is able to internalise the ex- incentive to shirk. The fi rst contribution of the seventh ternalities resulting from fi rm and worker entry deci- paper is to endogenise the monitoring intensity by al- sions and the search intensity choice of workers. They lowing fi rms to choose the fraction of their workforce Flexible wage also address the questions of how fl exible the wage that is assigned to monitoring production workers. The mechanisms and mechanism should be in order to alleviate coordination second contribution is to analyse the employment and coordination frictions frictions. The third paper, co-written with Andrey Laun- welfare eff ects of workfare programmes that obliged ov from the University of Kent, analyses the question of the unemployed to attend publicly organised jobs to whether the private returns on education obtained in a be eligible for unemployment benefi ts. A stricter work- frictional labour market with on-the-job search are so- fare programme relaxes the non-shirking constraint by cially eff icient. We show that the decreasing unemploy- making unemployment more costly. This allows fi rms ment risk for higher skill groups in Germany up to 2001 to lower gross wages and increase employment. increased private returns above the social optimal level, calling for a labour market reform to decrease un- Immigration, Integration, Public Perceptions, employment among the low skilled. and Eff ects of Citizenship J. Saurer, concluded doctoral project, publication of The fourth and fi ft h papers deal with the role of the partial results as ifo Schnelldienst 68(24), 2015; CESifo public employment agency (PEA) and were jointly pro- Working Paper No. 6037, August 2016. duced with Makoto Watanabe from the VU Amsterdam. In the fourth paper we show empirically that the PEA Immigration has become an important policy issue reduces coordination frictions by spreading the appli- in recent years due to rising migration fl ows to OECD cations of registered unemployed more evenly among countries. This doctoral project considers two main as- vacancies than the private market. The fi ft h paper pects of immigration. On the one hand, the public per- investigates the implications of having such an addi- ception of immigration is analysed in light of an exog- tional market place using a tractable search model. enous increase in the infl ow of immigrants during the Intermediation services enable registered fi rms to pay Balkan Wars to Germany. The analysis of the public per- lower wages compared to the private market. Paying ception is intertwined with results on voting behaviour lower wages leads to adverse selection. When deciding and individual economic concerns. The analysis is con- whether or not to register with the PEA, fi rms have to ducted using several sources of survey data. On the trade off the negative selection of applicants coming other hand, the project deals with the important issue

28 ifo Annual Report 2017 IFO CENTER FOR LABOUR AND DEMOGRAPHIC ECONOMICS

of immigrant integration. In particular, it evaluates a Leibniz Association and conducted by F. Siuda (ongoing specifi c integration policy, granting citizenship at birth doctoral project, as of October 2015), P. Reich (ongoing to children born by foreign parents, which was intro- doctoral project, as of September 2015) and M. Fabel (on- duced at the turn of the millennium in Germany. The going doctoral project, as of October 2016), and B. Schulz focus of these studies lies on the educational outcomes (completion of doctoral project January 2018). of children with a migratory background and their social interactions with native children. The analyses are Germany 2017 carried out using administrative data and a self-con- H. Rainer, T. Hener, A. Fichtl, J. Ragnitz, in cooperation ducted study involving a behavioural experiment in with ifo research professor S. Bauernschuster, Univer- combination with an extended survey. sity of Passau, for the German Federal Ministry for Eco- nomic Aff airs and Energy, March 2016 to December 2017. Assortative Matching in Labour and Marriage Markets The main goal of the study is to investigate the current B. Schulz, completed doctoral project, publication of attitudes and behaviours of unifi ed Germany’s citi- partial results as Ifo Working Paper No. 199, 2015; CESifo zens. The preceding study “Germany 2014” described Attitudes of unifi ed Working Paper No. 6066, 2016. the development of the attitudes and behaviours ex- German citizens hibited by German citizens in the East and West over a This dissertation project studies two-sided markets long period, from the time of separation up to the fi rst in which the matching of agents is impeded by both 25 years aft er unifi cation. Building on this, we extend search frictions and heterogeneity. Agents are charac- the analysis to include the most recently available terised by hierarchical types that are complements in data. In addition to a purely descriptive analysis of at- production. The theory is applied to the matching of titudes towards politics, the economy, values, norms workers to fi rms in the labour market and men to wom- and identities, as well as the challenges currently faced en in the marriage market; and analysed using data by society, we also examine their determinants with a from a variety of sources. The key fi ndings are that a dy- view to formulating policy recommendations. namic version of the sorting model can explain an array of stylized facts regarding fl uctuations in unemploy- The study consists of two major parts. In the fi rst part, ment, vacancies, and wages related to business-cycle a literature review summarises and evaluates existing frequencies in the US labour market. In the context of results and fi ndings on the topic. To this end, we review the marriage market, a sorting model whereby hetero- the preceding study “Germany 2014”, as well as leading geneous men and women simultaneously search for scientifi c papers from the intersecting areas of eco- partners and switch between employment and unem- nomics, sociology, psychology and political sciences. ployment is proposed. Analysing German micro data In the second part, we conduct our own empirical anal- through the lens of this model suggests that the share ysis, examining existing datasets. of divorces associated with labour market transitions has increased signifi cantly in recent years. The Economics of Labour Markets and the Family T. Hener, ongoing habilitation project, publication of partial results as CESifo Working Paper No. 4776, 2014; Current Projects No. 5313, 2015; ifo Schnelldienst 67(10), 2014; 67(24), 2014; CESifo DICE Report 12(1), 2014; and in Journal of Economic Uncertainty and the Family (EcUFam) the European Economic Association 14(4), 2016; Journal N. Danzer, H. Rainer, B. Schulz, T. Hener, P. Reich, F. Siuda, of the Royal Statistical Society: Series A 179(3), 2016; Re- M. Fabel, supported by the Leibniz Association, July 2015 view of Economics of the Household, 15 (3), 2017. to June 2019. Decisions by households, families and individuals The junior research group, EcUFam (Economic Uncer- are crucial to demographic development issues like tainty and the Family), looks at issues in the topic area population ageing and low birth rates. This habilita- of “Economic uncertainty and the family”. As part of the tion project is concerned with the interplay of family project several doctoral projects are being funded by the and labour market policies, macroeconomic develop-

ifo Annual Report 2017 29 IFO CENTER FOR LABOUR AND DEMOGRAPHIC ECONOMICS

ment and microeconomic decisions. The project uses Essays on Family and Labour Economics a life-cycle perspective to create a complete picture. N. Danzer, ongoing habilitation project, publication Sub-projects investigate the interplay of assortative of partial results as ifo Working Paper No. 169, 2013; matching in marriage markets and education using No. 190, 2014; CESifo Working Paper No. 4488, 2013; international micro data. The importance of family No. 4855, 2014, CESifo DICE Report 12(1), 2014; ifo and labour market policies in the decision to start a Schnelldienst 68(18) 2015; CESifo Economic Studies Impact of family is also examined. The early life circumstances 62(4) 2016; Journal of Public Economics 135, 2016; children’s early life of children constitute the focus of studies on the im- CESifo Working Paper No. 6501, 2017, The Economic circumstances pact of macroeconomic shocks and early childhood Journal (forthcoming), 2018. education. Demographic change constitutes a major challenge for Eƛects of Day Nursery Rates on Birth Rates Per Year of the labour market and the social security system. This Mother’s Age habilitation project explores the interactions between labour market and demographic developments. On the 0.12 one hand, the project investigates the importance of 0.11 90% confidence interval diff erent forms of economic uncertainty (atypical em- 0.10 ployment, unemployment and the risk of unemploy- 0.09 0.08 ment over the course of an economic cycle) in couples’ 0.07 decisions regarding family size. In this context diff er- 0.06 ent potential impact channels are also analysed more 0.05 closely. The project also looks at the extent to which 0.04 policy reforms designed to support the compatibility 0.03 of a family and a career and to reduce job insecurities 0.02 directly impact not only labour market decisions by 0.01 17 19 21 23 25 27 29 31 33 35 37 39 41 43 parents, but also indirectly infl uence the development Age of children.

Regression results from fixed-eƛects model per year of mother’s age, taking into account the control variables in the base regression. Source: German State Statistics Oƛices; German Federal Statistics Globalisation, Female Empowerment and Oƛice; calculations by the ifo Institute. © ifo Institute Domestic Violence E. Guarnieri, ongoing doctoral project, since Septem- ber 2016. International Comparison of Labour Market Flexibility Index V. Meier, in the context of the framework agreement with the Chamber of Commerce and Industry for Mu- nich and Upper Bavaria, November 2017 to January 2018.

This study reviews the literature on labour market fl exibility indices. It focuses on the family of OECD labour market fl exibility indices and the Heritage Founda- tion’s index of economic freedom on the labour mar- Focus on fl exibility ket. A labour market fl exibility index covers regulations index on individual and collective dismissals, as well as rul- ings on temporary contracts. The study analyses the methodological details of the indices, including the weighting factors of its components. Hypothetical scenarios show how political reforms could aff ect Germa- ny’s ranking in the OECD index.

30 ifo Annual Report 2017 ifo Center for the Economics of Education

Modern growth economics identifi es the generation of other project analyses the importance of school-leav- knowledge as a primary determinant of long-term eco- ing grades for the hiring decisions of fi rms based on a nomic growth. Knowledge generation includes both survey experiment of human resource managers. An the development of individual competencies and the additional focus is on the dual vocational education generation of new knowledge that advances the world system, an important pillar of human capital formation technological frontier. However, little can be learned in German-speaking countries, combined with the rel- from such general macroeconomic insights for con- ative importance of vocational and general education crete policy-making at the micro level. The research for productivity. In this context, a current study shows programme of the ifo Center for the Economics of Ed- that the initial employment advantage of individuals ucation therefore asks which kind of knowledge mat- with vocational compared to general education turns Vocation versus ters most for prosperity, what determines knowledge into a disadvantage over the life cycle. Furthermore, general education generation, and which kind of policy can contribute to the center investigates the labour-market eff ects of promoting the generation of knowledge. The Center digital skills and the opportunities and limitations of thus analyses how education policies can advance the life-long learning. knowledge base of highly-qualifi ed future workers and the innovative capacity of the economy. To understand EDUCATION AND LONG-TERM DEVELOPMENT: which policies work, the Center primarily employs mi- ECONOMIC GROWTH AND PROSPERITY croeconometric methods that allow for quasi-exper- Education is also decisively important for the prosperi- imental evaluation – techniques that are increasingly ty of society at large and for economic development in proving indispensable in a wide variety of contexts, but the long run. One focus in this area is on the role that are rarely used in this crucial area in Germany. education in the form of the results of international achievement tests plays for economic growth and so- Education systems generate the human capital of a cial cohesion today. An additional focus is on a histori- well-educated workforce that is of crucial importance cal perspective, such as how the diff usion of education for the global competitiveness of modern economies before and during industrialisation changed historical exposed to an ever changing world. In the long run, development. In this context, one project this year in- only continuous advances in knowledge make it pos- vestigates the eff ects of cultural diversity on innova- sible to escape low-wage competition worldwide. tion and education in 19th-century Prussia. The results Moreover, education is a crucial determinant of equi- suggest that a culture of tolerance and openness to ty and participation in society. By investigating which diversity is crucial to attracting human capital which, policies infl uence the development of human capital, in turn, fosters innovation and technological progress. the ifo Center for the Economics of Education explores Furthermore, the historical perspective is combined public policies for growth and cohesion in a changing with the modern perspective by assessing the long- world. Specifi cally, the Center’s research is structured term eff ects of historical circumstances on economic into four areas that address political and other deter- development today. minants of education on the one hand, and its eff ects on individual and societal prosperity on the other. DETERMINANTS OF EDUCATION: CULTURE, RESOURCES AND INSTITUTIONS EDUCATION AND INDIVIDUAL OUTCOMES: LABOUR Given the central importance of education for the pros- MARKETS AND LIFECYCLES perity of individuals and societies, the third research The fi rst research area analyses the importance of area studies the determinants of educational perfor- education for individual opportunities in the labour mance. A particular focus is placed on three groups of market and in everyday life, focusing on individuals determinants: families, values, and norms (culture); and their employment lifecycles. It studies the role of resources spent on education; and the institutional Determinants competencies and skills for individual employability framework of the education system. The research that of educational and social participation in a society that is changing analyses these determinants oft en draws on rich micro performance ever more rapidly. A research project completed in data from various international student achievement 2017 calculates returns on education for several educa- tests. A current project analyses the eff ects of student tional degrees in Germany over the entire lifecycle. An- assessments on student achievement in a cross-coun-

ifo Annual Report 2017 31 IFO CENTER FOR THE ECONOMICS OF EDUCATION

try perspective. A dissertation project completed this Empirical research has produced many insights into year analyses the determinants for teacher eff ective- how education policies could be altered to improve ness in Germany. Another project considers the impact educational outcomes. Political actors, however, are of parental separation on children’s cognitive skills. An frequently reluctant to carry out reforms supported by additional current research focus is on the integration high-quality research. One important reason for this of children with a migration background. discrepancy between evidence and action could be that political actors are responsive to the opinions of GOVERNANCE OF EDUCATION: EFFICIENCY AND voters and of well-organised interest groups. A sound EQUITY grasp of the electorate’s opinions on education policy and its malleability, through information campaigns The fourth research area focuses on how the political for instance, is therefore crucial to understanding ed- governance of education systems aff ects education- ucation policies and outcomes. al success and equity. Central elements of the governance of education systems studied in this area include The aim of this project was to better understand public autonomy, exam systems, competition, and tracking. opinion on a broad range of topics in education policy. To The area also studies the feasibility of reforms of gov- this end, four waves of a representative opinion survey of ernance structures and their acceptability in the pop- the adult German population on education policy were ulation. In 2017, the results of the fourth ifo Education Survey were presented – an opinion survey conducted conducted from 2014 to 2017. To study the causal eff ect by the Center on education policy in Germany funded of information provision on public opinion, survey experiments were administered in which randomly selected Digitalisation in through the Leibniz Competition. This year’s survey subgroups of respondents were provided with certain education focused on the public’s opinion on digitalisation in education, as well as trends in public opinion on educa- pieces of information before answering a question com- tion policy over the past four years. Together with the mon to all respondents. Comparing the answers with a Brussels-based Centre for European Policy Studies, the control group makes it possible to quantify the causal ef- center coordinates the European Expert Network on fect of the respective information on public opinion. Economics of Education (EENEE), a Europe-wide think tank funded by the European Commission. Ultimately, The fourth wave of the survey conducted in 2017 of over the evaluation of policies with (quasi-) experimental 4,000 respondents focused on the public’s opinion on methods aims to bring evidence-based policy advice digitalisation in education, as well as trends in public into the political decision-making process. One of the opinion on education policy from 2014 to 2017. A central network’s recent projects evaluates a mentoring profi nding is that Germans are surprisingly confi dent about gramme for secondary-school students. digitalisation: 54 percent see themselves as winners, while only 16 percent believe that they are the losers of digitalisation (see Figure). Germans are divided over whether digitalisation leads to greater inequality in their Projects Completed in 2017 country: 50 percent believe that it does, while 46 percent believe that it does not. Within the educational system the reverse is true: 44 percent of survey participants The Political Economy of Education Policy: think that digitalisation promotes inequality, while 51 Insights from a Public Opinion Survey percent think that it does not. Germans believe that L. Wößmann, P. Lergetporer, K. Werner, F. Kugler, E. Gre- schools should actively promote digitalisation: 63 per- wenig, L. Oestreich in cooperation with ifo research pro- cent are in favour of using at least 30 percent of teaching fessors M.R. West, Harvard University, and G. Schwerdt, time for independent work on computers. Support for University of Konstanz, funded through the Leibniz Com- this policy was only 48 percent two years ago. 55 percent petition, January 2014 to December 2017, publication of of Germans support the concept of teaching digital and results in ifo Schnelldienst 67(18), 2014; 68(17), 2015; 69(17), media skills to primary-school students; and an over- 2016; 70(17), 2017; schulmanagement 6/2016; as Harvard whelming majority of around 90 percent are in favour of Kennedy School PEPG Working Paper 15-02, 2015; CESifo such tuition in secondary schools. 80 percent of survey Working Papers 5938, 2016; 6192, 2016; 6602, 2017; and in participants believe that the government should provide European Journal of Political Economy, forthcoming. all schools with internet access, WLAN and computers.

32 ifo Annual Report 2017 IFO CENTER FOR THE ECONOMICS OF EDUCATION

Do Germans See Themselves as Digital Winners or Losers? In addition to the descriptive depiction of the results of Majority believe they are winners, opinion more divided on broader the annual surveys, the project also included a number of consequences studies that investigate diff erent topics covered by the ifo Are you a winner or a loser of digitalisation? Education Survey more deeply. Among others, separate 4% 11% studies address topics such as the eff ects of information 11% provision on preferences for educational spending, the In-depth studies on eff ect of information about the returns and costs of ed- education issues ucation on educational aspirations, tuition fees, educational inequality, political party preferences, class size, and a comparative analysis with the United States. 30% 43% Calculation of Returns on Education in Germany Clearly rather a winner F. Kugler, M. Piopiunik, L. Wößmann, funded by Union Rather a winner Neither nor Investment, December 2015 to March 2017, publication Rather a loser of results in Bildung hat Zukunft : Bildungsstudie 2017, Clearly rhater a loser Union Investment, Frankfurt am Main, 2017; ifo Schnell- dienst 70(7), 2017. Does digitalisation create more winners or rather losers?

8% 5% Investment in education pays oﬀ . A large body of literature dealing with the returns to education estimates that the average return to an additional year of schooling is around 10% higher income. But what are the re- 28% turns on education for people with diﬀ erent education- 38% al pathways?

To answer this question, the project applies a net pres- Clearly more winners ent value method to calculate diff erences in average 20% Somewhat more winners lifetime earnings by educational degrees from current As many winners as losers Somewhat more losers age-earnings profi les of 18 to 65 year-olds in Germany Clearly more losers (see fi gure). To enable detailed subgroup analyses, it Education and Source: ifo Education Survey 2017. For more details see uses data for over a million individuals in the German lifetime earnings ifo Schnelldienst 70(17), 2017. 17–38. © ifo InsƟtute Microcensus 2011–2013, combined with information on the duration of and net income and costs associated with diff erent educational degrees. The project calcu- As far as trends in public opinion are concerned, public lates diff erences in monthly income, unemployment opinion changed markedly in some areas over the past rates, and lifetime income between individuals without years, while it remained constant in other areas. Overall, a professional educational degree, with an apprentice- assessments of schools in Germany were poorer than in ship degree, with a master/technician degree, and with previous years: Only 24 percent of survey participants diff erent types of college degrees. The rich data allow awarded schools a grade 1 or 2 (on a scale of 1–6 with analysis of heterogeneity in these measures by gender, 1 as the best grade). This fi gure ranged between region, fi eld of study, and for alternative assumptions 28 and 30 percent in previous years. At the same on the duration, income, and cost associated with the time, support for higher spending on education grew: diff erent educational phases. The project also calcu- 81 percent of survey participants favour increasing lates descriptive internal rates of return on diff erent government spending on schools, versus just 71 per- educational degrees based on the algebraic method. Fi- cent in 2014. An overwhelming majority of 87 to nally, the project documents changes in the education- 91 percent support standardised nationwide school al composition of the population and in unemployment exit exams for all secondary schools. rates by educational degrees since 1976.

ifo Annual Report 2017 33 IFO CENTER FOR THE ECONOMICS OF EDUCATION

Age-Earning Profile by Educational Degrees As potential employers usually cannot directly observe Average net annual income the skills of labour-market entrants, applicants must No professional/academic qualification --/"+1& "0%&-ȡ3, 1&,+)1/&+&+$/ƞ*+ȡ1" %+& &+ use signals of their skills. A large body of literature has 1. Education path: University of Applied Sciences University established that labour-market outcomes are associat- 2. Education path: University of Applied Sciences University ed with diﬀ erent types of skills. It nevertheless remains Euro 50,000 unclear whether these relationships can be interpreted causally; or whether the skills are correlated with other 40,000 features valued by employers, but unobserved by re- 30,000 searchers. The direct causal eﬀ ect of skill signals such

20,000 as grade-point-averages (GPAs) in school or university on hiring decisions is poorly understood. 10,000

0 Therefore, the project studies which skill signals are considered relevant and credible by employers. To that end, -10,000 it conducts a randomised controlled experiment among 20 30 40 50 60 70 Age in years a representative sample of nearly 600 human-resource (HR) managers in Germany. HR managers are asked to Notes: Average annual net income in the age group 18 to 65 for individuals with !&ƛ"/"+1"!2 1&,+)!"$/""0ǽ choose between two CVs that are shown side-by-side,

Source: Micro census 2011–2013, calculations of the ifo Institute. indicating which applicant they would rather invite for For details see ifo Schnelldienst 70 (7), 2017, pp 19–30. © ifo Institute a job interview at their fi rm. The project simultaneously and independently randomises a broad range of skill signals on the fi ctitious CVs. It distinguishes between sec- Results indicate that investments in a higher educa- ondary-school graduates applying for an apprenticeship tional degree pay off economically. A higher degree is position and university graduates with a BA in Business. associated with higher monthly income, with a lower risk of becoming unemployed, and with six-digit in- Which Skills Matter to Human-resource Managers? creases in lifetime income. Over the entire working Various skills are considered important life, the income of individuals with an apprenticeship Secondary-school graduates Higher degree leads degree is about 143,000 euros higher than that of in- School GPA to higher monthly dividuals without a professional educational degree. MathemaƟcs grade income The lifetime income of individuals with a master/tech- German grade nician degree, in turn, exceeds the lifetime income IT skills of individuals with an apprenticeship degree by around Foreign language 129,000 euros. This diff erence amounts to 267,000 eu- Interships ros for individuals with a degree from a university of Hobbies applied sciences and to 387,000 euros for individu- University graduates als with a university degree. We also fi nd substantial High-School GPA diff erences across regions, gender, and in particular University GPA fi elds of study. IT skills Foreign language Exit Exams as a Governance Instrument Interships in the School System: The Importance of Hobbies School-Leaving Grades for the Hiring Decisions 020406080100% Shares of HR managers stating to find the indicated characteristic “very impor- of Firms tant” or “rather important” for applicants in their firm. See Piopiunik et. al. (2018) M. Piopiunik, L. Simon, L. Wößmann, A. Jacob-Puchals- for details. Source: Based on CESifo Working Papers, 6858. © ifo Institute ka, F. Kugler in cooperation with ifo research professor G. Schwerdt, University of Konstanz, funded by the Fed- eral Ministry of Education and Research, March 2014 to Results indicate that signals in all three studied do- February 2017, publication of results as CESifo Working mains – cognitive skills, social skills, and maturity – af- Paper 6858, 2018; and in ifo Schnelldienst 71(4), 2018. fect the probability of being invited for a job interview.

34 ifo Annual Report 2017 IFO CENTER FOR THE ECONOMICS OF EDUCATION

GPAs and social skills prove relevant for both genders The project digitised a unique dataset of 1,278 cities and both groups of labour-market entrants. The rel- in 1871 Prussia that contains detailed census informa- evance of other signals diff ers in terms of credibility, tion on the religious composition of the population. relevance, and expectedness by gender and education The level of religious tolerance and diversity in a city is level. Females are particularly rewarded for IT and lan- measured by the Herfi ndahl index, which indicates the guage skills and males for maturity. Older HR managers probability of sampling two individuals of diff erent de- value school grades less and other signals more highly. nominations. Religious tolerance is also proxied with HR managers in larger fi rms attach a greater impor- measures such as the diversity of churches, preachers tance to college grades. and religious teachers. This city dataset is matched with information on 1,740 valuable patents granted in How does religious In a closing survey, 89 percent of HR managers indicated Prussia in the period 1877–1890. To identify the eff ect tolerance impact that math grades are important for secondary-school of religious tolerance on innovation, the project ex- innovation graduates (see Figure). 96 percent of HR managers con- ploits local variation in religious diversity across cities sider IT skills important for university graduates and within a county. 94 percent prioritise work experience through intern- ships. Furthermore, the self-reported hiring priorities The results show that higher levels of religious toler- of HR managers are consistent with their decisions in ance are positively associated with innovation activi- the choice experiments: they tend to choose those CVs ties during the second industrial revolution. As for the that are strong on characteristics that they also indi- mechanism, the evidence is consistent with the notion cate as being important in the survey, confi rming the that more tolerant cities attracted a higher share of intended information value of the skill signals. high-skilled migrants. Drawing on detailed data on the religious composition of the workforce by industrial Overall, the project delivers new insights into how the sector in 1882, it is shown that religious diversity leads labour market processes and utilises information on to religious interaction rather than religious clustering the skills of applicants, how employers deal with skill in specifi c industrial sectors. Overall, the results of the signals in CVs, and how these signals aff ect employ- project suggest that a culture of tolerance and open- ment chances. ness to diversity is crucial to attracting human capital Culture of tolerance which, in turn, fosters innovation and technological crucial to attracting The Eff ects of Cultural Diversity on Innovation progress. human capital and Public Provision of Schooling: Evidence from Nineteenth Century Prussia Microeconometric Analyses of Cognitive F. Cinnirella, funded by the German Research Founda- Achievement Production tion (DFG), February 2015 to January 2017, publication B. Enzi, completed doctoral project, October 2012 of results as CESifo Working Paper 6797, 2017. to May 2017, publication of results as ifo Beiträge zur Wirtschaft sforschung 75, ifo Institute, Munich, 2017; ifo There is a growing body of literature that studies the Working Papers 225, 2016; 243, 2017. costs and benefi ts of cultural diversity. On the one hand, cultural diversity may increase productivity due In four self-contained chapters, this PhD dissertation to complementarities in the specialisation of diff erent studies diff erent aspects of the production of educa- ethnic, linguistic, and religious groups. On the other tional performance. The fi rst chapter focuses on the hand, diversity may lead to lower redistribution and eff ect of pre-service cognitive and pedagogical teach- the under-provision of public goods due to divergent er skills on student achievement. It uses micro data preferences. The project investigates the role of reli- from the German National Educational Panel Study gious tolerance and diversity in society for technolog- to estimate the parameters of a value-added model ical creativity and innovation in 19th-century Prussia. of cognitive achievement. The second chapter inves- It is argued that the culture of religious tolerance that tigates a battery of other potential determinants of developed from the Peace of Westphalia throughout teacher quality. The third chapter analyses predictors the Age of Enlightenment created a social component of gender diff erentials in test scores and teacher as- that was important for the production of breakthrough sessments. Finally, the fourth chapter investigates the inventions during the second industrial revolution. eff ects of the Bologna Reform on diff erent dimensions

ifo Annual Report 2017 35 IFO CENTER FOR THE ECONOMICS OF EDUCATION

of student outcomes. Using data from the German formation on the activities described above – regularly Centre for Research on Higher Education and Science updates extensive lists of references to the literature on Studies, the causal eﬀ ect of the reform is estimated key topics in the economics of education and on Euro- based on an instrumental variables approach. pean exerts in the ﬁ eld.

Educational Choices, Market Design, and Student Outcomes Current Projects K. Werner, L. Wößmann in cooperation with the Wissen- schaft szentrum Berlin, funded by the German Research Foundation (DFG) in the CRC/Transregio 190 “Rational- European Expert Network on Economics of ity and Competition”, January 2017 to December 2020. Education (EENEE) L. Wößmann, F. Kugler, S. Kersten, U. Baldi-Cohrs in co- Education decisions are key determinants of labour operation with the Centre for European Policy Studies market opportunities, social mobility and economic (CEPS) and senior experts from leading European uni- growth. This project looks at the extent to which tra- versities on behalf of the European Commission, Direc- ditional models can explain utility-maximising individ- torate General Education and Culture, January 2017 to ual education decisions like, for example, the decision December 2020. between an apprenticeship or a university education. A special focus is placed on potential information asym- The European Expert Network on Economics of Edu- metries that can provide an explanation for diff erences cation (EENEE) aims to contribute to the improvement in education decisions as part of a traditional cost-ben- of decision-making and policy development in educa- efi t model. The project also investigates the infl uence tion and training in Europe. It advises the European of behavioural factors like self-confi dence, time and Commission on the analysis of economic aspects of risk preferences on behaviour in education decisions. educational policies and reforms. It aims to support the dissemination of knowledge on the economics of Teacher Eff ectiveness and its Determinants in education in Europe. Germany: An In-Depth Analysis B. Enzi, N. Obergruber, L. Wößmann, funded by the Ger- In 2017, EENEE published four Analytical Reports and man Research Foundation (DFG), October 2015 to Sep- associated Policy Briefs. The topics include the use of tember 2018, publication of fi rst results as ifo Working EENEE publishes nudges in education, the integration of migrants, the Papers 225, 2016; 243, 2017. analytical reports and potential economic benefi ts of educating migrants, and policy briefs public opinion and the acceptance and feasibility of ed- The project aims to analyse the eff ectiveness of teaching ucational reforms. In addition, the network worked on and its determinants based on student-level achieve- three further Analytical Reports on the topics of early ment data from the German National Educational Panel childhood education, class size, and educational exter- Study (NEPS). A fi rst key goal of the project is to exploit nalities. In a further evidence-based policy advice task, the longitudinal structure of the NEPS data to estimate the EENEE network answered two ad-hoc questions value-added models of student achievement that in- on the brain drain and shadow education within the clude teacher fi xed eff ects. Based on the estimated European Union. To promote the interaction between distribution of teacher quality, the impact of having an academic research and policy making, EENEE hosted a eff ective teacher on student achievement can be quan- conference in Brussels in November 2017 together with tifi ed. A second key goal of the project is to study the de- the Network of Experts working on the Social Dimen- terminants of teacher quality. Multiple estimation strat- sion of Education and Training (NESET II). The partici- egies are used to increase the reliability of the results pating policymakers and researchers from EU member on teacher eff ectiveness in Germany. The NEPS survey states discussed many aspects of the conference topic: information exceeds the information on teacher char- “Empowering Schools: Evidence-Informed Policies for acteristics typically available in administrative linked Quality Education”. Finally, EENEE operates a website student-teacher datasets, enabling new and detailed on the Economics of Education in Europe (www.educa- analyses of the determinants of teacher eff ectiveness. tioneconomics.org) which – in addition to providing in- Initial results indicate that there is a lower variance in

36 ifo Annual Report 2017 IFO CENTER FOR THE ECONOMICS OF EDUCATION

teacher quality in Germany than in the United States. Programme for International Student Assessment (PISA) Additionally, high-school leaving degree grades and since 2000 in a panel dataset. In addition to the achieve- those of a practical test in the study programme are ment data, PISA also provides a rich array of background PISA provides good predictors of teacher eff ectiveness. There is also information on each student and her school. Students wealth of background a positive association between teaching experience in are asked to provide information on personal charac- information on the fi rst years of teaching and teacher quality. teristics and their family background. School principals students provide information on the schools’ resource endow- Evaluating the Eff ectiveness of a Mentoring ment and institutional settings. In addition to the PISA Programme data, the project collects data on additional aspects of S. Resnjanskij, F. Hampf, L. Wößmann, J. Ruhose (until the accountability and student assessment systems of April 2016), S. Wiederhold (until April 2017), funded by the participating countries from other sources. Based on the Commissioner of the Federal Government for Mi- these data, the project uses panel data models that ex- gration, Refugees and Integration and a consortium of ploit reforms in assessment systems over time. By using non-profi t foundations, June 2015 to March 2020. country fi xed eff ects, the analysis accounts for cultural and economic diff erences across nations. Social mobility in Germany is still very low. This is refl ected in the fact that children with disadvantaged or migra- Acquisition and Utilisation of Adult Skills – tion backgrounds are most likely to follow the lowest ac- A Network for Analysing, Developing and ademic school track in secondary school. In many cases Disseminating PIAAC these children do not make the leap to an apprenticeship F. Hampf, L. Wößmann, M. Piopiunik, S. Wiederhold (un- position or further schooling. Instead, they get stuck in til April 2017) in cooperation with ifo research professors the transitional system and thus have very little chance E.A. Hanushek, Stanford University, and G. Schwerdt, of upward social mobility. Possible reasons for the lack University of Konstanz, part of a consortium headed by of a perspective are inadequate support for parents with GESIS, funded through the Leibniz Competition, Febru- a low income or education levels in school-related work, ary 2015 to December 2018, publication of fi rst results low school quality, a resulting lack of training maturity, in European Economic Review 73, 2015; Economic Letters only vague ideas about potential jobs, and a shortfall 153, 2017; CESifo Economic Studies 63(3), 2017; Large- of detailed knowledge about the German educational scale Assessment in Education 5(12), 2017; and as CESifo system. Given these problems, mentoring and coaching Working Papers 5720, 2016; 6116, 2016; NBER Working programmes may be an eff ective way to improve the fu- Paper 22657, 2016. ture prospects of students from low-track schools. This project investigates how one of the largest 1:1 mentoring The Programme for the International Assessment of programmes in Germany aff ects school grades, social Adult Competencies (PIAAC) provides information on competencies, and labour-market success of students key adult skills in 33 countries. On the basis of these from low-track schools. This evaluation aims to inves- data, the project conducts research into the acquisition tigate both the short-term and the long-term eff ects of and utilisation of skills. More specifi cally, the project the programme; and to uncover concrete mechanisms aims to improve the understanding of the causal eff ects behind them to provide generalisable recommenda- of skills on labour-market outcomes using improved Causal eff ects of skills tions for the design of mentoring programmes. identifi cation methods. In addition to using internation- on labour-market al PIAAC data, these analyses will also be based on data outcomes Accountability and School Institutions in from the German longitudinal PIAAC survey. Further- Cross-Country Perspective more, German PIAAC data will be linked to administra- L. Wößmann, A. Bergbauer in cooperation with ifo re- tive data on individuals’ employment histories. Within search professor E.A. Hanushek, Stanford University, the overall project, the PIAAC data and the project re- funded by the Smith Richardson Foundation, October sults will be communicated to the scientifi c community 2016 to September 2018. and to stakeholders from politics and industry.

This project investigates the impact of educational insti- One study conducted within this project estimates tutions on student outcomes from a cross-country per- the employment eﬀ ects of vocational versus general spective. It combines the micro data of all six waves of the education over the life-cycle. Its results suggest that

ifo Annual Report 2017 37 IFO CENTER FOR THE ECONOMICS OF EDUCATION

an initial employment advantage of individuals with substantial importance to income diff erences across vocational compared to general education turns into US states. Two historical research projects analyse a disadvantage later in life. This trade-off is strongest the eff ect of educational expansion on secularisation in countries like Austria, Denmark and Germany, which at the end of the 19th and the start of the 20th centu- are characterised by a strong apprenticeship system. ry, and the eff ect of Protestantism on suicide. Further studies investigate the impact of information provi- A further study analyses the reasons for major diff er- sion on the education policy preferences and educa- Why do returns on ences in returns on skills across the countries. Results tional aspirations of the population. Popular writings skills diff er? suggest that returns on skills are systematically larger this year address the role of the Reformation on the in countries that have grown faster in the recent past, long-run educational and economic development in consistent with models where skills are particularly im- Germany in the year of the Reformation anniversary portant for adaptation to dynamic economic change. and scientists’ role in society in the age of Brexit and Another study shows that skills involving the mastery Trump. of information and communication technologies lead to higher earnings in the labour market. Understanding the Relationship between Skills and Labour-Market Outcomes Empirical Studies in the Economics of Education S. Wiederhold, postdoctoral research project, Septem- L. Wößmann, various ongoing research projects, recent ber 2011 to April 2017, publication of results in, among publications, among others, in: Review of Economics others: Journal of Human Resources, forthcoming; and Statistics, forthcoming; Oxford Bulletin of Economics Large-scale Assessment in Education 5(12), 2017; Eco- and Statistics 80(1), 2018; American Economic Journal: nomics Letters 153, 2017; American Economic Journal: Macroeconomics 9(4), 2017; Journal of Economic Growth Macroeconomics 8(2), 2016; Journal of Economic Behav- 22(3), 2017; Journal of Human Resources 52(1), 2017; Eco- ior & Organization 123, 2016; European Economic Review nomics of Education Review 56, 2017; Journal of Human 73, 2015; methods data analyses – Journal for Quantita- Capital 11(4), 2017; Economics Letters 153, 2017; CESifo tive Methods and Survey Methodology 8(2), 2014; CESifo Economic Studies 63(3), 2017; CESifo Working Paper 6602, Working Papers 5720, 2016; 6527, 2017; NBER Working 2017; Forschung und Lehre 24(11), 2017; Wirtschaft sdienst Paper 20727, 2014, rev. 2017. 97, 2017; reports of the Aktionsrat Bildung and the Aca- demic Advisory Council of the Federal Ministry of Eco- This postdoctoral research project addresses the ex- nomics and Energy, as well as contributions in several tent to which education is related to success in mod- daily and weekly newspapers. ern labour markets. One study uses international PIAAC data on adult skills to show that higher cogni- Numerous ongoing projects deal with diff erent topics tive skills are systematically related to higher wages in the economics of education. Several projects use in all 32 participating countries. As a general pattern, microeconometric techniques to analyse the exten- returns on skills are systematically larger in countries sive micro datasets of various international student that have grown faster in the recent past. Moreover, achievement tests like PISA and TIMSS, as well as the the project attempts to contribute to the investiga- Lessons from international test of adult competencies PIAAC. The tion of causal eff ects of skills on labour-market out- international student goal is to determine what lessons can be drawn from comes. For instance, one study on the labour-market tests for educational international student tests for educational policies eff ects of ICT skills implements an instrumental-vari- policy aimed at eff iciency and equity; and how adult compe- able model that exploits the fact that skills increase tencies aff ect employment and income in the labour with regular use, which is fostered by fast internet market. Current studies investigate issues like the ef- access. Another part of the project shows that job fects of computer use in the classroom, the informa- displacement increases occupational switching and tion value of central exit exams in the labour market, skill mismatch, primarily because displaced workers labour-market returns on basic skills, and the role of move to less skill-demanding occupations. The nega- vocational education over the life-cycle. tive earning eff ects associated with displacement are mostly driven by these moves, while workers moving Two recent studies show that “knowledge capital” as to more skill-demanding occupations have similar measured by the competencies of the population is of earning losses as stayers.

38 ifo Annual Report 2017 IFO CENTER FOR THE ECONOMICS OF EDUCATION

The Accumulation of Human Capital and the Human Capital Production and Migration Transition from Malthusian Stagnation to M. Piopiunik, ongoing postdoctoral research project. Modern Economic Growth Publication of fi rst results in, among others: Journal of F. Cinnirella, postdoctoral research project, March Human Resources, forthcoming; European Economic Re- 2008 to September 2017, publication of results in, view 92, 2017; Economics Letters 139, 2016; NBER Work- among others: Journal of Economic Growth, 2010; Clio- ing Papers 20727, 2014, rev. 2017; 21393, 2015, rev. 2017; metrica, 2012; European Review of Economic History, CESifo Working Paper 6832, 2017. 2013; Historical Methods, 2014; Journal of Development Economics, 2016; Demography, 2017; Journal of Econom- One focus of this postdoctoral research project is the ap- ic Growth, 2017; Explorations in Economic History, forth- plication of modern microeconometric evaluation meth- coming; CESifo Working Papers 5894, 2016; 6072, 2016; ods on questions of education and labour economics. 6423, 2017. One study shows that diff erences in the cognitive skills of teachers are a key determinant of international dif- This postdoctoral research project examines the main ferences in student performance. For this investigation, determinants and the political economy of public edu- country-specifi c cognitive skill measures of teachers, de- Teacher cognitive cation from a historical perspective on the one hand, rived from the individual-level PIAAC data, are combined skills and student and the impact of education on economic growth on with student-level PISA data. Another study analyses the outcomes the other, mostly making use of Prussian data from importance of teachers’ subject knowledge for student the 19th century. One part of the project analyses the performance in several countries in Sub-Saharan Africa. interaction between land distribution and labour mar- Another project uses administrative micro data from the ket institutions and its eff ect on the accumulation of US state of Florida to show that teachers who entered the human capital. A related project studies the extent to profession during a recession are considerably more ef- which the complementarity between physical capital fective in raising their students’ test scores. The results and skills created the incentives to abolish serfdom suggest that the relative economic attractiveness of a which, in turn, triggered sustainable investments in hu- teaching job plays an important role in bringing eff ec- man capital. A further part of the project analyses the tive teachers into the profession. Another project uses a relationship between ethnic-linguistic polarisation and randomised choice experiment among HR managers in public education expenditure. It shows that in counties Germany to investigate which skill signals are eff ective characterised by cultural polarisation, decentralisa- when entering the labour market. Its results indicate that tion of education policy leads to lower education ex- several signals on resumés – cognitive skills, social skills, penditure and the under-provision of the public school and maturity – aff ect the probability of secondary-school system. A related project fi nds that more generous graduates and college graduates being invited to a job in- funding of primary schools by central government interview. creased electoral participation and votes for national- ly-oriented parties, which suggests that public primary Another focus of the project is on migration economics. education plays an indoctrination role. One subproject investigates whether a high concentration of immigrants in a region hampers the integration Another study fi nds that various dimensions of human chances of the migrants’ children. The results indicate capital played an important role in innovation and eco- that children growing up in regions with high co-eth- nomic development during the fi rst and second phase nic concentration have lower host-country language of the industrial revolution. Both the literacy rate of the skills and tend to achieve lower educational degrees. population and the density of master craft smen led to Another project, using a survey experiment among uni- higher patent activities, and thus to technical change and versity students, investigates the attitudes of Germans Investigating higher incomes. A fi nal part of the project studies the ef- towards refugees and whether the attitude depends on attitudes towards fect of human capital on the fertility transition at the end the perceived education level of the refugees. The re- refugees of the 19th century, which marked the transition from sults indicate that students are more concerned about a Malthusian stagnation to modern economic growth. labour-market competition if they belief that refugees The analysis of the years 1540 –1850 shows that families are highly educated. A further study fi nds that the ef- adapted the interval between births both to the econom- fect of immigration on crime depends on regional la- ic situation and to the number of surviving children. bour-market conditions.

ifo Annual Report 2017 39 IFO CENTER FOR THE ECONOMICS OF EDUCATION

The Eff ects of Information Provision on Policy schools and the prospects of high-ability drop-outs. Preferences – Evidence from Survey Experiments The methodological framework takes advantage P. Lergetporer, ongoing postdoctoral research project. of the diff erent timing of implementing the reforms Publication of fi rst results in, among others: European across states, but also employs variation of reform Journal of Political Economy, forthcoming; Economics implementation across municipalities within states. Letters 152, 2017; European Economic Review 90, 2016; The diff erence-in-diff erences analysis is conducted Journal of Economic Behavior and Organization 115, using large administrative data sets (e.g. the German 2015; Journal of Economic Psychology 46, 2015; Journal of Microcensus), as well as rich survey data (e.g. NEPS). the Economics Science Association 1(2), 2015; Proceedings The projects aims to estimate the causal eff ects of the of the National Academy of Sciences 111(19), 2014; CESifo major educational reforms of the last decades to shed Working Papers 5938, 2016; 6192, 2016; 6602, 2017. more light on the question of how to design an eff i- cient and equal education system. Empirical research has produced many insights on how education policies could be altered to improve student Determinants of Educational Inequality outcomes. Political actors, however, are frequently re- and Long-Run Consequences of Distributional luctant to carry out reforms supported by high-quality Inequality for Structural Change research. One important reason for this discrepancy be- N. Obergruber, ongoing doctoral project. tween evidence and action could be that political actors are responsive to the opinions of voters and of well-or- This doctoral project investigates questions of equali- ganised interest groups, which may diverge from what is ty of opportunities in the fi eld of economics of educa- in the public interest more generally. This postdoctoral tion using microeconometric methods, historical data, research project empirically analyses the determinants and data from the National Educational Panel Study Determinants of of public support for education policies. Public opinion is (NEPS). The fi rst part of the project investigates the in- public support for studied by means of representative survey experiments fl uence of parental separation on the development of education policies with particular focus on interest groups and the eff ects of skills in reading and math of 5th-grade students. The information provision on public preferences. The individ- analysis shows the econometric problems of applica- ual topics analysed include, among others, educational tions where insuff icient data are available on periods spending, tuition fees, educational inequality, educa- before and aft er the separation. The second part inves- tional aspirations, and political party preferences. tigates the consequences of an educational reform in Germany in the 1960s and 1970s. The reform reward- Econometric Evaluations of Education Reforms ed drop-outs from the academic track with a non-ac- in Germany ademic school degree. The third project analyses the L. Zierow, ongoing postdoctoral research project, publi- infl uence of within-class rank in math and German on cation of fi rst results as CESifo Working Paper 6490, 2017. the occupational choice of teenagers.

For the last six decades, the German education sys- The fourth part studies the role of equal-splitting in- tem has been subject to numerous reforms relating heritance rule in agriculture on structural change in the to its structure as well as the content of curricula. In 19th-century German Empire. To this end, a county-lev- Germany, education policy is the responsibility (Kul- el data set was self-constructed from historical statistics turhoheit) of the 16 states (Länder). Consequently, the and literature and continuously enhanced. There is a ro- diff erent states have reformed many important as- bust eff ect of equal splitting on land distribution in the pects of their school systems to varying extents and late 19th century. This higher equality among siblings at diff erent points in time. This postdoctoral research also holds for height, as soldiers in equal-splitting areas How education project investigates the eff ects of education reforms are smaller, but their height distribution is narrower. De- reforms impact on student performance, students’ later labour mar- scriptively, the transition from agricultural to industrial students ket outcomes and equity among students from diff er- society occurs sooner in equal-splitting areas, particu- ent backgrounds. The studied reforms address various larly in innovative industries like the chemical industry. elements of the schooling system, such as the expan- There are also more patents applied for in equal-split- sion of early childhood education, the introduction ting areas. Today, mean income is higher in former of all-day schools, the abolition of denominational equal-splitting areas and the service sector is larger.

40 ifo Annual Report 2017 IFO CENTER FOR THE ECONOMICS OF EDUCATION

Economics of Education Policy This doctoral project analyses the impact of educa- K. Werner, ongoing doctoral project. Publication of fi rst tion and other determinants on labour market out- results as CESifo Working Papers 5938, 2016; 6192, 2016. comes using microeconometric methods. The fi rst paper uses a randomised fi eld experiment among The aim of this doctoral project is an empirical analy- German human resource managers to evaluate which Education and labour sis of questions concerning the political economics of skill signals such as cognitive skills, social skills and market outcomes education policy. A fi rst research project, conducted maturity are valued by employers when considering in cooperation with the Program on Education Policy the CVs of applicants who enter the labour market. A and Governance (PEPG) at Harvard University, collect- second project analyses the eff ect of labour market ed data to document the similarities and diff erences in deregulation on the demand and supply sides of the opinion of the US and German public. Respondents in labour market. The deregulation was an amendment both countries hold widely diff erent views on a variety to the Trade and Craft s code of Germany on the re- of issues, but they react to information in very similar quirements related to becoming self-employed craft s- ways. This suggests that the diff erence in policy out- men. Using individual social security data, fi rm level comes between the US and Germany is largely driven data and micro census data, the project sheds light on by institutional diff erences, rather than divergent pref- the impact of the reform for fi rms, employees and the erences. A second research project focuses on the rela- self-employed. tionship between public opinion on state spending and the information status of the voting-age population in A third project analyses the impact of beliefs about ref- Germany. A major part of the population is found to ugees’ education levels on natives’ general attitudes underestimate current levels of spending on educa- towards refugees. In a randomised survey experiment tion. Providing information on current spending levels among 5,000 university students, shift ing beliefs to- consistently leads to a signifi cant decrease in support wards the better education of refugees increases con- for future spending increases. Similarly, the optimal cerns over labour-market competition for high-skilled allocation of funds across diff erent education levels is natives, but does not aff ect general attitudes. The last susceptible to misconceptions. Providing respondents paper analyses the impact of structural change on the with the information that – according to numerous education and labour-market choices of adolescents. studies – pre-school education has larger benefi cial eff ects than other types of education spending rais- Microeconomic Analysis of the Relationship es support for increases in spending for pre-schools. between Education, Individual Skills and These information eff ects are driven by the underesti- Labor-Market Success using PIAAC and PIAAC-L mation of rates of returns on investment in early edu- F. Hampf, ongoing doctoral project, publication of fi rst cation. results in CESifo Economic Studies 63(3), 2017.

A third research project focuses on the question of The aim of the doctoral project is to gain a better un- how to reduce the association between children’s edu- derstanding of the interrelation between skills and la- cation outcomes and parental background. Its results bour-market outcomes. The fi rst part analyses data from show that information on the earnings and unemploy- the PIAAC Survey of Adult Skills (“PISA for adults”) to iden- ment rates of university graduates do not contribute tify the eff ect of business cycles on an individual’s educa- to raising the aspirations for children’s education of tional decision at the time when an individual graduates parents without a university education. A fourth proj- from high school. The eff ect of tertiary education on cog- Eff ect of tertiary ect documents substantial support by the German nitive skills is identifi ed exploiting exogenous variation in education on voting-age population for reforms of the school sys- college enrolment in an instrumental-variable approach. cognitive skills tem that would benefi t children from disadvantaged Furthermore, the relationship between an individual’s backgrounds. exposure to macroeconomic conditions and its cognitive skill development are analysed. The second part of Microeconometric Analyses in the Economics of the doctoral project also uses PIAAC data to compare Education and Labour employment probabilities over the working-life cycle for L. Simon, ongoing doctoral project, publication of fi rst individuals with vocational and general education. An results as CESifo Working Paper 6832, 2017. initial employment advantage of vocational education

ifo Annual Report 2017 41 IFO CENTER FOR THE ECONOMICS OF EDUCATION

relative to general education turns into a disadvantage Microeconometric Analyses of School Reforms later in life. In a third project, an instrumental-variable B. Arold, ongoing doctoral project. approach is used to estimate the causal eff ect of tertiary education on skill development and labour-market suc- This dissertation aims to analyse the eff ects of school cess. Using information from PIAAC-L, the approach ex- reforms on the ideological, societal, and political atti- ploits exogenous variation in the probability of enrolling tudes of students applying quasi-experimental meth- in university due to the distance of a high-school gradu- ods. The fi rst part looks at the eff ects of abolishing ate’s home town to the nearest university. compulsory religious education in schools across Ger- man states. Its main focus is on the extent to which International Student Achievement such reforms aff ected religiosity, religious aff iliation A. Bergbauer, ongoing doctoral project. and personal prayer. Other outcomes like attitudes towards gender equity and political participation will This dissertation project analyses topics in the eco- also be analysed. Another part of the project focuses on nomics of education applied to countries around the the topic of evolution in the science standards in school world. The fi rst part of the dissertation sheds light on curricula of US states. The goal is to understand wheth- the impact of a country’s accountability regime on stu- er or not the omission of evolution in these standards National dent learning by applying a panel data approach to the aff ects the attitudes of the US population to evolution, accountability international PISA data. The second part evaluates the geological history, religiosity and political preference. regimes and student infl uence of education on economic activity in Sub-Sa- learning haran Africa. Enrolment rates as quantitative measures of schooling will be interacted with qualitative measures, i.e. test scores in the Southern and Eastern Africa Consortium for Monitoring Educational Quali- ty (SACMEQ). The education data will be linked at the regional level to data on satellite night light luminos- ity as a proxy for economic activity. The third part of the project aims to estimate the long-run eff ect of the 1996 reform that granted a legal right to kindergarten to all children aged 3 and above on the PISA scores of 15-year-old students in Germany.

Public Opinion on Education Policy Decisions E. Grewenig, ongoing doctoral project.

The aim of this doctoral project is to empirically assess various determinants of the political opinion-forming process. A fi rst research project examines whether and how positions of the diff erent political parties can aff ect the opinion of the German population towards specifi c educational reform proposals. It shows that information on these positions can indeed alter a voter’s preferences. In particular, partisans of specifi c How political party parties align their preferences more closely with their positions aff ect preferred parties’ positions. A second research proj- education reform ect methodologically examines how the beliefs of the proposals German population can be appropriately illustrated. It analyses the impact of two belief elicitation methods frequently used in experimental economics – incentiv- izing and anchoring – on measured beliefs and voters’ policy preferences.

42 ifo Annual Report 2017 ifo Center for Industrial Organisation and New Technologies

The Center’s research focuses on: In addition to studies on how to foster the creation and diff usion of new technologies, the Center also explores – Evidence-based research in Industrial Organisation the impact of digitisation on a wide range of outcomes: Impact of digitisation – Analysis and monitoring of fi rms, industries and from economic outcomes like regional labour markets, institutions productivity and growth to social out-comes like the eff ects of broadband internet on political elections, so- – Provision of data science architecture and methodo- cial capital and on health outcomes. logy

The research programme of the ifo Center for Industri- This research is thus not only of academic interest, al Organisation and New Technologies focuses on ana- but is also crucial to the Center’s ability to advise lysing the determinants and eff ects of fi rm behaviour, policymakers and inform the public. The Center’s including internal fi rm structures, processes and the research, in turn, is also vastly enhanced by the in- behaviour of its employees. The following questions sights gained from industry monitoring and policy are of particular interest: how successful are diff erent studies. Both high-quality econometric research and industries, especially with regard to their innovation evidence-based policy advice call for high–quality abilities? How important are institutional framework data sources. The LMU-ifo Economics & Business Data EBDC – a high-quality and government policies such as direct state support Center (EBDC), the ifo Institute’s research data center, data source to the success of industries? Are government policies which is part of the ifo Center for Industrial Organisa- eff ective in supporting the development and diff usion tion and New Technologies, provides the required data of new technologies? What role do digitisation and ICT infrastructure with access to unique ifo survey data, skills play in economic development? data from various external sources and the requisite data science methods. To answer these challenging questions the Center’s research applies state-of-the-art (micro)econometric methods using a broad range of individual-, fi rm-, and ANALYSIS AND MONITORING OF FIRMS, INDUSTRIES industry-level data aided by a deep understanding of AND INSTITUTIONS institutions and industries to produce cutting-edge The evidence-based academic research in Industrial analysis that is of high value to both academics and Organisation is aided by a deep understanding of in- practitioners. stitutions and industries. To generate a strong qualitative foundation for its quantitative empirical research, the Center conducts a broad range of industry-level EVIDENCE-BASED RESEARCH IN INDUSTRIAL monitoring and research. The core of this industry-lev- ORGANISATION el analysis is the long-term project “Branchen special”. The Center conducts evidence-based research to an- It consists of biannual publications of 100 industry swer highly policy-relevant questions in the area of reports commissioned by DG publishers (Deutscher Industrial Organisation and places particular emphasis Genossenschaft s-Verlag eG). The preparation of these on innovation, digitisation and information and com- industry reports provides the Center with a unique munication technologies (ICT) as a general-purpose institutional knowledge of the competitive situation technology. The evaluation of industry and innovation and the institutional framework conditions in several In-depth knowledge policies is crucial for the optimal use of public funds branches. Together with the Center’s (and-party-fund- of industry branches and the design of institutions. The Center evaluates, ed) activities in the European construction industry for instance, the “Innovative Regional Growth Cores network EUROCONSTRUCT and its extensive analy- Programme”. As far as institutions are concerned, the sis of the economic eff ects of trade fairs, “Branchen Center has done extensive work on telecom regulation special” enables it to acquire wide-ranging industry and the provision of broad-band infrastructure. In oth- expertise. er studies the Center empirically estimates the eff ects of patent protection on incentives for innovation, while That industry expertise is an important prerequisite others use patent data to learn about the eff ects of mi- for the successful acquisition of policy advice projects gration on innovation in source and destination coun- and for conducting high-quality empirical studies. In tries, as well as the knowledge fl ows between them. applied industrial organisation research projects at

ifo Annual Report 2017 43 IFO CENTER FOR INDUSTRIAL ORGANISATION AND NEW TECHNOLOGIES

the industry level (like, for example, the supermarket culture by off ering a research data repository for sec- merger of Edeka/Tengelmann, the ban of cars and light ondary analysis and spin-off projects. The cooperation trucks with combustion engines or on telecom regu- with the Bavarian Statistical Off ice even enables access lation and broadband infrastructure) the Center was to administrative data at the EBDC. able to demonstrate its strength. Its in-depth industry knowledge also helped the Center to enter a long-term Furthermore, the EBDC has applied for external fund- framework research contract with the Munich and ing to further enhance the usability of its fi rm data Upper Bavarian Chamber of Industry and Commerce, by developing record-linkage methods based on “big which already hosts the annual ifo Industry Colloqui- data” algorithms. The ifo Institute has been quick to um. recognise the potential of these (new) data science methods, but also the need to adapt to this evolution. Understanding institutions and industries and the sys- In response, it has formulated a “big data strategy”, tematic documentation of institutional changes there- which the EBDC is committed to implementing and in becomes an increasingly important task. The Center advancing in collaboration with the ifo-wide big data has therefore started to establish an institutional da- research group to ensure that ifo is able to deliver pol- tabase at the industry-level, which will be a valuable icy relevant research today and in the future. To fulfi l source for both academic research and policy advice. these ambitions, the EBDC will gradually be expanded Database on Although this work is in progress, the database already according to a special concept (“EBDC-Agenda 2020”). institutional changes records numerous institutional changes in over 100 in industry industries. For example, a fi rst research project evaluates the eff ects of the newly-introduced “accompanied driving from age 17” regulations on road accidents in Projects Completed in 2017 Germany. This regulation is a regular topic in the industry report on driving schools, but further empirical research is needed to assess its eff ectiveness as a road ifo Industry Colloquium 2017 safety measure. L. Dorff meister, M. Ebnet, O. Falck, M. Kocijan, S. Rum- scheidt, J. Schricker, P. Brandt, K. Wohlrabe in cooperation with the Chamber of Commerce and Industry for PROVISION OF DATA SCIENCE ARCHITECTURE AND Munich and Upper Bavaria and fi nancially supported METHODOLOGY by the Bavarian Ministry of Economic Affairs and Media, In addition to expertise in IO theory and in-depth un- Energy and Technology, report available in ifo Schnell- derstanding of the institutional framework, high-quali- dienst 71(1), 2018. ty data and expert knowledge of econometric methods are – the foundation of every good empirical study in This year’s ifo Industry Colloquium took place on Novem- industrial economics. The LMU-ifo Economics & Busi- ber 8, 2017 and around 200 representatives from business ness Data Center (EBDC), which has been a part of the and politics participated in the event. Aft er a welcome Center since 2016, provides just such a basis with its speech by Eberhard Sasse, president of the Chamber of State-of-the-art state-of-the-art research data infrastructure for aca- Commerce and Industry for Munich and Upper Bavaria, research data demic research and policy advice. Clemens Fuest, President of the ifo Institute, gave a pre- infrastructure sentation on “Economic policy aft er the federal election”. The EBDC’s services include the provision of various data sources in a secure and well-equipped research Four parallel sessions on the manufacturing, com- data center, advice on data management and the de- merce, construction and services sectors were sub- velopment/application of new data science methods. sequently held. In each session, the respective sector For example, it off ers several innovative fi rm data sets analysis and forecasts were presented by ifo industry from German and European companies, namely the experts, followed by a discussion of major industry-re- ifo Institute’s survey data, external balance sheet data lated structural changes. This year’s focus was on the from the Amadeus, Orbis and Hoppenstedt company structural changes triggered by the productivity devel- databases and the unique combination thereof. Since opment in manufacturing and services, as well as on 2015 the EBDC has also promoted the open science digitisation in commerce and construction.

44 ifo Annual Report 2017 IFO CENTER FOR INDUSTRIAL ORGANISATION AND NEW TECHNOLOGIES

Justus Haucap, director of Duesseldorf Institute for Competition Economics (DICE) closed the ifo Industry Colloquium 2017 with his talk on: “Regulatory policy in a digitised world”.

The following speakers participated in the forums:

Forum 1 – Industry: Chair: H. Schultz, ifo Institute; introduction: W. Wohlra- be, ifo Institute; experts: C. Timiliotis, OECD, M. Ebnet, ifo Institute, and B. Krause, German Association of the Automotive Industry (VDA).

Forum 2 – Commerce: Chair: W. Fischer, CityPartner München e.V.; iintroduc- tion: S. Rumscheidt, ifo Institute; experts: G. Guder, Federation of the German Beverage Trade Wholesale, M. Janko, ECE Project Management GmbH & Co. KG.

Forum 3 – Construction: Chair: J. Wallner, Bavarian Building Industry Associ- Michael Ebnet, ifo Center of Industrial Organisation and New Techno- ation; introduction: L. Dorff meister, ifo Institute; ex- logies perts: M. Kocijan, ifo Institute, J. Melzner, W. Markgraf GmbH & Co. KG, W. H. Bittner, Doka Ventures GmbH. Policy Advice in the Context of “Leibniz at Forum 4 – Services: Bundestag” Chair: R. Obermeier, Chamber of Commerce and In- With its format “Leibniz at Bundestag”, the Leibniz As- dustry for Munich and Upper Bavaria; introduction: P. sociation gives members of the German Bundestag Brandt, ifo Institute; experts: O. Falck, ifo Institute, W. (MPs) the opportunity to meet scientists for individual Eichert, Federation of German Industry (BDI), J. Menze, conversations. In 2017, the ifo Center for Industrial Or- European Commission. ganisation and New Technologies offered seven discussion topics that generated signifi cant interest and re- The next ifo Industry Colloquium will take place on No- sulted in a total of eleven appointments with MPs. The vember 7, 2018. conversations were scheduled for 45 minutes each and took place in the members’ offices in Berlin on May 30 and 31. The Members of Parliament emphasised their interest in continuing the exchange of information.

Consequences of a Potential Ban on New Cars and Light Trucks with Combustion Engines O. Falck, M. Ebnet, J. Koenen, J. Dieler, J. Wackerbauer for the German Association of the Automotive Indus- try (VDA), January to June 2017, published as ifo For- schungsbericht 87, ifo Institute, Munich, 2017.

We use empirical methods to analyse the eﬀ ects of legislation currently under consideration banning permits for new cars and light trucks with internal combustion engines as of 2030. The study has three Prof. Clemens Fuest, President of the ifo Institute distinct parts: in Chapter 2 we quantify the potentially

ifo Annual Report 2017 45 IFO CENTER FOR INDUSTRIAL ORGANISATION AND NEW TECHNOLOGIES

detrimental eff ects and risks of such a ban for produc- 2030–2050, as opposed to the “business as usual” tivity and employment in German industry. Chapter 3 scenario if the reduction targets in electricity gener- focuses on the German automotive industry’s incen- ation were to be simultaneously achieved. The high tives to innovate in the areas of combustion engines, intensity of this measure is refl ected in the require- as well as alternative propulsion systems. Chapter 4 ments with regard to vehicle numbers and electricity analyses the eff ects of a ban on the environment, and generation. On the other hand, the technology that

particularly on CO2 emissions. would be subject to the ban plays an important role for value-added and employment for manufacturing How Important Is the Internal Combustion Engine for in Germany and Europe. International studies by lead- German Industry? (Referred to Cars and Light Trucks) ing researchers show that measures targeting relative 2015 Production value Value added Employment prices – i.e., less intense interventions than bans or Share of German Industry Number quotas – can achieve optimal transition paths be- Directly affected product groups 12% 9% 8% 457,000 Indirectly affected product groups 3% 3% 3% 163,100 tween technologies. Taking these observations into In total 15% 13% 10% 620,100 account the registration ban is not the best policy for Source: Federal Statistical Office, calculations of the ifo Institute. achieving environmental and innovation goals.

The fi rst part of the study is based on detailed off icial Economic Trends in the Amusement Machines manufacturing statistics, determining the importance Industry in 2016 and Outlook for 2017 of the “combustion engine” technology for value added H.-G. Vieweg for The German Coin-operated Machine and employment in the status quo. To analyse innova- Industry, November 2016 to July 2017. tive activities, we derive the share of international pat- Innovation ents for diff erent types of propulsion technology fi led This study constitutes the latest analysis of the eco- analysed via share by German industry compared to its most important nomic situation and outlook for commercial gaming in of international competitors. To estimate the environmental eff ects of Germany annually conducted by the ifo Institute for the patents the ban, we develop a forecasting model that allows us industry’s trade association since the end 1980s. The to compare carbon dioxide emissions with and without current study focuses on the impact of regulation of the the contemplated legislation through the year 2050. German gaming and gambling market on amusement arcades, as well as pubs, bars and restaurants. The study series will be fi nished in 2018. Germany Has the Leading Position in Patents on E-Cars Approved patent applications for electric cars 2010–2015 Expert Opinions on Sector-Specifi c Regulation Share of the respective country in the Retail Market for Access to the Public China 4% Telephone Network at a Fixed Location South Korea O. Falck, A. Heimisch, J. Koenen, A. Mazat for Deutsche 9% Telekom AG, October 2016 to April 2017. Germany France 34% 12% This report assessed the need for regulation in the retail market for access to the public telephone network at a fi xed location. More specifi cally, it addressed the question of whether ensuring competition further re- USA quires that the former monopolist, Deutsche Telekom, 18% is obliged to enable Carrier Pre-Selection (CPS) and Japan Call-by-Call (CbC). The study is motivated by the Eu- 23% ropean Commission’s recommendation as of October Source: Patentscope; calculations of the ifo Institute. © ifo Institute 4th, 2014 regarding relevant product and service markets in the telecommunications sector that are eligible for ex ante regulation. Therein, the EU Commission Given the assumptions of our prediction model, a notes that the sector-specifi c regulation of retail mar- registration ban would lead to a cumulative reduc- kets in the telecommunications sector need no longer

tion of around 32% in CO2 emissions over the period be regulated. At the same time, it requests national au-

46 ifo Annual Report 2017 IFO CENTER FOR INDUSTRIAL ORGANISATION AND NEW TECHNOLOGIES

thorities to review whether regulations in place need Building Equipment Sector (Sanitary Heating to be maintained. The expert report shows that the Air-Conditioning) number of CPS/CbC customers has declined steadily M. Kocijan für die Vereinigung der deutschen Zentral- since 2011. This decline is similar across all age groups heizungswirtschaft e.V., Vereinigung Deutsche Sanitär- and in urban as compared to rural regions. Besides, a wirtschaft e.V. und Messe Frankfurt Exhibition GmbH, thorough empirical analysis shows that the availabili- April 2016 to April 2017. ty of alternative infrastructure such as cable, fi ber and even mobile technologies reduces the use of CPS/CbC With the help of the ifo Business Barometer for the across all age groups. building equipment sector, the cyclical situation and further development of the industry was analysed. The second part of the study analysed the competi- To this end, following the practice of the ifo Business tion eff ects of a product innovation, namely Deutsche Survey, information on the present state of the com- Analysis of industry Telekom’s Magenta Zuhause Hybrid product. The panies, their business expectations and additional situation and outlook analysis focused on potential competition eff ects in factors like demand, prices, employment, exports etc. rural areas where alternative infrastructure cover- was collected in an enterprise survey. Considering the age is limited. Its results indicate that hybrid product three industry stages of the building equipment sec- availability is focused in areas where other internet tor, surveys were carried out of the manufacturing service providers (such as cable providers, for exam- industry (heating techniques, building fi ttings), whole- ple) are active. In these well-covered areas, in par- saling and of larger retail trade fi rms. ticular, the hybrid product reaches a higher market penetration than in areas where alternative coverage The Economic Impact of the Dusseldorf Trade is relatively low. Fairs and Events H. Penzkofer for the Fair Dusseldorf GmbH, January Expertise on Issues of Tariff Regulation in the 2016 to September 2017, publication in ifo Schnelldienst Market for FttH/B-based Wholesale Products 70(17), 2017. O. Falck, A. Mazat for Deutsche Telekom AG, June 2017. The expertise contributes to a debate initiated by the The Economic Impact of the Düsseldorf Trade Fairs and Federal Network Agency on whether wholesale ac- Events cess services via newly built technologies (such as fi - ber (FttH/B)) should be considered for regulation. The Jobs 30,000 study contributes to this debate by analysing a de- 27,692 mand-side substitution between internet contracts 25,000 24,202 of diff erent bandwidth. It also analyses and describes the competitive environment in the German broad- 20,000 band market. 16,664 15,000 Empirical analyses show that from a customer per- 10,000 spective, internet contracts off ering up to 16 Mbps or

50 Mbps are not substitutes for contracts, off ering up 5,000 to 100 Mbps or 200 Mbps. The study therefore proposes that markets should be defi ned based on bandwidth. 0 The second part of the study points out that the ma- Düsseldorf North Rhine- Germany Westphalia jority of German households are already located in regions where intermodal competition is intense. The Source: Calculation of the ifo Institute. © ifo Institute study therefore emphasises that generally regulating fi bre wholesale access would not take into account the actual competitive situation adequately. Based on The total aggregate output as a result of the direct this observation, it further notes that local competitive and indirect impact of a typical trade fair and event conditions should be taken into account when formu- year is about EUR 2.98 billion, or ca. 27,700 gainful- lating future regulation. ly employed persons. The study also estimated the

ifo Annual Report 2017 47 IFO CENTER FOR INDUSTRIAL ORGANISATION AND NEW TECHNOLOGIES

resulting tax revenues obtained by various authori- Economic Development and Trade Fair Participation of ties (City of Dusseldorf, North Rhine-Westphalia and Exhibitors Germany as a trade fair location, international/national trade fairs ɭ Germany). With trade fair and event related output of EUR 2.98 billion, the concomitant tax revenue is about Exhibitors % GDP EUR 567 million. 8 6

The Economic Impact of the Hamburg Trade Fairs 4 H. Penzkofer for the Hamburg Messe GmbH, January 2 2015 to August 2017. 0 The objective of this project is to calculate the direct -2 and indirect production and income eﬀ ects, as well as -4

the resulting tax revenue of the Hamburg trade fairs. -6 Based on surveys of visitors and exhibitors at selected 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Hamburg trade fairs conducted for the project, the to- ɭ Development in trade fairs in one year compared to previous events. Determining direct tal number of visitors and exhibitors and their expendi- Source: AUMA (estimate for für 2017); Federal Statistics Oƛice. © ifo Institute and indirect eff ects of ture are determined. The calculations of the direct and trade fairs indirect eff ects are derived from an estimation model that primarily uses the characteristics of the visitors and exhibitors and individual expenditure (e.g. accom- Current Projects modation, stand construction). Framework Agreement on Conducting Economics The Trade Fair Index Studies H. Penzkofer in cooperation with Fair Frankfurt GmbH, O. Falck, A. Fichtl for the Chamber of Commerce and In- January 2017 to December 2017, publication in ifo Schnell- dustry for Munich and Upper Bavaria, all of ifo’s centers dienst 71(4), 2018. are involved in the project, the ifo Center for Industrial Economics and New Technologies is supervising the The results of this analysis clearly show that trade fairs project, July 2017 to July 2021. are a mirror of the markets. Key fi gures for international trade fairs in Germany like developments in visitor and The Chamber of Commerce and Industry for Munich exhibitor numbers are linked very closely to trends in and Upper Bavaria has commissioned the ifo Institute German economic output, which, in turn, also impacts to conduct a major, ongoing project involving indepen- several countries in Europe. The “Messe Index” (Trade dent, scientifi cally-based economic advisory work. Fair Index) describes both the business developments As part of this project, the ifo Institute is involved in and business expectations of German companies at in- conducting economic studies (meta-analyses, empir- Trade Fair Index ternational consumer and capital goods trade fairs in ical policy evaluations, execution and evaluation of signals direction Germany. It provides an up-to-date evaluation of the surveys etc.), the draft ing and organisation of econom- of economic trade fair activities of these companies, as well as the ic-policy oriented events, as well as a regular exchange developments six-month trade fair outlook based on their business of knowledge on economic policy topics. expectations. These evaluations are facilitated by the fact that the business climate calculated for the “Messe Impact of Digitalisation on the Labour Market Index” signals the direction in which the economy is N. Czernich, T. Fackler, O. Falck, A. Fichtl, the study will developing very eff ectively. be conducted within the framework agreement with the Chamber of Commerce and Industry for Munich and Upper Bavaria, October 2017 to April 2018.

The study examines the impact of digitalisation – the increasing use of computer and internet technology in the value-added process – on the labour market. The ﬁ rst part of this study aims to review the existing em-

48 ifo Annual Report 2017 IFO CENTER FOR INDUSTRIAL ORGANISATION AND NEW TECHNOLOGIES

pirical literature on what we know about the impact of der and other socio-economic characteristics available digitalisation, for example, on the aggregate level of in PIAAC (e.g. educational background of parents, usage the labour market, aff ected industries or occupations. of information technology, or others – depending on data Existing forecasts on the future eff ects of digitalisation availability) to evaluate heterogeneities in digital skills. on the labour market will be scrutinised with respect to underlying assumptions and their transferability to Information System “Branchen special” Germany and Bavaria. In the second part of the study, M. Ebnet, H. Hofmann in cross-departmental coop- empirical analyses for Germany and Bavaria will be eration with over 20 other ifo industry experts for conducted, based on data from the Federal Employ- the DG-Verlag, Wiesbaden, biannual publication in ment Agency. The analysis of long-term developments Bundesverband der Deutschen Volksbanken und Raif- in employment and wages for over 300 diff erent oc- feisenbanken (BVR), DG-Verlag, Wiesbaden. cupations allows us to identify shortage occupations and highly-demanded occupations, since variation in “Branchen special” reports on the 160 most import- wages of a certain occupation refl ects demand for that ant branches covered by Germany’s medium-sized occupation. Furthermore, we extrapolate the trends of companies. Biannually updated industry reports are In-depth biannual the past until 2030. The remaining part of the project published on the following economic sectors: services, industry reports will address the question of what we can learn from agriculture, construction and development, retail and previous research fi ndings and the results of our ana- wholesale, manufacturing and skilled craft s and trades. lyses for shaping educational policy and labour market The reports contain in-depth analyses and forecasts institutions in the future. The aim is to set guidelines for of branch structure and the current economic situa- a regulation framework in the digital age. tion in a clear, standardised format. More specifi cally, the reports off er information on supply and demand Examination of PIAAC Data on the Digital structures in the consumer goods and services mar- Problem-Solving Competencies of Young kets, company size and trends towards concentration. Professionals Turnover and production forecasts, as well as capacity A. Heimisch, F. Hampf, the study will be conducted as utilisation and price development monitoring, are con- part of a framework agreement with the Chamber of ducted to evaluate the economic outlook. The econom- Commerce and Industry for Munich and Upper Bavaria, ic condition of the branch is assessed using the results December 2017 to January 2018. from company comparisons, off icial statistics and an analysis of trends in prices and costs. This study aims to thoroughly evaluate the digital skills of employees, and especially those of young profes- Moreover, the reports highlight the company policy op- sionals, and to fi nd out who, in terms of such skills, tions, the market positioning and competitiveness of gets off to a good or bad start in an increasingly digital medium-sized companies in a branch. In this context working environment. the reports focus on (industry-specifi c) institutional Monitoring market changes and on the way diff erent market participants players’ reaction to For our analysis we use data from PIAAC (Programme for react to them. Some of these institutional changes are institutional changes the International Assessment of Adult Competencies), taken up by ifo researchers and subjected to a deeper that includes measures of adults’ digital skills in a number examination in separate projects. An example of this is of OECD countries. As a fi rst step, we put the digital skills of the road safety measure “Accompanied Driving from the German and Bavarian population into an international Age 17 (AD17)”. Its gradual implementation on a federal context. Next, we compare the skills of the Bavarian pop- state level has been documented in detail within the ulation with those in the rest of Germany, before focusing industry report on driving schools and is now being sci- on the skills of young professionals. The international entifi cally evaluated with regard to its potential road perspective is essential if Bavaria not only wants to lead safety enhancing eff ectiveness using off icial microdata the pack in Germany, but also perform strongly in a global on road accidents. context. In order to not only identify front runner countries, but also front runner industries, we compare skills To take economic transformations into account, the sein industrial sectors with each other – as far as the data lection of industries surveyed is occasionally adjusted allow. Additionally, we make use of information on gen- to correspond to the changed importance of individu-

ifo Annual Report 2017 49 IFO CENTER FOR INDUSTRIAL ORGANISATION AND NEW TECHNOLOGIES

al economic segments. Data from off icial statistics, as Economic Situation and Structure of Europe’s well as from primary and secondary sources, are used Construction Sector (EUROCONSTRUCT as an information base; especially association statis- network) tics and the results of surveys conducted by diff erent L. Dorff meister, E. Gluch, M. Kocijan for the EC-Partner institutions. The results of the ifo Business Survey are institutes, the organisers and participants in the EU- particularly important, as they enable a well-ground- ROCONSTRUCT conferences, as well as recipients of ed assessment of the current and future development. the conference proceedings and for presentations at One example is the assessment of earnings develop- specialist conferences, publication in ifo Schnelldienst ment by survey participants, which turned out to be a 70(2), 2017; 70(14), 2017; as well as in various specialist reliable indicator of current profi tability in many man- journals. ufacturing industries. The European research and advisory network EURO- The total information base is integrated in a con- CONSTRUCT consists of 19 European member insti- densed preparation of information in text and tabular tutes (15 from Western Europe and four from Central form, as well as in graphics. The industry rating fea- and Eastern Europe). At conferences held twice a year Industry rating off ers tured in every report off ers key information on cur- in diff erent locations, current forecasts for all part- key information on rent and future trends in turnover and profi ts in the ner countries – as well as for Europe as a whole – are trends industry, as well as the intensity of competition in the presented. The forecasts not only feature fi gures (in industry and its vulnerability to economic cycles at a Euros) diff erentiated by construction type, but also glance. A list of all reports available and their publica- present the physical variables of construction (num- tion dates can be consulted on the ifo website (www. ber of dwellings). The conferences in 2017 (held in cesifo-group.de/branchenspecial). Individual reports Amsterdam in June, and in Munich in November) also can be obtained from the Volksbanken und Raiff eisen- looked at the challenges caused by an intensifi ed cir- banken. Subscriptions are available from the DG-Ver- cular economy, as well as the political and economic lag in Wiesbaden. framework for construction-relevant investments in the two non-European countries Iran and Mexico. One of the crucial results of the Munich conference was the Road Safety Measure “Accompanied Driving from Age 17 fact that in 2017 there will be growth in construction in (AD17)” all individual member countries for the fi rst time since Gradual implementation on federal-state level the beginning of the 1990s. The summer conference Lower Saxony 2018 will be held in Helsinki.

Hamburg

Bremen Building Equipment Sector in Germany and Selected European Countries Bavaria M. Kocijan for the Association of the German Central Schleswig-Holstein Heating Industry, the Association of the German Sanitary North Rhine-Westphalia Industry and Fair Frankfurt Exhibition GmbH. ongoing Rhineland-Palatinate permanent project. Saarland national right Berlin This project analyses developments in the German

Brandenburg building equipment sector. To this end, key market in-

Saxony dicators such as number of enterprises, turnover, employees, and investments are collected. Furthermore, Hesse - these key market indicators of the German building Mecklenburg Western Pomerania equipment sector are compared with corresponding Saxony-Anhalt data from Belgium, Denmark, France, United Kingdom, Thuringia - Italy, the Netherlands, Austria, Spain, and Switzer- Baden Wuerttemberg land. A methodological report describes, among oth- g 2004 2005 2006 2007 2008 2009 2010 2011 2012 er things, the process of identifying and delimiting the Source: Composition of the ifo Institute. © ifo Institute branch and its characteristics.

50 ifo Annual Report 2017 IFO CENTER FOR INDUSTRIAL ORGANISATION AND NEW TECHNOLOGIES

The Economic Impact of the Dortmund Trade Fairs H. Penzkofer for the Westfalenhallen Dortmund GmbH, January 2017 to November 2018.

This project aims to calculate the direct and indirect production and income eﬀ ects, as well as the resulting tax revenue of the Dortmund trade fairs. Based on surveys conducted for the project among visitors and exhibitors at selected Dortmund trade fairs, the total number of visitors and exhibitors and their expendi- tures are determined. The calculations of the direct and indirect eﬀ ects are derived from an estimation model that primarily uses the characteristics of the visitors and exhibitors and individual expenditure (e.g. accommodation, stand construction).

The Economic Impact of the Trade Fairs in Germany Strategic Partnerships H. Penzkofer for the Association of the German Trade O. Falck, H. Mittelmeier, S. Wichert, S. Yang. Fair Industry, August 2017 to September 2018. The advancement of the EBDC has continued through Based on surveys conducted for the project among 2017, which is particularly refl ected this year in the es- visitors and exhibitors at selected trade fairs, the total tablishment of new and intensifi ed strategic research number of visitors and exhibitors and their expenditure cooperations. is determined. The calculations of the direct and indirect eff ects are derived from an estimation model that The EBDC co-hosted a workshop on “Regional GDP ifo co-hosts regional primarily uses the characteristics of the visitors and ex- measurement” with the Bavarian Statistical Off ice at GDP measurement hibitors and individual expenditure. the ifo Institute. Furthermore, it has been agreed to workshop continue this kind of workshops, which try to shed light Infrastructure Project of the DFG-CRC on how administrative data is constructed and how it “Rationality & Competition” is used in research projects. Additionally, the Bavarian H. Mittelmeier, S. Wichert; January 2017 to December 2020. Statistical Off ice wants to maintain its branch off ice of the research data center at the ifo Institute, even if its Since January 2017 the EBDC has been part of the in- headquarter moves to Fürth. frastructure project of the DFG-funded collaborative research center (CRC) “Rationality & Competition”, To enhance the usability of ifo’s microdata even further which is backed by several research institutions from and attract researchers from new fi elds of economics, Munich and Berlin. The members of the CRC analyse in- the EBDC’s staff is currently setting up a long-term col- dividual- and fi rm-level (ir-)rational decision behaviour laborative research project. The objective is to create a in a competitive environment and investigate suitable link between existing ifo fi rm micro data, administra- policy responses in such situations to prevent market tive data, spatial data and internet data. First partner- failure. The infrastructure project supports and links ships, with the Leibniz Supercomputing Centre and the up the activities of CRC’s empirical research. It coor- RDC of the Bundesbank for example, have already been dinates data collection eff orts for all CRC members – arranged. A joint workshop on “Record Linkage” will be administratively and methodically – gives recommen- held in 2018. dations on research data management and provides a secure infrastructure to work with confi dential data. To support the multitude of new research projects and The EBDC in particular is responsible for data archiving co-operations, the existing EBDC team has been ex- and data publication to promote replications and sec- tended by one post-doc (Sebastian Wichert) and one ondary studies for the SFB members. specialist (Valentin Reich).

ifo Annual Report 2017 51 IFO CENTER FOR INDUSTRIAL ORGANISATION AND NEW TECHNOLOGIES

Randstad ifo Personnel Manager Survey Construction in Germany by Segment A. Jacob-Puchalska, P. Brandt, O. Falck, J. Schricker, L. Dorff meister, Gluch, M. Kocijan, for federal and state K. Wohlrabe for Randstad Deutschland GmbH & Co.KG, ministries, local authorities, research and advisory in- ongoing project, which is published on the company’s stitutes, companies and associations; ongoing project, website and that of the ifo Institute. Furthermore, arti- work tables (on request) as well as publications in ifo cles working with this data are released in ifo Schnell- Schnelldienst and external publications. dienst. In the framework of this research and advisory proj- Four times a year the ifo Institute surveys personnel ect, values and quantities illustrating the German managers in manufacturing, wholesaling and retail- construction activities are forecast on a quarterly ing, as well as in the service sector on the importance basis. These fi gures are broken down into residen- of fl exibility in personnel placement. The participating tial construction, commercial building construction ifo assesses managers provide a general assessment of fl exibility and civil engineering, and public-sector building fl exibility in and an assessment with respect to specifi c measures construction and civil engineering. The forecasts are personnel (overtime, limited contracts, “mini-jobs”, temporary presented for debate in the construction and housing management workers, freelancers, outsourcing, internal transfers, forecasting group, as well as at the ifo Industry Collo- working time accounts). quium (ifo Branchen-Dialog). They are also integrated in the Joint Economic Forecast prepared by fi ve major The aim of the project is to provide insights into the role German research institutes, as well as in the ifo Insti- of fl exibility measures in business cycles on a long-term tute’s forecasts. Moreover, they are used for a series basis. The survey has been conducted on a quarterly of reports in “Branchen special” and as the basis for basis since the fi rst quarter of 2008. A special, changing the German contribution to forecasts of European question deals with the current personnel policy. An construction (EUROCONSTRUCT). evaluation of the special questions can be found on the ifo Institute’s website and in ifo Schnelldienst. In 2017, Economics of Innovation in special questions were asked on the integration of im- Telecommunications migrants into the German job market, the consequenc- A. Heimisch, A. Mazat, ongoing doctoral projects, sup- es of digitisation for German employees, job market ported by Deutsche Telekom AG, since October 2014, related policy measures discussed in the German na- V. Lindlacher, ongoing doctoral project, supported by tional election campaign, as well as wage inequality Deutsche Telekom AG, since September 2017. and gender pay gap. The doctoral projects deal with the determinants of innovation in telecommunications and investigate the underlying mechanisms. These dissertations also How Well are German Employees Prepared for Digitisation? consider the over-all economic impact of these innovations by drawing on individual-, regional- and fi rm-lev- Very good Good Rather good Poor el data are used. 70 64% 60 Papers in Empirical Innovation and Regional 53% 51% 50 Economics 41% 42% T. Lohse, ongoing doctoral project. 40

30 27% Conceptually, this dissertation project is located at

20 the intersection of regional and empirical innovation economics. The ﬁ rst part is a joint project with Oliver 10 5% 4% 6% 4% Falck and Johannes Koenen in which a location-based 1% 3% 0 innovation policy, the so-called “Innovative Regional Manufacturing Commerce Services Growth Cores” programme is evaluated. This programme has been central to the economic develop- Source: Randstad-ifo-Personalleiterbefragung, 2. Quartal 2017. © ifo Institute ment strategy of East Germany, but has received only

52 ifo Annual Report 2017 IFO CENTER FOR INDUSTRIAL ORGANISATION AND NEW TECHNOLOGIES

little (empirical) attention to date. In the second part, technologies on the health of individuals in Germany. Andreas Mazat, Bastian Stockinger and Tobias Lohse The fi rst chapter studies how access to broadband investigate the relationship between the willingness internet in Germany aff ects the health of various de- of consumers to shop online and the employment mographic groups. The second chapter examines how structure in the stationary retail sector. The third part fi nancial and medical incentives in hospitals aff ect the of this dissertation is concerned with the regional ef- quality and quantity of treatment of new-borns. While fects of public investments in business-related infra- the second chapter is based on current hospital reim- structure. bursement data, the last chapter of this dissertation evaluates historical medical records to examine the Innovation in the Context of Migration and impact of the onset of World War II on neonatal health Digitisation and mortality. K. Candel-Haug, ongoing doctoral project. The Eff ects of Migration, Competition, and This dissertation project focuses on the creation and Patents on Innovation diff usion of innovation in the context of two of the T. Fackler, ongoing doctoral project. main challenges our societies and economies currently face: migration and digitisation. Three papers show This dissertation studies three important determi- how digitisation and the possibilities of new informa- nants of innovation, combining a variety of data sourc- Spotlight on three key tion and communication technologies impact fi rm or- es and methods. The fi rst chapter takes advantage of innovation drivers ganisation and productivity in various ways. A fourth the staggered introduction of the right to free move- project analyses the contribution of immigrants from ment of labour in recent EU accessions to identify the new EU member states to innovativeness in Germany eff ect of emigration on innovation. The study fi nds and, contrary to results for the US, fi nds signifi cant that source countries benefi t from knowledge fl ows positive complementarities. coming from emigrants’ destination countries and industries. The results suggest that international labour Enterprises’ Constraints and Policies mobility may facilitate convergence in innovation per- S. Yang, ongoing doctoral project. formance in the EU. The second chapter fi rst explores the relationship between competition and the type of This project focuses on manpower constraints and corporate R&D in a model. Contributing a text-based fi rm performance. By leveraging the EBDC unique data meas-ure of the size of the inventive step to existing sets that combine fi nancial data and fi rm surveys, it trade data, the empirical analysis confi rms the theo- is possible to observe German fi rms’ self-reported ry’s prediction that an increase in competition shift s manpower constraints. The initial results show that fi rms’ R&D towards more incremental innovation. The constrained fi rms have higher capacity utilisation, third chapter estimates the eff ects of compulsory li- lower inventories, more unsatisfi ed orders, and want censing of patents in antitrust on cumulative innova- to invest more in capital expenditure. This project pro- tion. Taking advantage of a consent decree in 1956, as ceeds to use German reunifi cation as an exogenous a result of which the patent portfolio of Bell Labs be- shock to identify the eff ect of relaxation in man-pow- came available without royalties, the study concludes er constraints faced by fi rms in West Germany. Future that compulsory licensing increased followon innova- research plans to investigate domestic and exporting tion and lowers the barrier to entry for start-ups on fi rms and their heterogeneous constraints and corre- average over all markets, but is itself not suff icient to sponding performance. end foreclosure.

Essays in Empirical Health Economics Socioeconomic Impact of Broadband S. Wichert, ongoing doctoral project. Internet S. Schüller, ongoing postdoc project, publication as This dissertation project consists of three chapters that CESifo Working Paper No. 6129, 2016; and in Wirtschaft s- are based on diﬀ erent data sources and observation dienst 96(8), 2016. periods, but all use micro-econometric methods to investigate the eﬀ ects of institutional details and new

ifo Annual Report 2017 53 IFO CENTER FOR INDUSTRIAL ORGANISATION AND NEW TECHNOLOGIES

The ongoing processes of digitisation in economy and society certainly have important implications, not only for economic growth but also for labour markets and political systems. The diff usion of broadband infra- structures enabling fi rms and households to access high-speed internet plays a crucial role in this “Digital Revolution”. Two initial projects focus on the causal impact of ADSL2+ broadband availability on voting behaviour and on fi rm performance, both exploiting a local public broadband infrastructure delivery programme in the Province of Trento.

54 ifo Annual Report 2017 ifo Center for Energy, Climate and Exhaustible Resources

The Center’s research activities are determined by stranded assets, analysing for example to what extent the main challenges related to protecting the en- climate policies lead to wealth losses in various sec- vironment, climate change, the scarcity of natural tors. resources and sustainable energy supply. In accordance with its name, the Center is especially active In the ﬁ eld of energy, which is naturally closely linked in research and policy advice on climate and energy to climate and exhaustible resources, the Center is par- policy and the eﬀ icient utilisation of exhaustible re- ticularly concerned with the transformation of energy sources. systems in the course of their decarbonisation.

The focus of the activities is on topics that are rele- The characteristics of energy supply in combination vant in the longer term and that are analysed as part with behavioural, security of supply and economic as- of multi-year research projects and, where appropri- pects lead to areas of tension in the transformation ate, in cooperation with researchers from other disci- of energy systems, which are examined with special plines and research institutions. These medium-term consideration of policy options on diff erent regional projects are complemented by selected short-term levels. While a focus of the research is the analysis consulting projects for public and private clients. The of electricity markets, the eff ects of policy measures Center's research uses both theoretical and numerical on regional value added and employment are also methods as well as empirical approaches, depending examined. In this context, an ongoing interdisciplin- on the research question. Its research results serve as ary project involving local stakeholders analyses, for a basis to provide policymakers with in-depth informa- example, the transformation of energy supply in the tion on the eff iciency and eff ectiveness of climate, en- Alpine foothills. ergy and environmental policies. Since German energy policy must also be seen in At the core of research on climate and exhaustible the context of European developments, the Center’s resources are the eff iciency and eff ectiveness of cli- research also takes the interaction of national and German energy mate policies, taking into account relevant framework international policies and CO2 reduction targets on policy in the context conditions, and analyses of the impact of climate and the European level into account. In this analysis, the of European develop- energy policies on the use of exhaustible energy re- Center employs a model of the European power mar- ments sources. ket in which renewable energy generation from wind and sun is integrated in a very detailed manner. The One focus in this area is on the long-term macroeco- employed model is being continuously refi ned and nomic and sectoral implications of climate policies for improved. In the course of a perennial research co- economic development, carbon emissions and invest- operation with other universities and research insti- ment in energy generation technologies. In 2017, the tutes, the current focus is on improving the modelling main emphasis was on the eff ects of uncertainty and of energy technologies and the fl exibilisation of ener- path dependencies, which are of great importance for gy demand. the eff ectiveness and eff iciency of climate policies. For two years now, the Center has been cooperating with Furthermore, in the year under review, the Center sup- researchers from various disciplines and institutions in ported public and private clients in diff erent consulting Germany in a multi-year project on the integrated anal- projects: In a multi-year project for the Federal Ministry ysis of green transformations. for Economic Aff airs and Energy (BMWi), for example, methods and indicators for improving the monitoring The eff ects of climate policies on the use of fossil fuels of the bio-economy are being developed. The Center are analysed with regard to the eff ects on extraction is also involved in developing methods for prioritising paths, strategic incentive and substitution eff ects, topics and activities for the BMWi under the 7th Energy and the estimation of future emissions. The suppliers Research Program. of energy resources and the analysis of resource- and energy-related investments traditionally have a spe- In addition to its research tasks, the Center maintains cial signifi cance for the Center. In 2017, its research and continuously expands an internet-based informa- in this area focussed increasingly on the problem of tion platform on resource and energy related topics.

ifo Annual Report 2017 55 IFO CENTER FOR ENERGY, CLIMATE AND EXHAUSTIBLE RESOURCES

It also contributes to the existing database for the in- European Electricity Prices for the Scenario with 6°C Global ternational comparison of economic institutions (DICE) Warming with indicators from the areas of climate change and Britain France Benelux energy policy. Germany Scandinavia Iberia Alpine countries Italy Other northwest Other northeast Other southwest Other southeast On 1 February 2018, the ifo Center for Energy, Climate Euro per MWh 85 and Exhaustible Resources was renamed the ifo Center for Energy, Climate and Resources. The new name re- 80 ﬂ ects an extension of the Center’s thematic priorities 75 and shows that renewable resources will play a greater 70 role in climate and energy policy. 65

55 Projects Completed in 2017 2015 2020 2025 2030 2035 2040 2045 2050

Source: Calculation of the ifo Institute. © ifo Institute Methods and Indicators for Assessing the Impact of Climate Change on the Business Models of Companies M. Zimmer, K. Pittel, G. Felbermayr, J. Gröschl, O. Achten Current Projects for KPMG AG Wirtschaft sprüfungsgesellschaft , Juli 2017 to Dezember 2017. Determination of Economic Indicators for Monitoring the Progress of the Bio-economy The project aimed to improve the approaches and J. Wackerbauer, T. Rave in cooperation with the Leibniz processes that KPMG employs for assessing the ef- Institute for Bio-economy (ATB), the Fraunhofer Insti- fects of climate change on corporate business mod- tute for Systems and Innovation Research ISI at Karls- els. It provided scientifi c foundations and links to ruhe and the nova-Institute, Hürth, for the German cutting edge scientifi c research. The focus of the Federal Ministry for Economic Aff airs and Energy, April project was to develop a basic methodology for gen- 2016 to March 2019. erating the data needed for the assessment. Spe- cial attention was paid to socio-economic variables This study aims to contribute to the development of the and their development in climate-induced societal scientifi c basis for a long-term monitoring of the bio- change. This specifi cally refers to policy and regula- economy. Thanks to continuous monitoring, a knowl- tion-driven prices, for example for energy (electricity, edge base for political action and a public debate oil, coal, gas) and implicit prices for CO emissions. 2 about the bio-economy will be created. To achieve the Furthermore, a database was created that can be objectives of the National Policy Strategy Bio-econ- integrated into KPMG’s existing assessment tools omy, indicators will be developed based on scientifi c and is structured according to the four predefi ned criteria. Methods of data collection will be established scenarios for the evaluation process. Based on the that make all dimensions of the bio-economy measur- Comparative scenario scenario underlying carbon budgets and the sectoral able. Progress in the transformation process towards a analyses projections of the International Energy Agency, for bioeconomy, as well as potential barriers or trade-off s, example, consistent development paths for CO pric- 2 will be visualised to enable decision-makers to draw es, electricity prices and the associated power gener- possibly necessary consequences. ation mix for the European power generation system were projected using the proprietary ifo EU-REGEN In 2017, work on the fi rst three work packages of the model. The fi gure is expected to shows an example research project was completed, namely: of the electricity prices for the European regions for the SLOWCONOMY SCENARIO, which correspond to a – Requirements for statistical data and indicators and global warming of 6°C. inventory

56 ifo Annual Report 2017 IFO CENTER FOR ENERGY, CLIMATE AND EXHAUSTIBLE RESOURCES

– Biomass fl ows and utilisation of by-products The objective of the INOLA project is the interdisciplinary and transdisciplinary development of system solu- – Methodological development of a bio-based indicator tions for sustainable land use and energy management system under economic aspects with strong links to of the model region “Energiewende Oberland” (“Ober- the NACE classifi cation: land Energy Transition”). The Energiewende Oberland – Methodological literature review region covers three administrative districts south of Munich. The central question of the project is which – Assessment of bioeconomic activities below the social and technical innovations are necessary to es- NACE classifi cations tablish sustainable regional land use together with an Sustainable regional – Development of indicators adequate energy system. The cooperation between land use municipalities and districts, as well as the refl exive An evaluation of diff erent defi nitions of the term “bio- design of the innovation process, are crucial to achiev- economy”, a delimitation of the system boundaries ing these objectives. The primary contribution of the of the bioeconomy, as well as the classifi cation of the project is an innovation concept providing the region bioeconomy into established systems of economic sta- with the necessary process knowledge to successfully tistics was carried out. Furthermore, methods were de- shape the transition towards a sustainable land use veloped to determine the bioeconomy-relevant share and energy system. for sectors that can only be partially attributed to the bio-economy sector. Finally, 61 indicators for the mon- The ifo Institute’s task within INOLA is to determine the itoring of the bio-economy were proposed. A guide was economic impacts of diff erent scenarios for the region- developed for each indicator, which databases should al energy and land use systems. An input-output model be used as a basis, which relevant areas or bio-eco- is used to identify their eff ects on value added, employ- nomic components can be found there, and how a link ment and sectoral output at the regional level, and to with other key fi gures can be achieved. determine innovation strategies.

Further work for the years ahead consists of the The results of the ifo Institute’s analysis will be used following steps: in the decision making process at a local and regional level: INOLA will provide necessary insights and tools – Quantifi cation of cascade and coupling usages for civil society players and decision-makers enabling – Innovations, patents, education them to assess the economic sustainability of diff erent – Combination of economic indicators and ecological land use and energy management options; and thus ac- Accelerating accounting celerate the joint development of innovation strategies. the joint development of innovation – Pilot project for the chemical and plastics industries Trends and Perspectives in Energy Research, strategies – Drivers and restraints in the transition to the bio- Project Part B: Development and Application economy of Methods for the Prioritization of Topics and Measures in Energy Research in the Context of – Further development of the NACE classifi cation the “Energiewende” (EnFo-2030) K. Pittel, J. Pfeiff er, C. Weissbart, M. Zimmer, P. Brandt in cooperation with TU Munich, German Aerospace Center INOLA – Innovations for a Sustainable Land e.V., Research Center for Energy Economy, University of and Energy Management at the Regional Münster for the German Federal Ministry for Economic Level Aff airs and Energy, December 2016 to April 2018. J. Lippelt, A. M. Montoya, K. Pittel, M. v. Schickfus, M. Zimmer in cooperation with A. v. Streit, W. Mauser, The sixth energy research program of the German University of Munich, W. Mayer, Kempten University federal government from 2011 characterises the of Applied Sciences, the communal civil society “En- guidelines for public policies to support the devel- ergiewende Oberland” and utility company partners opment and deployment of new and innovative en- for the German Federal Ministry of Education and Re- ergy technologies. The programme’s main goal is search, October 2014 to September 2019. to successfully realise the various energy- and cli-

ifo Annual Report 2017 57 IFO CENTER FOR ENERGY, CLIMATE AND EXHAUSTIBLE RESOURCES

mate-policy goals of the so called Energiekonzept Energie”). Finally, theses summarise the key obser- and the accompanying fundamental transformation vations and recommendations for the topics and for- of the energy system in Germany. However, the tech- mats of the future energy research programme. nical, economic, political and social assumptions and conditions that the energy research programme The online-survey for project parts A and B, “Technol- builds upon are necessarily subject to changes over ogies for the Energiewende” and EnFo-2030, was de- time, which can only partly be foreseen and taken signed by the ifo Institute in spring 2017. The ifo Insti- into account. The focus and guidelines of publicly-fi - tute also processed and evaluated the survey results. nanced energy research as defi ned by the research Throughout the derivation and discussion of the need programme therefore have to be evaluated and, if for future state funded energy research, the ifo Insti- Evaluating and necessary, revised regularly. EnFo-2030 contributes tute in cooperation with Andreas Löschel, University of redesigning the to exactly this process of evaluation and redesign of Münster, focuses on an economic perspective and con- energy research the energy research programme over six years aft er siders societal and systemic aspects. The ifo Institute programme the announcement of the Energiewende. is lead author of the chapter on cross-sectional topics. In this context, the potential and risks of digitalisation In contrast to the complementary project part A, for the Energiewende, the change and development of “Technologies for the Energiewende”, EnFo-2030 new business models, issues related to acceptance of uses a two-step, top-down approach to identify and changes in the natural environment, of new technolo- defi ne potential guide lines and central issues for fu- gies or behavioural changes, characteristics and driv- ture state-funded energy research. Firstly, the need ers of energy demand behaviour, as well as the regula- for future energy research is not derived by focusing tory reforms potentially needed are discussed. Overall, on specifi c technologies, but by considering the po- the objective is to illustrate the importance of a more litically defi ned mitigation targets for energy conver- comprehensive integration of socio-economic topics sion, the private households, the industry and the into the mostly technology-oriented energy research transport sector, as well as the commerce, trade and agenda to date for realising climate- and energy-poli- service sector. Next to these sectoral analyses, the cy goals. Against this background, the design and the need for further research is analysed with respect to support formats of the future energy research program cross-sectoral topics such as digitalisation, technical are also assessed. options to increase system fl exibility, business models, acceptance, energy demand behaviour and the Integrated Analysis of a Green Transformation regulatory framework. In a second step and in accor- (InTrans) dance with the top-down focus of the project, the re- K. Pittel, A. Schmitt, A. Ciesielski in cooperation with sults are restructured and summarised in fact-sheets the Centre for European Economic Research (ZEW), Fact sheets on about the need for energy research with respect to Mannheim, the University of Munich, the University of energy research the fundamental mitigation options on the demand Bayreuth for the German Federal Ministry of Education requirements side and the supply side of the energy system; and and Research, June 2015 to May 2018. with respect to increasingly important cross-sectoral topics. In addition to research needs, the project The reduction in fossil fuel use in order to stabilise considers formats for supporting and funding energy greenhouse gas emissions is an important element of a research, particularly with respect to a) the specifi c green transformation. In its contribution to the project, needs of start-up-fi rms, b) support of a more compre- the ifo Center for Energy, Climate and Exhaustible Re- hensive integration of social, economic and techno- sources focuses on technological change and the pro- logical energy research and c) the future role and de- vision of environmentally-friendly technologies, which sign of large-scale research projects. The evaluation are an important prerequisite for a green transforma- of the need for energy research and the discussion of tion to succeed. Feasible growth and technology paths support and funding formats are based on the review are compared with respect to their economic and cli- of energy market models and scientifi c literature, the mate impact, while taking into account diff erent types expertise of the project advisory board, as well as on of uncertainty. The process of technical change and the results of an online-survey of the members of the potential path dependencies are at the centre of the energy-research networks (“Forschungsnetzwerke analysis. One of the project’s key goals is to study en-

58 ifo Annual Report 2017 IFO CENTER FOR ENERGY, CLIMATE AND EXHAUSTIBLE RESOURCES

dogenous technological change and technology paths The envisioned goals of the ‘Energiewende’ to increase in the context of transition processes that are inevita- the market share of renewable energies and reduce ble in the course of long-run development. greenhouse gas emissions have led to a dynamic transformation of the energy system. Closely connected The macroeconomic perspective on long-run growth, to the increased share of renewable energy is the ad- investment and technology paths allows us to draw vancing regionalisation of the energy system. Both the conclusions about the distribution of welfare gains and increasing market penetration of intermittent genera- losses in an intergenerational context. A second focus tion technologies and the higher spatial dispersion of is on the analysis of suitable long-run policies to fos- production structures and networks, require improve- ter clean technologies. In this context, it is of interest ments in the coordination of the energy system and by Social acceptance whether and to what extent the regulator might be able all actors in society. This implies that besides technical of energy systems to create investment incentives by reducing regulatory feasibility and economic viability, social acceptance grows increasingly and political uncertainties. becomes an increasingly important aspect in the de- important velopment of the future energy systems. In one part of the project, the analysis of transition paths is based on the workhorse integrated assess- The dynamic environment of energy systems is also vis- ment model DICE by William Nordhaus, where we have ible in the variety of energy system models, although endogenised investments by households into R&D. they are only partly capable of refl ecting the afore- This approach allows for explicit modelling of the ef- mentioned challenges. On the one hand, the multitude fects of endogenous economic growth on climate of models for both the German and European energy change on the one hand; and of the eff ects of climate market produce a wide variety of results. This, in turn, change on the incentive to invest into R&D on the other. means that the practical relevance of the results is hard In order to model uncertainty about possible transition to assess, due to diff erences in assumptions about un- pathways, we have developed a Bayesian approach to- derlying conditions, data sources and model structures. wards the calibration of deterministic models of eco- Economic, technological and social factors, on the oth- nomic growth. Using this approach, we recalibrated er hand, are only partly integrated into existing models. the socio-economic component of DICE and were able to quantify uncertainty about possible future invest- Against this background, the ifo Institute coordinates ment and technology pathways. nine renowned research facilities and institutes of higher education to pursue the two main goals of 4NEMO: In addition, we have developed a model featuring mul- – To improve the coherence, comparability and tiple technologies for generating energy, with a focus transparency of energy models. This concerns not on the power sector. Technology paths are interpreted only modelling and publications regarding model as the evolution of capacities associated with diff erent structures, but also the consistency of datasets and technologies over time. They are determined by the in- technology assumptions. vestment behaviour of households and fi rms. Compared to similar models used in the literature on this topic, our – To improve the integration of economic and social model features a higher degree of aggregation with re- factors and the aff iliated uncertainty in energy spect to capacities. For example, diff erent technologies models. for generating electricity from wind and solar energy are aggregated to one technology. This results in a smaller Integrated scenarios that include a detailed refl ection of number of technologies than in other models, which en- economic, social and technological conditions are being ables us to analyse within-model uncertainty regarding, developed as a result. Systematic model comparisons for example, future technological developments. and analyses generate a sample space that furthers the understanding of the strengths, weaknesses and com- Research Network for the Development of New parative advantages of the respective models to allow for Methods in Energy System Modelling (4NEMO) a better understanding of the results. The energy models K. Pittel, C. Weissbart for the Federal Ministry for Eco- of the project partners are also improved through coordi- nomic Aff airs and Energy, November 2016 to October nated development; and the general validity of the mod- 2019. els is improved by the envisioned stronger incorporation

ifo Annual Report 2017 59 IFO CENTER FOR ENERGY, CLIMATE AND EXHAUSTIBLE RESOURCES

of economic and social factors. The implicit sensitivity Humanity is currently severely interfering with the nat- analysis of the model structures partly accounts for the ural environment with its unsustainable production high relevance of the joint research project. According- processes and consumption habits. The persistence of ly, the project will contribute to increasing the validity, absolute poverty and persistent growth in the world’s comprehensibility, and comparability of policy analyses population also contribute to this inﬂ uence. The conse- based on energy models. Future research projects and quences are global environmental changes like climate consulting activities can be better coordinated among change, the loss of biodiversity, freshwater pollution or Creation of common the institutes involved through the creation of a common soil degradation. At the same time, these global changes database to link database and the possibility of linking the models. This increase the vulnerability of industrialised countries, but models also improves the speed and eﬀ iciency of future joint particularly of less-developed societies to natural disas- projects. Additionally, all project partners are striving for ters or food crises and disease. Global change therefore a transparent use of models and scenarios, as well as a raises considerable distributional and equity concerns better socio-political interpretation. and puts global development opportunities at risk.

The project comprises fi ve work packages. The ifo In- The advisory council analyses these challenges by pur- stitute works on work packages 1, 2, 4, and 5 and also suing an interdisciplinary approach and assuming a coordinates the entire project. In work package 1, a list broad notion of sustainability for which the conserva- of requirements refl ecting the changed conditions of the tion of the natural environment is as characteristic as energy markets was defi ned in 2017. A model analysis ensuring societal, economic and political participation was coordinated by the ifo Institute in a sub-package to and protecting and fostering self-eff icacy and cultural identify the strengths and weaknesses of a representa- diversity. Every two years, the council publishes fl ag- tive group of around 40 energy market models. The goal ship reports to initiate a knowledge-based societal and of work package 2 is for the involved institutes to adapt political discussion of the challenges of global change. their existing models to the new requirements along These reports aim to analyse and disentangle the com- four clusters (technology, acceptance, regions and un- plex interdependencies of global change. They are in- certainty). In this context, initial strategies are current- tended to provide guidance for decision-makers even ly being developed by the ifo Institute to incorporate when facing high uncertainty; and to identify and derive a fl exible demand side into the EU-REGEN model. Fur- precautionary options to avoid irreversible damage to thermore, the model will be extended by including the natural systems and human societies. To this end, the Model extended concept of social acceptance. At the same time, consis- reports review and evaluate national and international to include social tent socio-technological scenarios and a concrete data research, as well as options for action, but also derive acceptance framework are developed in work packages 3 and 4. In recommendations for action and future research. the fi nal work package 5, the established scenarios are used as the basis for a comparative model analysis. The focal topic of these fl agship reports is the council’s own choice. In the fi rst phase of the current term, German Advisory Council on Global Change which started in December 2016, the council looks into (WBGU) the potential and challenges of digitalisation for global K. Pittel, J. Pfeiff er for the Alfred-Wegener Institute, sustainability. In addition to the fl agship reports, the Bremerhaven, December 2016 to September 2020. council continuously monitors and assesses national and international political actions and processes that The German Advisory Council on Global Change is an deal with global environmental change and sustain- independent scientifi c advisory body of the federal able development. These political processes and/or government, which was set up in 1992 in the run-up to special topics are also intermittently addressed with the United Nations conference on environment and de- shorter policy papers and special reports, which can velopment (“Rio Earth Summit”). The principal task of result from inquiries by the federal government. To WBGU is to analyse global change of the natural envi- raise public awareness of the challenges of global en- ronment and its implications for humanity and societies vironmental change, the council actively contributes and to raise the awareness and draw the attention of the to media coverage of these issues and participates in broader public and politicians to global environmental and organises conferences at the interface between and development challenges as early as possible. science and policy.

60 ifo Annual Report 2017 IFO CENTER FOR ENERGY, CLIMATE AND EXHAUSTIBLE RESOURCES

All nine members of the advisory council from various scientifi c disciplines are supported by personal assistants and by the scientifi c and administrative staff of the secretariat in Berlin. The ifo Institute is represented by Karen Pittel, who was appointed to WBGU in De- cember 2016, and her assistant Johannes Pfeiff er. The council members get together regularly each month for two-day meetings with the scientifi c staff of the secretariat. These meetings are also usually attended by personal assistants. For the meetings, working groups variably composed of advisory council members, their assistants and scientifi c staff members elaborate new aspects and topics in internal working papers to inform the council’s discussion and prepare parts of subsequent reports. Once a year, a one-week retreat is organised to intensify this continuous working process and discussions.

ifo Annual Report 2017 61 ifo Center for International Economics

The ifo Center’s research primarily focuses on the year, which caused the department head to give a series following areas: of interviews in both the national and the international press, as well as talks on the economic eff ects of an es- 1. Globalisation and labour markets, calation of trade policies at a multitude of conferences. 2. Trade costs and trade potential Brexit was another important topic in 2017. The department took part in an interdisciplinary study for the 3. Trade and environmental policy. EconPol network. The Center will continue to accompa- In the fi rst area, the Center is supported by research ny the UK’s exit from the EU with its analyses. professors Devashish Mitra, Maxwell School of Pub- lic Administration, Syracuse University and Marc-An- Finally, the department continued and intensifi ed its ac- dreas Mündler, University of California, San Diego. In tivities in the fi eld of trade and environmental policy in the second area, it is supported by research professors 2017. This research mainly highlights the question of the Wolfgang Keller, University of Colorado, Boulder, Mario role of international trade fl ows in making economies Larch, University of Bayreuth, and Wilhelm Kohler, Uni- more resistant to global climate change. The impact of versity of Tubingen. Peter Egger, Eth Zurich, provides climate shocks can be lessened by strong participation advice in all research areas of the Center. in the international division of labour; at the same time, however, there is the danger of an outfl ow of capital and The analysis of the eff ects of globalisation on labour skilled labour. Last year the Center compiled and pub- markets has always been a major part of the depart- lished online the ifo GAME database, a database featur- ment’s work in the past. This research attempts to ing Geological And Meteorological Events covering the incorporate various types of labour market imperfec- entire world on an extremely disaggregated regional tions into models of international trade, outsourcing scale from 1970 to 2014. It is a key information source and international migration; and to numerically or em- for the Center’s participation in the research project EN- pirically quantify their eff ects. In 2017, key insights from GAGE, which was off icially launched in March 2016. The this research were used in a recent consulting project Center’s work in this area has increasingly focused on for the European Commission. A paper on the eff ects issues of international development and will continue Eff ects of trade of trade liberalisation on wage inequality in Germany to do so in the next years. In 2017 a collaboration with a liberalisation on wage has been accepted for publication in the Journal of the leading fi nancial institute has been agreed upon, which equality European Economic Association. will provide the Center with granular transaction data that will be exploited to analyse the change in interna- As far as applied work is concerned, the refugee crisis tional capital fl ows in response to sudden shocks. and its economic consequences once again played a major role in 2017. The Center head has given a number of There were no major changes to the department struc- public speeches on this topic. For example, he took part ture of the ifo Center for International Economics in in a panel discussion with the head of the Federal Em- 2017, which is expected to remain in its present form ployment Agency, Detlef Scheele, in Berlin. He also gave in the future. However, there was some turnover at the a press conference for the “Verein der Auslandspresse” level of doctoral students and post-docs. Inga Heiland left the ifo Institute for the University of Oslo in July. The department continued its work in the area of trade Prior to that, she worked as a guest researcher at Yale costs and trade potential. This strand of research looks University for three months. She will maintain links at how high the natural and policy-induced trade costs with ifo as a guest researcher in the future. Michele Bat- are, what measures can be taken to reduce them and tisti, who has been studying the eff ects of globalisation the trade potential that can be realised in this manner. on labour markets since 2012, has accepted an off er As in the past two years, there continued to be great in- from the University of Trento. He started work there at terest in the analysis of a potential free trade agreement the beginning of 2018. between the EU and the USA. While in previous years, Exploring impact of an FTA between the EU and the US was the primary In 2017, Andrea Ariu joined ifo’s team as part of the potential trade war focus of the center’s work, topics shift ed towards a po- “Sonderforschungsbereich”/Special Research Pro- tential trade war in 2017. Due to recent political events, gramme “Rationality and competition”, which guaran- the topic has received growing media attention over the tees his funding. He is working on the “Product market

62 ifo Annual Report 2017 IFO CENTER FOR INTERNATIONAL ECONOMICS

competition and wage setting” sub-project supervised Department members continued to present their work by Prof. Eckel, University of Munich, and department at international conferences in 2017. In total, roughly head. Mr Ariu has developed comprehensive expertise 170 trips were made by staff in 2018, including 80 by the 170 trips in the services trade and migration domain, which he department head. The deputy department head Erdal by department staff brings to the department’s portfolio. In 2017, two new Yalcin, as well as Jasmin Gröschl, both took part in sev- in 2017 doctoral students – Sonali Chowdhry (October) and Da- eral panel discussions as discussants or chair. This con- vid Streich (November) – commenced work at the Cen- tributed to internationally showcasing the ifo Center ter for International Economics. Sonali Chowdhry will for International Economics as an important instigator conduct research on recent aspects of trade policy, for in international economics. example the optimal design of so-called rules of origin. David Streich complements ifo’s team with his research On 14 July 2017, the department head contributed to on the interrelation of trade and environmental policy. the German government’s “Zukunft sgespräch” panel as one of two external experts by giving a talk on pro- In April 2017, department head Gabriel Felbermayr was tectionism. As in previous years, he contributed to the appointed to the “Zukunft sbeirat” of Upper Austria. He expert committee “Sozialethik der deutschen Bischof- took up a position as a Member of the Scientifi c Adviso- skonferenz” and helped to draft a paper on post growth ry Board of the German Federal Ministry for Economic strategies. Furthermore, he has been asked to give a Aff airs and Energy. He also completed his fi rst year as presentation at the 15th annual forum of the German part of the panel for the Economic Policy. In late 2017, he Marshall Fund of the United States at Elmau castle. In was appointed Associate Editor of the Journal of Euro- addition, he was also part of a Bundestag committee pean Economic Association. on the implications of Brexit.

The ifo Center for International Economics also made Erdal Yalcin contributed to the economic council of the use of and expanded its international networks in 2017. Green party and to the working group on German Turk- As in previous years, these networks were drawn upon ish Economic Relations. The President of the Leibniz to organise conferences. The annual conference of the Association appointed him to the “Strategieforum Eu- Department staff Economic Geography and International Trade Group ropaforschung”. Jasmin Gröschl gave a presentation at engage in high-profi le took place on 24 and 25 February 2017 in Munich. The the 6th meeting of the Nobel laureates in economics in activities department hosted the “Ricardo@200 conference on Lindau. In December 2017, Marina Steininger also gave international economics” in May 2017, which was a mu- a talk on Eurasian economic cooperation at the closing tual eff ort with the Chamber of Commerce and Industry session of the OSCE council in Vienna as a representa- for Munich and Upper Bavaria and took place in Munich. tive of the OSCE Youth Forum. The event featured a list of renowned speakers who gave talks on the perspectives of economic globalisation and The Center is part of an international consortium that participated in a panel discussion. Doug Irwin, Univer- has won a framework contract with the EU Commis- sity of Dartmouth, gave a witty introduction to David sion, Directorate General Trade. 2016 marked the be- Ricardo’s discovery of the comparative advantage prin- ginning of a comprehensive ex post evaluation of the ciple. Samuel Kortum of Yale University, who is widely Free Trade Agreement between the EU and Korea, recognised as the founder of modern Ricardian trade which was the subject of intense research in 2017. This theory, demonstrated Ricardo’s pioneering role. Peter research project also involved co-operation partners in Neary of Oxford University showed that combining Ri- the US and Korea. cardian theory with elements of industrial economics off ers a promising margin for progress. Richard Baldwin, The Center is part of a big international research net- who is the director of the CEPR network in London, of- work, which is fi nanced by the European Union through fered a sweeping talk on globalisation perspectives. On the “Horizon 2020 Program”. The network looks at the 5 December 2017 the department joined forces with the trade policy challenges in the transatlantic context. Transatlantic trade Wirtschaft sdienst magazine to organise a well-received Within this project, ifo, PSE Paris and ETH Zurich are policy challenges conference entitled: “Change in global markets – Will Eu- jointly responsible for economic policy aspects. The rope exploit its opportunities?” which took place at the project was formally launched in 2017 and is scheduled federal representative off ice of Hamburg in Berlin. to run for three years.

ifo Annual Report 2017 63 IFO CENTER FOR INTERNATIONAL ECONOMICS

The Center for International Economics has intensifi ed climate change and the institutional frameworks re- its cooperation with its research professors: Andreas quired. For this project, the department also works Mündler cooperates with the Center in understanding together with researchers at the World Bank, among the labour markets of globalisation and made a num- others. ber of research stays in Munich in 2017. Wolfgang Keller is working together with Erdal Yalcin on the role of un- The Center also continued its long-lasting coopera- certainty in the export behaviour of companies. In col- tion with the Bertelsmann Foundation. In 2017, the laboration with Toshihiro Okubo and Fukunari Kimura Foundation commissioned a study on the potential of the University of Keio in Tokyo, the department pro- economic consequences of a free trade agreement EU-Japan free trade duced a report on the free trade agreement currently between the EU and Japan, as mentioned earlier in agreement being negotiated between the EU and Japan. Ongoing this text. Two other reports have been written for co-operations in several research projects between the foundation: one deals with the eff ects of hidden members of the centre and Wilhelm Kohler and Mario protectionism, while the other looks at the potential Larch continued in 2017. negative eff ects of protectionist US trade policy. The former study concluded that non-tariff barriers have Cooperation with national partners was also expand- substantially slowed international economic integra- ed in the Center’s project work. It further developed tion since 2008. The latter examines a set of diff erent its successful cooperation with the Institute for Ap- scenarios, one in which the US converts its tax system plied Economic Research at the University of Tubin- to a consumption tax system unilaterally, and one in gen (IAW). IAW and the Center collaborated on a large which the US leave the WTO. Another Bertelsmann project for the German Federal Ministry for Economics foundation project analysed the eff ects of trade em- and Energy on the eff ects of market liberalisation from bargos and sanctions, and was carried out in collab- 1990 to 2014. oration with Yoto Yotov of Drexel University in Phila- delphia. In the fi rst half of 2017, the department contributed to a report for the Ministry of Economics in Baden-Wurt- Several reports have been produced for the Ger- temberg, which was primarily overseen by the IAW and man Ministry for Economic Aff airs. The department Eff ects of in which the department quantifi ed the eff ects of pro- worked on a well-received study on the economic protectionist tectionist measures on the local economy. consequences of Brexit on the German and European measures on local economic system, as well as on a comprehensive pa- economies The department head draft ed a paper for the German per on the eff ects of a free trade agreement between Council of Economic Experts in collaboration with Prof the EU and MERCOSUR states (Argentine, Brazil, Par- Benjamin Jung of Hohenheim University. The paper es- aguay and Uruguay), which is due for publication in timates the eff ects of trade liberalisation as a whole, as early 2018. well as several specifi c liberalisation policies. Since the beginning of 2016 – and under the supervision of Ra- The Center for International Economics hosted a total hel Aichele – the Center has worked on the QUANTAGG of 10 guest researchers from abroad in 2017. The num- “Quantitative Analysis of Global Governance” project ber of guests received was comparable to the number funded by the Leibniz Association. This project aims hosted in the past. Following positive experiences in to further develop quantitative methods for analys- previous years, foreign researches remained involved ing trade policy and international agreements. These in several of the department’s projects and in its ac- methods are of central importance to the Center’s on- quisition of additional projects. The choice of visitors is going economic policy consulting. regularly motivated by the Center’s strategic objective to develop new competences or new partnerships with The Center is also involved in the ENGAGE – Econom- the aim of acquiring interesting project work. Center participates in ic Growth Impacts of Climate Change project, which ENGAGE started in early 2016 and is led by the Potsdam Insti- tute for Climate Impact Research (PIK). Together with PIK, the Center investigates the role of international goods- and fi nancial markets in the adaptation to

64 ifo Annual Report 2017 IFO CENTER FOR INTERNATIONAL ECONOMICS

Projects Completed in 2017 the EU and Japan. A key innovation in the proposed approach is that it uses the recently implemented EU-Ko- rea free trade agreement as a benchmark and employs Evaluation of the Implementation of the the most recent data available in the simulation model. Free Trade Agreement between the EU and its Member States and the Republic of Korea While a less ambitious form of trade liberalisation, G. Felbermayr, J. Gröschl, I. Heiland, C.W. Nam in co- which is based only on tariff eliminations, is predicted operation with ifo research professors Y. Yotov, Drexel to yield very low welfare benefi ts, economic gains turn University, and M. Larch, University of Bayreuth, and out to be substantial if the negotiating parties pursue Civic Consulting for the European Commission, Direc- a comprehensive free trade agreement that would torate General for Trade, July 2016 to December 2017. reduce non-tariff barriers across various sectors. Ac- cording to a conservative estimate, which is modelled This project conducted an evaluation of the EU’s free on the experience of the EU-Korea trade agreement, trade agreement with Korea that took eff ect in July 2011. the welfare eff ects for Japan are around EUR 9 billion, The agreement is seen as the most modern and deepest which is equivalent to 0.23 percent of Japanese GDP agreement currently in existence. In addition to reduc- in 2014. At the same time, the EU member states can EU may gain tions in tariff s, it covers a broad range of non-tariff trade expect total income gains worth approximately EUR 11 EUR 11 billion per constraints and features settlements covering environ- billion per year. For Europe, simulations predict that year from trade deal mental, social and labour-law related rules. As part of a the agreement would have positive value added eff ects with Japan consortium, the ifo Institute was responsible for quanti- in the pharmaceutical industry, in the food, beverages tative economic analyses. The goal was to clarify wheth- and tobacco, and in the motor vehicle industries. At the er and to what degree the agreement has stimulated same time, some losses can be expected in the machin- trade in goods and services between the EU and Korea; ery industry. Amongst the services sectors, wholesale and to assess its impact on income, prices, employment trade would benefi t the most from an agreement. In structure, CO2 emissions and further variables. the area of services, minor losses are likely to emerge in computer programming or the entertainment industry. The analysis was conducted in three stages: fi rstly, a For Japan, substantial gains are expected in the com- descriptive data analysis was carried out. In a second puter and electronics sector. The motor vehicle and step disaggregated trade data was analysed using a machinery industries would also benefi t, albeit on a gravity model. Other infl uence factors and the eff ect much smaller scale. By contrast, losses are highly like- of the agreement on exports and imports could be cally to arise in the pharmaceutical sector and in whole- culated individually using this model. In the third and saling. The agri-food industry might lose some market fi nal step the econometric results was used to identify, share, albeit to a fairly limited extent. Given the recent with the help of the ifo trade model, reductions in trade developments within the EU, this study also accounts costs due to the agreement; and to calculate its eff ects for the possible trade eff ects with a Brexit scenario. Brexit reduces value on overall trade, and general equilibrium outcomes. Without the UK, an agreement between the EU and Ja- of deal for Japan pan would be worth substantially less for Japan. On the Economics of an EU-Japan Free Trade Agreement Structural Analysis and Outlook of Baden- G. Felbermayr, E. Yalcin, M. Steininger in cooperation Wurttemberg as a Business Location by with F. Kimura and T. Okubo, both Keio University, To- National and International Comparison kyo, for the Bertelsmann foundation, January 2017 to G. Felbermayr, I. Heiland, M. Steininger in cooperation March 2017, publication as ifo Forschungsbericht 86, ifo with IAW, Tübingen, for the Baden-Wurttemberg Minis- Institute, Munich, 2017. tery of Economic Aff airs, Labour and Residential Con- struction, January 2017 to July 2017. This report revisits the case for an EU-Japan free trade agreement, and provides estimates of its potential Since the fi nancial and economic crisis Germany, and economic impact. It employs advanced quantitative particularly Baden-Württemberg, have consolidated methods to shed light on the economic eff ects that can their position as economically prosperous and innova- be expected from a bilateral trade agreement between tive locations in the European Union. Thanks to the high

ifo Annual Report 2017 65 IFO CENTER FOR INTERNATIONAL ECONOMICS

share of value creation in the manufacturing sectors Various scenarios were also defi ned for Brexit and and its international orientation, Baden-Württemberg’s their impact on Baden-Wurttemberg were analysed. economy has generated a high growth rate by national Trade and value creation eff ects are on a far smaller and international comparison. However, growing exter- scale than in the case of US import protection, but nal risks created by Britain’s imminent exit from the EU follow a similar pattern. Baden-Württemberg and and the potential reorientation of US trade policy, could Germany would suff er real income losses in all of justify additional needs for adjustment. the scenarios analysed in the study, but the losses in prosperity would be far smaller in the Brexit sce- The study aimed to provide relevant economic policy narios, with a reduction of just 0.04 percent in real background knowledge on critical issues. In the fi rst income. of three modules the competitiveness of Baden-Wurt- temberg was analysed using diff erent indicators over The Implications of a Protective US Trade time. The second module focused on external risks, Policy and also looks at the issue of foreign direct investment E. Yalcin, G. Felbermayr, M. Steininger for the Ber- in Baden-Wurttemberg as a potential structural prob- telsmann Foundation, April 2017 to December 2017, lem. The third module dealed with the infl uence of publication as ifo Forschungsbericht 88 and ifo For- disruptive technological changes and the problematic schungsbericht 89, ifo Institute, Munich, 2017, and in ifo fi nding that innovation among SMEs is waning. Schnelldienst 71(4), 2018.

Prosperity in Baden-Wurttemberg is generated by When President Trump came into off ice the US ad- Reliance on manufacturing to a larger extent than in other German ministration launched a detailed analysis of Ameri- manufacturing Länder or countries. Although employment is falling in can trade relations. It aimed to identify “unfair trade the long term, this development is more than off set by practices” that are supposedly increasingly being rising productivity in terms of value creation. In view of used by other countries. The political debate pri- intensive research activity in manufacturing, techni- marily focuses on the US’ key regional trade partners cal-related productivity in Baden-Wurttemberg can be Mexico and Canada, which have drawn the most crit- expected to increase in the future. As a result of rising icism from the US administration. China and Germa- productivity in manufacturing and relatively moderate ny’s very high trade surpluses with the USA have also increases in wage costs, the price competitiveness of come under fi re. This study simulates potential pro- Baden-Wurttemberg’s economy has increased signifi - tectionist trade policies on the part of the USA using cantly over the last decade. historical data.

Baden-Wurttemberg has stronger international links The study shows that any isolation of the US market than Germany as a whole thanks to trade in goods. would have a negative impact ín all discussed scenar- These economic links continued to strengthen be- ios in the long term, and especially on the US economy. tween 2006 and 2016, regardless of the huge collapse in More-over, it shows that if the US were to implement world trade aft er the fi nancial crisis of 2007/08. In view a protectionist trade policy, this would be very likely of this trade policy environment, the question is how to lead to a worldwide retaliation policy. The potential Baden-Wurttemberg’s economy, which is very open to economic damage would once again be particularly external trade, will be aff ected by the incipient, or at negative for the USA in such a scenario. least potential, reintroduction of tariff and non-tariff trade barriers. The results of simulation models show The study illustrates that the USA does actually face that the return to higher import protection in the fi eld economic imbalances, and es-pecially high trade of trade in goods as a result of the reorientation of US defi cits, which are increasingly causing resentments US trade policy will trade policy would have a strong negative impact on in individual branches within the USA. At the same negatively impact exports by Baden-Wurttemberg’s traditional export time, however, the study also makes it clear that the exports industries (electronics industry, mechanical engineer- solution to such economic challenges does not rest ing and vehicle manufacturing). If US import protection in a protectionist trade policy. On the contrary, such also includes the non-tariff area, these declines in ex- a policy would only exacerbate problems in the long ports will range from 7–8 percent in nominal terms. term.

66 ifo Annual Report 2017 IFO CENTER FOR INTERNATIONAL ECONOMICS

Discriminatory Measures Enforced by the US prehensive and ambitious free trade agreement be- 2009–2017 tween the EU and the United Kingdom, the real gross domestic product would, in the long-run, be 0.6 per- Number pro year 1,400 cent lower in the UK and 0.1 percent lower in Germany 1,142 1,191 and the EU, respectively. In the absence of a bilateral 1,200 1,047 agreement, and therefore a relapse to most-favoured 936 1,000 nation tariff rates under the World Trade Organisation, 770 the eff ect on GDP in the UK would be –1.7 percent in Brexit’s impact on 800 GDP 617 the long-run, –0.2 percent in Germany and –0.3 per- 600 cent averaged over the EU27 countries. A Brexit would 411 aff ect EU27 states diff erently. Overall, the further the 400 250 geographic and cultural distance from the UK, the low- 200 126 er the losses for the respective EU27 state.

2009 2010 2011 2012 2013 2014 2015 2016 2017 The largest relative drop in value added in the German economy concerns pharmaceutical products, as well © ifo Institute Source: Global Trade Alert Data; ifo Schnelldienst 71(4), 2018, p. 31. as the automotive and machine building industries. In the United Kingdom, the automotive industry, aircraft construction, the metal and chemical industries, and Economic Eff ect of a Brexit on the German and the wholesale sector are among the sectors that are European Economy most negatively aff ected; these sectors are typical- G. Felbermayr, J. Gröschl, I. Heiland, M. Braml, F. Teti, M. ly strongly integrated into the European value chain. Steininger for the German Federal Ministry for Economic However, in Germany some service sectors could also German fi nancial and Aff airs and Energy, March 2017 to April 2017, publication benefi t from Brexit, including the fi nancial sector and IT sectors may benefi t as ifo Forschungsbericht 85, ifo Institute, Munich, 2017. IT services. The United Kingdom could expect to gener- from Brexit ate added value particularly in food industries. Following the referendum of the United Kingdom on EU membership and in the run-up to the negotiations Impact of the Free Trade Section of an on exit (“Brexit”), the political, economic and legal Association Agreement between the EU and perspective of Germany and the European Union with Mercosur on the German Economy the United Kingdom are extremely uncertain. The com- E. Yalcin, G. Felbermayr, M. Braml, M. Steininger in co- ments of the British government on the exit of Great operation with G. Kolev, German Economic Institute Britain from the European single market, and possibly (IW), Cologne, for the German Federal Ministry for Eco- also from the EU customs union, are associated with nomic Aff airs and Energy, April 2017 to October 2017. considerable uncertainties and risks for both the Ger- man and the European economy to date. The European Union (EU) is currently negotiating a trade agreement with the four founding members of In addition to an evaluation of the bilateral economic Mercosur (Mercado Commun del Sur): Argentina, Bra- and trade relations between the United Kingdom and zil, Paraguay and Uruguay, as part of a regional asso- Germany as well as the EU, respectively, the study pro- ciation agreement. Although Venezuela has formally vides an analysis of the impact of the United Kingdom’s been a member of Mercosur since 2012, the country is exit from the EU on the British, German and European not a partner in the trade negotiations with the EU but economies. It also evaluates the impact of Brexit on has an observer status. various industries. Diff erent scenarios for the design of future EU-UK relations are examined on the basis of Negotiations for the EU’s Association Agreement with bilateral, sectoral trade and economic links. Mercosur were launched in 2000. They were interrupt- ed in 2004 due to widely diff ering positions among the The results of the study show that a Brexit will in all negotiating parties and only resumed in 2010. In the events be signifi cantly more expensive for the United initial negotiating phase, the Mercosur members were Kingdom than for Germany. In the scenario of a com- particularly dissatisfi ed with the EU’s access provi-

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sions to the agricultural sector, while the EU demand- Welfare Eff ects of Trade Liberalisation and ed greater concessions in the opening of individual Protectionist Measures industrial sectors. In the renewed negotiations on the G. Felbermayr, J. Gröschl, B. Jung for the German Coun- Association Agreement, the EU and Mercosur have ex- cil of Economic Experts, July 2017 to September 2017, changed new market access proposals on goods trade, publication in ifo Schnelldienst 70(22), 2017. services and public procurement. This study examined the extent to which trade liber- The goal of this study was a quantitative re-evaluation alisation relative to technical progress is causally re- Germany’s trade of German trade policy interests in the context of the sponsible for the growth of trade, the welfare eff ects policy interests EU-Mercosur trade agreement. The determined eco- resulting from the globalisation process as a whole, in EU-Mercosur nomic-policy results are particularly intended to iden- and the macroeconomic eff ects arising from the in- agreement tify the potential. room for manoeuvre that exists in troduction of trade barriers. We aimed to assess the the ongoing negotiations. eff ects of diff erent integration steps in trade liberalisation on sectoral trade fl ows and to causally diff er- The New Anti-Dumping Methodology Proposal entiate them from other drivers of growth in trade. from a Comparative Perspective: How to Make We also quantify the welfare eff ects of trade liberal- it Eff ective isation. E. Yalcin, G. Felbermayr, A. Sandkamp, S. Müller for The European Parliament, July 2017 to September 2017. Analysis of the eff ects of trade policy and associated integration steps of trade liberalisation on sectoral On 9 November 2016 the Commission published pro- openness. Using a gravity model, we examine the ef- posal COM(2016)721, which aims to introduce a new fects of various existing globalisation steps and their methodology to provide protection against dumped integration eff orts. To quantify the welfare eff ects of imports from non-EU countries. The Commission abol- trade liberalisation in a general equilibrium model, we ishes the distinction between market and non-market employ several models that fall into the class of new economies. Instead, a new methodology is introduced quantitative trade theory (NQTT) models. We use a ver- to calculate the duties on a case-by-case basis, taking sion without intermediate inputs and a model in which into account general reports of the Commission, which producing sectors use inputs from other sectors. We shall contain criteria to defi ne ’signifi cant distortions’ distinguish between models with perfect competition, in the market. These reports will serve as a basis for de- monopolistic competition (Krugman, 1980), and het- Deciding on an ciding which anti-dumping methodology is to be used: erogeneous fi rms (Melitz, 2003). anti-dumping the standard one for WTO countries with a market methodology economy, or the proposed new methodology.

Welfare Eƛects of Trade Relative to Autarchy The Commission proposal leaves several questions Germany, 1990–2014 open. There are questions about the exact form and Perfect competition content of the reports to be draft ed by the Commission, Monopolistic competition about the criteria used to deﬁ ne signiﬁ cant distortions % Merlitz model 25 justifying the use of the new methodology. The study aimed to answer the following questions: What are the 20 main features of the new calculation methodology and which elements should be used to construct the nor- 15 mal value? To what extent will prices and costs based

on surrogate data be required? What should feature 10 in the country reports to enable a decision over the methodology to be used? What kind of criteria could or 5 should be used for assessing a ’signiﬁ cant distortion’? And how does the Commission proposal compare to 0 existing anti-dumping legislation and practices in Can- 1990 1994 1998 2002 2006 2010 2014 ada and the United States? Source: Calculations by the ifo Institute. © ifo Institute

68 ifo Annual Report 2017 IFO CENTER FOR INTERNATIONAL ECONOMICS

The econometric ex-post evaluation shows that the dif- Current Projects ferent trade policy measures have led to a signifi cant increase in Germany’s trade in goods and services. The EU’s Eastern enlargement has boosted Germa- Economic Growth Impacts of Climate Change ny’s goods trade with the new EU member states by (ENGAGE) 60.3 percent and service trade by 54 percent; the intro- G. Felbermayr, T. Steinwachs in cooperation with the duction of the euro had a positive eff ect of 11.3 percent Potsdam Institute for Climate Impact Research (PIK) for on trade in goods, but not on trade in services. Mean- the Leibniz Association, March 2016 to December 2018. while, free trade agreements have increased Germa- ny’s total bilateral trade in goods by 14.7 percent and The IPCC 5th Assessment Report reveals large knowl- trade in services by 25.7 percent. China’s accession edge gaps regarding the socio-economic impact of cli- to the WTO increased Germany’s exports of goods mate change, especially changes in economic growth. to China by 122.3 percent and exports by 148.2 per- This prevents the integrated assessment of impacts, cent, while trade in services grew by 80.4 percent and mitigation and adaptation. ENGAGE aims to move to- 89.1 percent, respectively. Using a new quantitative wards closing these gaps by (a) developing a sound trade model to compare the observed status quo of conceptual and empirical understanding of the chan- 2014 with a hypothetical state of autarky, we fi nd that nels through which climate impacts aff ect growth, (b) German real income per capita is 22 percent higher estimating economic damages from selected impacts than under autarky, and real per capita consumption in a changing climate and socio-economic environ- is 13 percent higher. According to our calculations, at ment, particularly with regard to long-term growth least a quarter of the trade benefi ts generated since eff ects, (c) exploring how the inclusion of growth ef- 1990 are due to specifi c trade policy measures; while fects changes the integrated assessment of selected the remainder can be attributed to technological and impacts and mitigation strategies. infrastructural reductions in international trade costs. Within the project the ifo Institute conducts econometric Methods and Indicators for Assessing the analyses of the impact of natural hazards on economic Impact of Climate Change on the Business outcomes to explore potential meachanisms at the haz- Impact of natural Models of Companies ard/growth nexus. Since most existing studies use out- hazards on economic M. Zimmer, K. Pittel, G. Felbermayr, J. Gröschl, O. Acht- come-based disaster data, which suff er severe reporting, outcomes en fort eh KPMG AG Wirtschaft sprüfungsgesellschaft , endogeneity, and aggregation issues, ifo is building up a July 2017 to December 2017. new database of geological and meteorological events comprising exogenous data on physical intensities col- The project aimed to improve the approaches and pro- lected from primary sources, geographically disaggre- cesses that KPMG employs for assessing the eff ects of gated at country, region, and grid cell level. To this end, climate change on corporate business models. It pro- the ifo GAME Database on geological and meteorological vided scientifi c foundations and links to cutting edge events has been updated and completely reconstructed. scientifi c research. The project was led by the ifo Cen- In cooperation with researchers from the Potsdam-Insti- ter for Energy, Climate and Exhaustible Resources and tute for Climate Impact Research (PIK), the database has was described in this chapter. been enriched with now components like more accurate measurements of wind speeds via wind fi eld models.

Currently, this database is used in the project “Illimu- nating the Spatial Connectivity of Disasters”, to analyse the spatial spill-over eﬀ ects of natural disasters on economic activity (measured by night light emissions) on a global coordinate raster grid. This analysis is being conducted in cooperation with two researchers from the University of Utrecht. In this context, the role that country borders and infrastructure connectivity play in the transmission of such eﬀ ects is also examined.

ifo Annual Report 2017 69 IFO CENTER FOR INTERNATIONAL ECONOMICS

Quantitative Tools for the Analysis of Global real incomes induced by price changes in consumer Governance Issues (QUANTAGG) goods under the assumption of non-homothetic pref- R. Aichele, F. Teti, M. Steininger, M. Braml for the Leibniz erences will be investigated. Association, January 2016 to December 2020. International Market Interactions, Institutions The goal of QUANTAGG is to contribute to the develop- and the Costs of Natural Catastrophes ment of quantitative tools for policy analysis, which J. Gröschl for the German Research Foundation (DFG), can be used to address some of the most pressing in- January 2017 to December 2019. ternational cooperation issues of our times. These issues include the consequences of trade liberalisation Natural hazards can result in severe economic shocks, and the reordering of the multilateral trade order, and with consequences for human and economic develop- international climate policy. In recent years, new meth- ment. Moreover, anthropogenic climate change can in- ods in quantitative trade modelling have become avail- crease the frequency and severity of such events. Thus, able, but they are only starting to be used for applied studying how past natural disasters have shaped eco- trade policy analysis. QUANTAGG attempts to make nomic outcomes; and how the latter were shaped by in- use of the methodological advances to improve our un- stitutional setups or by trade openness, migration, and derstanding of important developments in the global capital ﬂ ows, can provide important insights into how economy and to inform economic policy. to cope with the eﬀ ects of climate change in the future.

A research paper investigates the extent to which trade Empirical studies suggest that similar hazards have dif- liberalisation has contributed to global production frag- ferent eff ects throughout the world; and that countries’ Trade liberalisation mentation and the formation of production networks, institutions, as well as their embeddedness in interna- and global production taking global value chains explicitly into account. The tional markets, are important in adapting to natural di- fragmentation work derives structural equations for value added trade sasters. However, most of the empirical literature suff ers fl ows and indicators of production-sharing proposed in from a number of problems. Firstly, studies usually use the extant literature, and develops model-based mea- information on the incidence of natural disasters from sures for production networks from a multi-sector grav- databases drawn from insurance records or news. This ity model with inter-sectoral linkages. project aims to develop such an extended database and to exploit it to answer a number of research questions A second research paper investigates the necessity of situated at the cross-roads of environmental economics, rules of origins in free trade agreements (FTAs). Rules of development economics and international trade. origins exist to prevent non-member countries from exporting their goods to a FTA member via the FTA coun- There are three tiers to this research: fi rstly, it investi- try with the lowest external tariff rate and then tranship gates how the eff ects of natural hazards and disasters the good within the FTA – also called trade defl ection. impact international transactions and looks at the Trade defl ection The research paper uses a new tariff database to anal- pattern of economic specialization. Secondly, welfare and FTAs yse diff erences in countries’ external tariff schedules losses due to natural disasters are analysed at the lo- and fi nds that the latter correlate strikingly for coun- cal level and the nexus between hazard risks and the tries belonging to the same deep FTA. This is due to how determinants of disaster resilience is explored using countries select with whom to negotiate and sign a FTA; unique grid-cell level data. Thirdly, this research iden- rather than to ex post convergence. Therefore, in most tifi es how the impact of trade openness and internal FTAs, for a vast majority of products, trade defl ection geography on shaping the macroeconomic impact of is not profi table; even in the absence of costly rules of natural disasters at the local level. A spatial analysis origin, rendering rules of origins unnecessary. of China and how fi rm behaviour is aff ected by natural disasters is also conducted focusing on Chinese fi rms. Furthermore the eff ects of trade and environmental policy on trade and emissions will be investigated with In 2017, a paper on the eff ects of natural disasters on in- the help of a quantitative trade model, while properly ternational migration was fi nalised in the DFG project. taking into account the emissions from international Currently, we combine the updated ifo GAME database on transportation. Finally, the eff ects of global trade on geological and meteorological events with data on inter-

70 ifo Annual Report 2017 IFO CENTER FOR INTERNATIONAL ECONOMICS

national trade in the project “Trade Disruptions from Natu- Services as a share of total value added in 2016 amount- ral Disasters: Evidence from Monthly Data”. In this project, ed to 65 percent in Bavaria and 69 percent in Germany we investigate the short-term eff ects of natural disasters as a whole. Across the border, that share was 71 per- on trade and underlying production and consumption cent in Austria and 60 percent in the Czech Republic. eff ects on a monthly basis. This work is jointly conducted The lion’s share of the German population is employed with a researcher from the University of Adelaide. in service sectors, which account for the majority of tax revenues and have contributed disproportionately Transatlantic Trade and Investment Partnership to growth in value added and employment in recent International Training Network decades. In addition, it has become increasingly diff i- Border between G. Felbermayr, S. Chowdhry in cooperation with the cult to draw a distinction between manufacturing and manufacturing and University of Birmingham, the ETH Zurich, the Paris services. Recent research at the ifo Institute has shown services blurs School of Economics, the University of Nottingham, that services are playing a growing role in traditional the Erasmus University Rotterdam, the Universita de- manufacturing industries too, for example in soft ware, gli Studi di Torino, the German University for admin- maintenance and fi nancing, in a trend known as serviti- istration in Speyer, the University of Passau, the City zation. This implies that the role of services for growth University London and the Egmont Institute, Brussels, and employment is even more pronounced than the October 2017 to September 2020. above-mentioned numbers suggest.

This project deals with potential reforms to the Europe- In addition, mutually amplifying interactions exist be- an Union’s trade policy. The heated public debate over tween the export of goods and services. The manufac- TTIP, the free trade agreement negotiated between the turing industries’ international competitiveness also US and the EU, has illustrated the need to reassess the relies on an eff icient service sector. Unlike in the man- way the EU negotiates trade deals and highlights that ufacturing industry, Germany – and Bavaria –do not old paradigms have become obsolete in the face of pro- rank among the world’s elite countries when it comes found geopolitical, technological and social changes. to the provision of services. In manufacturing, German The role played by regulations concerning environmen- and Bavarian fi rms substantially benefi t from compre- tal protection, labour market institutions and consum- hensive links with neighbouring countries. “Factory “Factory Europe” er protection in trade agreements has to be re-evaluat- Europe” is a crucial ingredient for our competitiveness ed. Other points for debate include the enforcement of and wealth. In the service industry, these links are not investment protection clauses in bilateral treaties. as pronounced as in manufacturing, which is primarily due to the lack of economic integration in services in The consortium is interdisciplinary, consisting primarily Europe. of economists and political scientists. The ifo Institute will be working on rules of origin within the project. These de- This study evaluates ways to enhance the integration of termine – oft en involving a great deal of red tape – wheth- Bavarian fi rms into regional service networks in order er a good originates in a country that is part of a free trade to increase their productivity and, in turn, welfare. The agreement; and thus whether it can benefi t from the study proceeds in three steps. Firstly, we document agreement (through tariff exemption or accreditation). existing barriers to international services trade and Empirical studies show that many exporters prefer paying observe developments over time. The main challenge a tariff over proving that a product is entitled to benefi t here is the lack of comprehensive datasets. Secondly, from the provisions of the free trade area. Strict rules of the implications of these barriers for trade fl ows and origin render trade deals less eff ective. They can also other economic indicators are investigated. To this have negative eff ects on third countries, since adhering to end, we use the ifo trade model (Aichele et al., 2016). Fi- them can lead exporters to re-optimise their supply chain. nally, we discuss potential trilateral cooperation initiatives between Bavaria, Austria and the Czech Republic The Single Market and Movement of Services and aimed at reducing barriers to services trade. Labour – How Does Red Tape Aff ect Competition? G. Felbermayr, F. Teti, D. Streich, as part of the framework agreement with the IHK Munich and Upper Bavaria, November 2017 to February 2018.

ifo Annual Report 2017 71 ifo Center for Macroeconomics and Surveys

On 1 June, 2017, Andreas Peichl became the new Di- ity and the overall economy. Research also focuses on rector of the Center, which was renamed to Macro- the reform process of fi nancial sector regulations, par- economics and Surveys, and professor of Macroeco- ticularly with regard to the European Banking Union. nomics and Public Finance at the Ludwig Maximilians University of Munich. The project “Financial Market Imperfections and the Pricing Decision of Firms: Evidence, Theory, and Macro- The ifo Center for Macroeconomics and Surveys re- economic Implications” (N. Hristov together with A. Bal- search focuses on economic policy analyses and macro- leer, RWTH Aachen, and D. Menno, University of Mich- economic forecasting with a special focus on inequality igan) is fi nanced by the German Research Foundation and redistribution. The Center also provides services in (DFG) for 2015–2017. Drawing on microdata from the ifo the form of survey data and methodological expertise, Business Survey, it examines why and in what way fl aws as well as business cycle indicators and macroeconom- in the fi nancial market infl uence the pricesetting be- Center produces ic forecasts. The Center’s “ifo Business Climate Index”, haviour of companies. The theoretical part of the proj- ifo Business Climate a monthly survey of 7,000 German fi rms, receives con- ect models an explicit interaction of fi nancing restric- Index siderable public and media attention as it is Germany’s tions and price adjustments. Initial results suggest that most important leading business cycle indicator. fi nancially-constrained companies in Germany adjust their prices far more frequently. This means that price RESEARCH PROJECTS adjustments are more fl exible, and thus monetary policy is less eff ective, when companies only have restrict- The center’s research focuses on: ed access to funding. The theoretical model is in a po- – Economic policy analyses sition to qualitatively reproduce these empirical facts. – Forecasting The project “Unexpected Loan Losses and Bank Cap- – Inequality and redistribution ital in an Estimated DSGE Model of the Euro Area” (N. Hristov and O. Hülsewig, Munich University of Ap- PROJECTS IN THE FIELD OF ECONOMIC POLICY plied Sciences) seeks to quantify the role of the ‘bank ANALYSES capital channel’ for the transmission of macroeconomic shocks in the European Monetary Union (EMU). The Center studies both existing tax and transfer systems More specifi cally, the paper develops a stylised DSGE and the potential economic eff ects of reform proposals. model in which banks face unexpected losses in their Work in this area takes into account the distributional loan portfolios and are subject to capital regulation. and eff iciency aspects of tax and transfer systems, as The framework is used to explore the aggregate con- well as their incentive and insurance eff ects over the life sequences of the interaction between macroeconomic cycle, including insights from behavioural economics. conditions, credit default and bank capitalisation. The Economists in this research area study fi scal policy model is estimated based on macroeconomic time se- and fi scal integration in Europe, including various pro- ries for the euro area. Impulse response analysis shows posals for creating a European fi scal union. A particu- that the aforementioned interaction substantially mag- lar focus is placed on analysing the eff iciency eff ects of nifi es the responsiveness of the economy to demand tax and transfer systems, as well as their redistributive side and monetary disturbances. The amplifi cation is and stabilising eff ects. especially strong with respect to government spending shocks. The model is also capable of replicating two fi - Analyses are conducted using various empirical ap- nancial market characteristics that are documented in proaches and models, including the tax-benefi t micro- the empirical literature, i.e. the pro-cyclicality of bank Tax benefi t model simulation model for the European Union (EUROMOD), profi tability and the counter-cyclical response of fi rm EUROMOD which allows micro-based analysis of changes in re- default rates and credit spreads to monetary policy spective tax and transfer policies in the EU28 and the shocks. Alternative specifi cations of our model where- simulation of counterfactual policy reforms. by loan contracts are contingent upon the aggregate state of the economy fail to replicate at least one of Another research area is the monetary policy of the Eu- these characteristics or even both (publication in Jour- ropean Central Bank and its impact on fi nancial stabil- nal of Macroeconomics 54, 2017).

72 ifo Annual Report 2017 IFO CENTER FOR MACROECONOMICS AND SURVEYS

In the study “Uncertainty and the Cost of Bank vs. Bond Budget Balance of Reserve Currency Countries”). This Finance” C. Grimme analyses the impact of an increase project focuses on the diff erence between private and in economic uncertainty on the costs of corporate off icial capital fl ows. While private capital fl ows are bonds and bank loans in Germany and the USA. The based on investment decisions taken by private inves- paper shows that bond yields rise during periods of vol- tors, development aid and the currency reserves held atility, while bank loan rates fall. This diff erence is due by central banks count as off icial forms of capital move- to the fact that banks, unlike the capital market, collect ments. This is used as a basis to develop a new bench- borrower-specifi c information, because they are inter- mark for measuring the private fi nancial openness of ested in long-term customer relationships. In uncertain countries. A panel study of over 100 countries shows times, banks gather more information to reduce un- that private fi nancial openness has a signifi cantly pos- certainty. This strengthens the bank’s information mo- itive impact on economic growth. In a subsequent step nopoly, making long-term customer relationships more the project examines the impact of a world reserve cur- Benchmark for important to the bank. The bank reduces short-term rency on the economy in question. Our empirical anal- private fi nancial interest rates in order to maintain customer relations. ysis over a historical period from 1890 to 2009 shows openness that demand for currency reserves leads to lower fi scal In the project “Non-Linear Eff ects of Uncertainty and balances in the budgets of world currency countries. In Real Fluctuations”, C. Grimme (together with S. Hen- economic policy terms, this highlights the instability zel, Munich University of Applied Sciences) analyses of the world currency system, since the world reserve whether the link between uncertainty and real activ- countries are accumulating a rising level of debt. ity is non-linear. The question is tackled both at the fi rm-level with ifo micro data, and at the macro level Based on national tax revenue forecasts for 18 OECD with the help of non-linear vector-autoregressive mod- countries, R. Lehmann and B. Jochimsen, Berlin School els. It turns out that at both levels, increases in uncer- of Economics and Law, asked in a joint research project tainty have negative eff ects, especially when overall whether these fi gures are biased due to political ma- uncertainty is still at a low level. nipulation. Three key conclusions can be drawn. First- ly, left -wing governments produce more optimistic tax The project “Price Setting of Firms – Evidence from Sur- revenue forecasts compared to their right-wing coun- vey Data” (C. Grimme together with H. Dixon, Cardiff terparts. Secondly, they fi nd that more fragmented gov- Business School) analyses the determinants of chang- ernments and parliaments tend to produce more pes- es in the frequency of price changes. The frequency of simistic forecasts. And fi nally, political business cycles Fragmented price adjustments fl uctuates strongly along the busi- or biases due to forthcoming elections cannot be con- governments produce ness cycle. This has eff ects on the infl ation rate and fi rmed. The article entitled: “On the political economy pessimistic forecasts the eff ectiveness of monetary policy. It turns out that of national tax revenue forecasts: evidence from OED fi rm-specifi c variables in particular play a role, while countries” was published in Public Choice 170(3).2017. aggregate factors exert far less of an infl uence. Price adjustment is both state and time-dependent. A joint research project by R. Lehmann and X. Frei, F. Rö- sel, both ifo Dresden, and S. Langer, Leibniz Institute of The study “Time-Varying Business Volatility and the Ecological Urban and Regional Development, Dresden, Price Setting of Firms” (Chr. Grimme together with investigate whether election externalities exist between R. Bachmann, University of Notre Dame, B. Born, Uni- diff erent layers of government. To this end, the authors versity of Bonn, and S. Elstner, RWI) was fundamental- draw on voting polls for Germany in total and Berlin ly revised in 2017. Empirical micro- and macro models in particular for the four main parties (CDU, SPD, the show that a rise in fi rm-level uncertainty increases the Greens and the Left ). The results suggest that shocks frequency of price adjustments, the dispersion of pric- in federal parliament voting intention impact state par- es and the average level of absolute price adjustments. liament voting intentions, but – as a new fi nding – the reverse also applies to the same extent. The eff ects also Another research project examines the causes and out- diff er across parties. Electoral externalities are lower for comes of international capital fl ows (A. Steiner, “Does the CDU, but increase in times of government. The oppo- the Accumulation of International Reserves Spur Infl a- site holds true for the SPD and the Left . Detailed results tion? A Reappraisal” and “A Tale of Two Defi cits: Public were published as CESifo Working Paper No. 6375, 2017.

ifo Annual Report 2017 73 IFO CENTER FOR MACROECONOMICS AND SURVEYS

Another project entitled “Explaining Spatial Patterns of vestors to net-savers during the last decade, and its Foreign Employment in Germany” (Revise and Resub- eff ects on macroeconomic variables. The focus of the mit: Regional Studies), which is joint work by R. Leh- project is to understand the relationship between capi- mann and W. Nagl, Institute for Advanced Studies, Vi- tal markets and the current account balance. This proj- enna, explores the main determinants of the regional ect is supported by the German Bundesbank. representation of foreign employees in Germany. Since migration determinants are not exclusively the same The Center also studies national fi scal policies in EU between workers of diff erent nationalities, the paper member states. A particular focus is placed on analys- explains spatial patterns not only for total foreign em- ing the eff iciency eff ects of tax and transfer systems, ployment, but also for the 35 most important migration as well as their redistributive and stabilising eff ects. countries to Germany. Based on a total census for all Analyses are conducted using various empirical ap- 402 districts in Germany, the study documents a signifi - proaches and models, including the tax-benefi t micro- Migration cant degree of heterogeneity in migration determinants simulation model for the European Union (EUROMOD), determinants diff er between nationalities. It turns out that cultural factors which allows the micro-based analysis of changes in re- and amenities correlate in more cases with the nation- spective tax and transfer policies in the EU-28 and the ality-specifi c representation of foreign employment simulation of counterfactual policy reforms. compared to labour market and economic conditions. The authors identify three groups of countries for which Two projects by M. Dolls, C. Fuest, A. Peichl and C. Wit- diff erent determinants are more important than others. tneben focus on the role of Automatic Stabilizers. The third project is a joint piece of work by M. Dolls, A. Pe- For some time, the ifo Center for Macroeconomics and ichl and C. Wittneben, with colleagues working at the Surveys has also focused on the discipline of biblio- European Commission and its Joint Research Center metrics in general and journal rankings in particular. in Seville. It proposes a new methodology for ex-ante The article “Who is the ‘Journal Grand Master’? A new fi scal surveillance that incorporates behavioural and ranking based on the Elo rating system” (publication in macroeconomic eff ects (“Dynamic Scoring”). Journal of Informetrics 11(3), 2017) by R. Lehmann and K. Wohlrabe can be attributed to this research area. In In particular, the fi rst project (“Crisis, Austerity and this paper, the authors transfer the Elo rating system, Automatic Stabilization”) analyses how reforms of which is widely accepted in chess, sports and other dis- tax-benefi t systems in the period 2007–2015 aff ect- ciplines, to rank scientifi c journals. The advantage of ed the automatic stabilisation capacity in the EU-27 Elo rating system the Elo system is the explicit consideration of the factor based on harmonised European micro data. Factors transferred to time or the history of a journal’s performance. Most oth- like unemployment benefi ts or income taxes can sta- journals er rankings that are commonly applied neglect this fact. bilise individual and aggregate income and smooth The authors illustrate the Elo approach using a panel of consumption demand in case of shocks. Our analysis 7,748 journals from many scientifi c fi elds. It turns out makes it possible to disentangle automatic changes that the Elo system produces a similar, but not identi- in net government intervention from those that take cal ranking compared to its standard counterparts. The place aft er explicit government legislature (discretion- ranking order for ‘middle-class’ journals in particular ary changes), as well as changes in actual incomes and can change tremendously. A follow-up project that par- behavioural responses. We fi nd automatic stabilisers ticularly deals with economics journals has also been to be generally heterogeneous across countries – both published (Economics Bulletin 37(4), 2017) and brings an- in levels and in terms of policy changes over the crisis. other viewpoint to the ranking discussion in Germany. Stabilisation coeff icients vary from less than 25% in Eastern European countries to almost 60% in Belgium, The research project: “The German current account and Germany, and Denmark. We discuss the implications of capital markets imbalances in the Eurozone against the our results for post-crisis recovery. background of German fi rm’s investment and saving decisions: causes and policy implications”, which is a Based on former policy consulting work, M. Dolls and joint piece of work by T. Wollmershäuser, F. Schröter C. Krolage (together with F. Buhlmann, ZEW, Manheim) and E. Mayer, University of Würzburg, examines the be- assess the distributional and stabilisation eff ects of con- haviour of German fi rms, which changed from net-in- verging parameters in European countries’ unemploy-

74 ifo Annual Report 2017 IFO CENTER FOR MACROECONOMICS AND SURVEYS

ment insurance schemes. To this end, they develop a de- mainly due to diff erences in the progressivity of the tax tailed microsimulation model that allows a more precise systems across Europe. The incentive eff ect is large in simulation of unemployment benefi ts. Their results indi- countries with a highly progressive tax schedule, while cate that common minimum standards in the unemploy- it is zero for countries with a fl at tax, where the marginal ment insurance schemes would have the largest eff ects tax rate is constant. Diff erences in labour supply elastic- on Eastern European countries and a lesser impact on ities also play a signifi cant role. the countries most aff ected by the fi nancial crisis. PROJECTS IN THE AREA OF FORECASTING Furthermore, we have developed a random utility-dis- To ensure that the economic forecasts are scientifi cally crete choice model of household behaviour to analyse sound, macroeconomic models for the analysis of the the incentive eff ects of taxes. This model is used in con- business cycle and economic growth are constantly ex- Analysing junction with and as an augmentation of the (static) tax amined for their practical suitability and improved. In macroeconomic model EUROMOD. The following two projects use the addition, innovations in forecast methods are adopted shocks labour supply model as an integral part of the analysis. and expanded. Finally, the quality of the surveys is en- In the paper “Dynamic Scoring of Tax Reforms in the EU”, sured via studies in survey methodology. M. Dolls, A. Peichl and C. Wittneben (together with S. Bar- rios, A. Maft ei, S. Riscado, J. Varga, European Commis- The Center’s macroeconomic research primarily in- sion) present the fi rst dynamic scoring exercise linking vestigates the causes and economic impact of macro- a microsimulation and a dynamic general equilibrium economic shocks and deduces their implications for models for Europe. We illustrate our novel methodology applied business cycle analysis. Thematically, its work analysing hypothetical tax reforms on the social insur- focuses on the infl uence of fi nancial market frictions ance contributions system, for Belgium. Our approach and uncertainty, as well as the impact of monetary and takes into account the feedback eff ects resulting from fi nancial policy measures on real and fi nancial vari- adjustments and behavioural responses in the labour ables. Many questions are drawn from experiences and market and the economy-wide reaction to the tax poli- observations related to the global fi nancial crisis and cy changes, essential to a comprehensive evaluation of the euro crisis. As far as methods are concerned, both the tax reforms. We fi nd that the self-fi nancing eff ect of a theoretical approaches like, for example, DSGE mod- reduction in employers’ social insurance contribution in els, and empirical time series approaches such as VAR DSGE and VAR models Belgium is substantially larger than that of a comparable models are used. The survey data collected by the ifo reduction in employees’ social insurance contributions. Institute is also oft en used in empirical work. Financial constraints and corporate uncertainty, for example, The second project (“Labour Supply and Automatic are identifi ed using micro data from the ifo Business Stabilisers”) estimates the stabilising eff ects of tax and Survey at a corporate level. In some cases the Center transfer systems through a marginal incentives channel. cooperates with its research professors and research When income taxes are progressive, the tax rate that a associates, as well as with other ifo Centers, especially household faces will fall following an income decline the ifo Center for Public Finance and Political Economy. in a recession, thereby increasing work incentives and hence labour supply. This eff ect off sets part of the initial In the area of forecasting methodology the Center pri- income decline, stabilising aggregate income and out- marily concentrates on processes of information con- put. The magnitude of the eff ect depends on the change densation and selection against a background of enor- in the marginal tax rate aft er a change in gross income, mous amounts of data available to forecasters (partly as as well as the elasticity of labour supply with respect to a result of ifo’s own surveys). For example, this area looks a change in the aft er-tax wage. We estimate a structural at the question of whether micro-data from business discrete choice labour supply model and individual tax and surveys are suitable for forecasting macroeconomic rates for households in the EU28 using the microsimu- time series. In addition, alternative ways of processing lation model EUROMOD and EU-SILC household data. micro-data on participants, industries and regional de- Our estimations show that up to ten percent of a fall in limitations are examined. One example is boosting tech- Using boosting household income is off set by an increase in labour sup- niques that enable the transmission of core information techniques ply. The EU average is roughly two percent. The results (e.g. fi rms with a high forecasting quality). Processes reveal a large heterogeneity across countries, which is like Bayesian model averaging or models with mixed

ifo Annual Report 2017 75 IFO CENTER FOR MACROECONOMICS AND SURVEYS

frequencies, which are already frequently applied, are Cycle” by M. Reif together with ifo research professor examined for their suitability and further developed. K. Carstensen, M. Heinrich, both University of Kiel, and M.H. Wolters, University of Jena, a model to date busi- The methodological foundations of business sur- ness cycle turning points is developed. To this end, a va- veys are subject to on-going analysis. In this context riety of socalled large-data methods (LARS, LASSO, elas- a meta-survey of the wholesale and retail reporting tic-net) are applied to select the optimal set of indicators category looked at the question of who replies to the for each period. It is demonstrated that applying this surveys within companies and what these individuals automatic variable selection provides superior results understand by vague expressions like “business situa- compared to the case of a fi xed set of indicators. More- tion” and “business expectations”. A research project over, the model is used to compute short-term forecasts is currently looking at the infl uence of non-responses of German GDP growth. It is shown that a nonlinear fac- How non-responses on survey results. The Center used the insights gained tor can signifi cantly increase forecast accuracy. infl uence surveys to improve the quality of the data collected in cases where these insights revealed potential selectivities Moreover, R, Lehmann and K. Wohlrabe evaluate the and infl uences on the aggregate results. performance of boosting to forecast GDP for three Ger- man regional entities (Baden-Württemberg, the Free The study by R. Lehmann and K. Wohlrabe investigate State of Saxony and Eastern Germany; publication in the forecasting performance of the ifo Employment Ba- Letters in Spatial and Resource Sciences 10(2), 2017). rometer for employment growth and compare it with Since boosting is a so called ‘large-dataset-method’, the indicators gained from other surveys (such as the labour two authors also answer the question of which indica- market indicator of the German Federal Employment tors frequently get selected by the boosting algorithm. Agency) or published by off icial statistics (for example, The study reveals two major results: fi rstly, boosting the number of vacancies). For a horizon of up to 6 months, outperforms simple bench-mark models in terms of forecasts based on the ifo Employment Barometer are forecasting accuracy up to a horizon of two quarters. the most accurate ones (publication in Applied Econom- Secondly, the algorithm frequently selects indicators ics Letters 24(4), 2017) and therefore underpin important that mirror the regional economic structure. As a result, leading characteristics of the ifo survey results. in assessing the future economic developments of their region, regional decision-makers should focus instead A research project by C. Grimme, R. Lehmann and on local information, instead of German indicators. M. Noeller focuses on forecasting import growth in- Forecasting stead of employment. Imports are usually seen as the In the MPRA Paper No. 81772 J. Garnitz, R. Lehmann and import growth, not aggregates with the largest forecasting bias. Two rea- K. Wohlrabe evaluate the properties of the indicators employment sons can be identifi ed: fi rstly, imports are, next to ex- gained from the World Economic Survey to forecast- ports and investments, the aggregate with the highest ing GDP growth of 44 diff erent countries. Three major volatility in quarterly growth rates; and secondly, no results emerge: fi rstly, models including WES informa- import leading indicator exists. This research project tion perform better compared to a benchmark model fi lls this gap and creates a new class of leading indi- for the majority of countries. Secondly, especially the cators to forecasting German import growth that are WES economic climate and the WES economic expec- based on foreign survey results, as well as price and tations are the best performing indicators that result cost competitiveness measures. For the current and from the World Economic Survey. Lastly, in 70% of all the following quarter two new indicators perform best: cases, the extension of the country-specifi c forecasting the so called ifo Import Climate and the weighted ex- model by WES information of the main trading partners port expectations of Germany’s main trading partners. increases the forecasting quality. Thus, the new indicators are also of high practical relevance. The results of the research project will be pub- Moreover, S. Lautenbacher (jointly with R. Bachmann, lished in early 2018 as CESifo Working Paper. University of Notre Dame, K. Carstensen, University of Kiel, und M. Schneider, Stanford University) analyses In the project “Predicting Ordinary and Severe Reces- newly collected fi rm-level ifo data on subjective uncer- sions with a Three-State Markov-Switching Dynamic tainty. This is part of the research project “Expectation Factor Model. An Application to the German Business Formation, Uncertainty and Ambiguity at the Firm Level,

76 ifo Annual Report 2017 IFO CENTER FOR MACROECONOMICS AND SURVEYS

Measurement and Macroeconomic Implications”, which nity with the goal of linking individual responsibility is funded by the Thyssen Foundation. The work of the and multi-dimensional well-being and off ering vari- project team has led to several new fi ndings. Amongst ous measurement approaches to evaluating equality others, the new data reveals that there is no simple lin- of opportunity in the presence of multiple outcomes. ear relationship between perceived uncertainty and Furthermore, we will bring the developed measures to sales growth. In fact, uncertainty is generated by (larger) the data in order to assess equality of opportunity with changes of past sales growth. In addition, uncertainty respect to multidimensional well-being. is closely linked to longer-term fi rm characteristics and the fi rms’ environment, in particular fi rm size, the sales Our research on equality of opportunity has yielded of sci- growth trend, and the turbulence of sales over time. entifi c papers for publication in peer-reviewed journals.

PROJECTS IN THE AREA OF INEQUALITY AND In the fi rst paper P. Hufe and A. Peichl investigate the ex- REDISTRIBUTION istence of unequal opportunities with respect to political participation in the US. While it is well documented Unequal Within the research area “Inequality and Redistribu- that political participation is stratifi ed by socioeconom- opportunities and tion”, special attention is devoted to the empirical anal- ic characteristics, an open question is how this fi nding political participation ysis of equality of opportunity. In 2017, we acquired two bears on the normative evaluation of the democratic in the US DFG grants related to this research focus, both granting process. In this paper the authors draw on the analyti- funding for the time period 2017–2020. cal tools developed in the equality of opportunity literature to answer this question. They investigate to what In the fi rst of these projects, we teamed up with research extent diff erential political participation is determined partners from France, Sweden and Luxembourg to in- by factors that lie beyond individual control rather than vestigate the infl uence of unequal opportunities across being the result of individual choices. Using rich panel the entire life-course of individuals. Rather than focus- data from the US, they do indeed fi nd a lack of politi- ing on a specifi c stage of adulthood, this project analy- cal opportunity for the most disadvantageous types. ses how circumstances in childhood aff ect infl uential Opportunity shortages tend to complement each other decisions that mark individuals’ transition to adulthood, across diff erent forms of participation and persist over and how these decisions translate into social and eco- time. They also fi nd that family characteristics and psy- Childhood nomic outcomes at later stages in life. We will simulta- chological conditions during childhood emanate as the determines political neously address these questions from intergenerational strongest determinants of political opportunities. opportunities mobility and equal opportunity perspectives and draw on cross-country comparisons to identify the causal In a second paper, P. Hufe and A. Peichl (together with mechanisms via which social and economic advantages R. Kanbur, Cornell University) acknowledge the multi- are transmitted from one generation to another. plicity of normative ideals when evaluating the fairness of a given income distribution. More specifi cally, they In the second project, on which we will work with part- reconcile the ideals of equal opportunities and ab- ners from Poland, the UK and Italy, we go beyond the sence of poverty from a perspective of inequality mea- conventional approach of treating income as the only surement. A remarkable advantage of their approach outcome dimension of interest. It is widely acknowl- is its appeal to the measurement of unfair inequalities. edged in the literature on this topic, and more so in They develop a family of measures of unfair inequali- practical decision-making, that well-being is a multidi- ty, which combine in essential fashion both inequality mensional concept that incorporates not just income, of opportunity and absolute deprivation. An empirical but also health, education and civic participation. application of their approach yields strong upward cor- Therefore, if the goal of public policy is to seek equal- rections to inequality of opportunity based on quanti- ity of opportunity, its measurement must account for fi cations of unfair inequality. the multidimensionality of well-being. To date, however, researchers on equality of opportunity have made In a last contribution, P. Hufe (together with D. Mahler, little progress in this respect – a shortcoming that will University of Copenhagen, and P. Brunori, University of be addressed by this research project. To this end, we Florence) proposes a set of new methods to estimate investigate theoretical models of equality of opportu- inequality of opportunity based on conditional infer-

ifo Annual Report 2017 77 IFO CENTER FOR MACROECONOMICS AND SURVEYS

ence regression trees. More specifi cally, the authors ployment is a non-monotonic and non-linear function illustrate how these methods represent a substantial of the minimum wage level. In the sample of low- and improvement over existing empirical approaches to medium-skilled individuals, a minimum wage equiv- measure inequality of opportunity. Firstly, they mini- alent in real terms to the one actually introduced in mise the risk of arbitrary and ad-hoc model selection. 2015 raises the unemployment rate by two percentage Secondly, they provide a standardised way of trading points, an increase of 18% visa-vis the old steady-state off upward and downward biases in inequality of op- value. The researchers fi nd that the eff ects of the mini- portunity estimations. Finally, regression trees can be mum wage diff er strongly by labour market segments. graphically represented; their structure is immediate to read and easy to understand. This will make the measurement of inequality of opportunity more easily EconPol Europe comprehensible to a large audience. Furthermore, the EconPol Europe – The European Network for Economic ifo uses cutting-edge use of cutting-edge machine learning methods contrib- and Fiscal Policy Research is a unique collaboration of machine learning utes to ifo’s eff orts to incorporate methods from big nine policy-oriented university and non-university re- methods data analysis into its methodological toolkit. search institutes that contribute their expertise to the discussion of the future design of the European Union. Further inequality-related research projects are cur- In spring 2017, the network was founded by the ifo Insti- rently work in progress and have been presented at tute together with eight other renowned European re- scientifi c conferences. Amongst others, C. Krolage and search institutes as a new voice for research in Europe. A. Peichl (together with D. Waldenström, Research In- The ifo Institute was commissioned by the Federal Min- stitute of Industrial Economics, Stockholm) develop istry of Finance to set up this independent network de- alternative measures for assessing top income shares voted to research and to contributing its results to the to account for population and economic growth. Based economic and fi scal policy debate in Europe. on real and growth-adjusted income thresholds, as well as on fi xed group size, these measures show that top income shares in the US have not been simply fan- ning out over time. Instead, the fi ndings show diverging developments at the top. i.e. while the overall trends of Piketty and Saez (2003) are robust, there are some important qualifi cations. More specifi cally, when linking top incomes to productivity growth, they fi nd sharper interwar drops in top shares and almost no increases at all aft er 1990. In addition, groups just below the very top experienced not only less income growth than those above them, but also benefi ted less than the upper middle class located just below on the income distribution. An analysis of pre-tax national account measures yields similar results.

In a project on wage inequality and the German minimum wage, M. Blömer (together with N. Guertzgen, The founding members are: University of Regensburg and IAB, L. Pohlan and Holger Stichnoth, ZEW, Mannheim, and G. v. d. Berg, Univer- – ifo Institute – Leibniz Institute for Economic Research Model simulates sity of Bristol) estimates an equilibrium search model at the University of Munich e.V. (ifo; Munich, Ger- introduction of on German administrative data and simulate the in- many), minimum wage troduction of a uniform minimum wage. The model – – Centre for European Policy Studies (CEPS; Brussels, based on Bontemps et. al. (1999) extended to allow for Belgium), diff erent job off er arrival rates for the employed and the unemployed – does not restrict the sign of employ- – Centre d’Études Prospectives et d’Informations In- ment eff ects a priori. First simulations show that unem- ternationales (CEPII; Paris, France),

78 ifo Annual Report 2017 IFO CENTER FOR MACROECONOMICS AND SURVEYS

– Institute for Advanced Studies (IHS; Vienna, Austria), 04 – Toulouse School of Economics (Toulouse, France), EconPol 2017

November – University of Oxford (Centre for Business Taxation) POLICY REPORT Vol. 1 (Oxford, Great Britain), – Università di Trento (Department of Economics and Management) (Trento, Italy), Economic Effects of Brexit – VATT Institute for Economic Research (VATT; Helsin- on the European Economy ki, Finland) and Gabriel Felbermayr, Clemens Fuest, Jasmin Gröschl and Daniel Stöhlker – Centre for European Economic Research (ZEW; Mannheim, Germany).

The mission of EconPol Europe is to contribute its research ﬁ ndings to help solve the pressing economic and ﬁ scal policy issues facing the European Union, and thus to anchor more deeply the European idea in the member states. Its task is also to transfer its research results to the relevant target groups in government, business and research, as well as to the general public, and to build a bridge between national and European policy debates.

With its cross-border cooperation on fi scal and economic issues, EconPol Europe aims to promote growth, prosperity and social cohesion in Europe and, in particular, to provide research-based contributions to the successful development of the European Economic and Monetary Union (EMU). Its tasks consist of joint in- In November 2017, EconPol Europe successfully con- terdisciplinary research in the following areas: ducted its off icial Founding Conference and fi rst An- nual Meeting. The two-day conference focused on the – Sustainable growth and ‘best practice’, governance of fi scal and monetary policy in Europe. – Reform of EU policies and the EU budget, It brought together 200 top researchers, politicians, – Capital markets and the regulation of the fi nancial experts from national and European institutions and sector and journalists to exchange ideas on the economic and institutional development of the EU and the Eurozone. – Governance and macroeconomic policy in the Euro- The conference’s schedule was as follows: the aft er- pean Monetary Union. noon of Thursday, 9 November 2017 was devoted to a EconPol holds panel discussion on the future of the European Mone- founding conference The network’s research results are disseminated tary Union followed by a keynote address by François through various EconPol Europe publication channels Villeroy de Galhau, Governor of the Bank of France. The like working papers, policy reports, policy briefs and panel members included: Massimo Bordignon, Profes- opinion pieces. In 2017, 6 EconPol Working Papers, sor for Economics, Catholic University of Milan, Marco 4 EconPol Policy Reports, 4 EconPol Policy Briefs and Buti, Director-General for Economic and Financial Af- 5 EconPol Opinions were published. These publica- fairs, European Commission, Emmanuel Massé, Sec- tions discussed a variety of politically relevant topics, retary, European Aff airs Department, French Treasury such as the future eff ects of Brexit on the European and Thomas Westphal, European Policy Director-Gen- economy, macroeconomic imbalances and absorption eral, German Federal Ministry of Finance (moderator: channels of macroeconomic shocks in the Eurozone, Daniel Gros, Director of CEPS). On Friday, 10 November, reforms of the common agricultural policy, debt rules there were plenary sessions discussing migration and in the Eurozone, or tax competition in Europe. macroeconomic imbalances, as well as parallel ses-

ifo Annual Report 2017 79 IFO CENTER FOR MACROECONOMICS AND SURVEYS

sions on the EU budget without the UK contribution, time-series models for various economic variables, convergence and divergence in the EU, capital market and model analyses of the macroeconomic eﬀ ects of regulation, and many more topical issues. alternative economic policy measures.

Other EconPol Europe events in the pipeline for 2018 In order to quantify macroeconomic production gaps as include academic conferences and workshops, lunch- a measure for cyclical swings, the production potential time seminars and fi reside chats with Members of the of key countries is also estimated. The main focus is on European Parliament. the German economy for which development trends in the supply-side determinants of production potential like productivity, labour market participation and capital Service Functions accumulation are documented and analysed. Moreover, key fi gures on economic development and the special A key service function of the ifo Institute is conducting circumstances of individual countries – currently, for ex- and interpreting business surveys. Its regularly col- ample, public debt levels, budget defi cits, current account lected data not only constitute an integral part of the balances, measures of competitiveness and fi scal policy Institute’s economic forecasts; they also form the basis reform – are also systematically compared to identify pos- of industry and aggregate economic forecasts by busi- sible economic policy options for Germany and Europe. nesses, industry associations and government agen- Survey results cies. The survey results are extensively discussed and generate media interpreted in the media. In economic research, micro coverage data derived from ifo business surveys play an import- Service Projects ant role in testing economic behavioural patterns – for The ifo Center for Macroeconomics and Surveys regu- example, investment and employment behaviour, la- larly carries out a number of service projects, based on bour market trends or pricing policies. The excellent its own research work and continuously monitored by reputation of the ifo Institute in the area of business scientifi c criteria. The most important projects are the surveys is also confi rmed by the fact that the Institute’s ifo business surveys and the economic forecasts. surveying techniques are currently being used in over fi ft y countries throughout the world. IFO BUSINESS SURVEY OF INDUSTRY AND TRADE The business survey introduced by the ifo Institute in Ifo business surveys again stood at the centre of pub- 1949 was an innovation in business-cycle and market lic interest in 2017. To meet the demand for informa- observation. Today it is one of the most important tion on the international business cycle, ifo conducts sources for assessing the current economic situation in the ifo World Economic Survey (WES). In contrast to Germany. In 1990, shortly aft er the German Economic the national ifo business surveys that query fi rms on and Currency Union took eff ect, the business survey their own situation and prospects, WES is a poll of ex- was expanded to include eastern Germany. perts who assess the economic situation of the countries in which they are based. The monthly survey is based on roughly 7,000 responses from fi rms throughout Germany on how they see The economic forecasts are based on the systematic their business situation and related aspects of opera- collection and methodical processing and analysis of tional activities. The standard questions require fi rms ifo’s own survey data and off icial statistics. Particu- to appraise their current situation and assess their lar weight is given to the results of the ifo Business business expectations and plans in the three to six Survey, the ifo Investment Survey and the ifo World months ahead. Survey participants are asked to ex- Economic Survey (WES). The economic indicators de- clude seasonal fl uctuations from their assessments. ifo constantly rived from the ifo surveys and off icial statistics are As this is only partially possible, the results undergo analyses indices constantly examined for their usefulness in macro- an additional seasonal adjustment. The survey results, economic analysis and forecasting. This also applies which are subject to a complex evaluation procedure, to the forecasting instruments developed by the provide information on some 500 individual subsec- ifo Institute itself, such as econometric approach- tors, the manufacturing industry, construction, as well es to estimating business cycles and growth trends, as the wholesaling and retail industry.

80 ifo Annual Report 2017 IFO CENTER FOR MACROECONOMICS AND SURVEYS

The objective of the ifo Business Survey is to capture ifo Business Climate for Industry and Tradeɭ the business-cycle component of macroeconomic Seasonally adjusted developments. It does not predict long-term growth ifo Business Climate Assessment of business situation trends. The ifo Business Survey is designed to supple- Index, 2005 = 100 Business expectations ment off icial statistics. It provides information on eco- 130 nomic phenomena that are not ascertained by off icial 120 statistics, and is published in a timely manner. 110 The long time-series of the ifo Business Survey is used 100 to derive informative business-cycle indicators. The ifo Business Climate Index, combined with quarterly ques- 90 tions on capacity utilisation and order stocks, provides 80 a reliable picture of the current business situation and short-term developments. A key advantage of ifo’s 70 economic indicators vis-à-vis the off icial statistics are 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 their early availability. Off icial German production and ɭ Manufacturing, construction, wholesaling and retailing. Source: ifo Business Survey, December 2017. © ifo Institute new-order indicators are generally not published until four weeks aft er the end of the reporting period, and are oft en subject to major revisions. The results of the ifo Business Survey are released between the 22nd and MONTHLY IFO BUSINESS SURVEY OF THE SERVICE 27th day of the survey month. Furthermore, participants SECTOR give their appraisal of and expectations for their fi rms, The ifo Business Survey of the Service Sector is the thereby off ering supplemental information to the quan- most comprehensive monthly survey of the German titative information provided by the off icial statistics. service sector. Over 2,500 fi rms participate on a regular basis. The ifo Business Climate in the Service Sec- External individuals interested in the time series of the tor indicator, which has been published since 2005, is Service sector survey ifo Business Survey can obtain data from the ifo Insti- based on important, and particularly on business-ori- launched in 2005 tute’s database service. The data off ered also include ented segments of the tertiary sector (excluding distri- time series from other sources. bution and government). Financial services (banking and insurance) are not included in the indicator. The ifo IFO BUSINESS CLIMATE FOR GERMAN TRADE AND Institute carries out separate surveys in these areas, in- INDUSTRY cluding its monthly business climate in leasing. These results are used, among other things, to assess invest- The ifo Business Climate, which is calculated as the ments in plants and equipment. transformed mean of the balances of the business situation and expectations for the next six months, has been published regularly by the ifo Institute since 1972. Information on sales, employment and the economic It has proven to be a reliable early indicator of econom- sector, as well as structural data from off icial statis- ic development in Germany. Compared to the produc- tics, are used in the calculation and projection of the tion index for the manufacturing industry provided by indicator. The survey methods and calculations are off icial statistics, it leads, on average, by two to three similar to those of the ifo Business Survey of industry months. As a result, it has become an integral part of and trade (manufacturing, construction, wholesaling German economic forecasts. The national and inter- and retailing). national importance of the ifo Business Climate can be seen in the reactions to the publication of the new fore- The ifo Business Survey of the Service Sector meets cast on the part of the fi nancial markets, which eagerly the current standards of harmonised business surveys Compliance with EU await its results every month. Special monthly evalua- in EU member states. The results are published on a standards tions and commentaries of the ifo Business Survey are monthly basis together with the Ifo Business Survey of provided by the ifo Institute for Bavaria, Baden-Würt- manufacturing, construction, as well as wholesaling temberg, North Rhine-Westphalia and Saxony. and retailing.

ifo Annual Report 2017 81 IFO CENTER FOR MACROECONOMICS AND SURVEYS

IFO INVESTMENT SURVEY OF THE MANUFACTURING IFO INSURANCE SURVEY INDUSTRY In close collaboration with the Federation of the Ger- The ifo Investment Survey was the forerunner of all of man Insurance Industry, the ifo Institute has been con- the Federal Statistics Off ice’s investment surveys. To- ducting a quarterly business survey for the insurance day it supplements off icial expost data with timely in- sector since the end of 1999. Included in the survey are formation on projections based on company plans. This insurance companies in the areas of life, health and makes the ifo Institute the only source for quantifi ed property/casualty. In terms of gross premiums, the estimates of current developments in investment prior insurance companies participating in the survey cover to the publication of off icial expost data. As a voluntary over 75% of the premium income. survey – the ifo Investment Survey is like all non-off icial surveys and is not grounded in law – it cannot essentially IFO WORLD ECONOMIC SURVEY (WES) replace a comprehensive survey. This is especially true with respect to the desired subdivision of the branches. For over 30 years the objective of the ifo World Eco- nomic Survey (WES) has been to depict the current economic situation and outlook in numerous indus- Changes or Expansions of the Production Programme Dominate trial and transformation countries as accurately as possible. The survey results are characterised by their The main motive of investment activity, listed by …% of Ɯrmsɭ timely information and international comparability. Replacement The assessments and expectations of on-site experts Rationalisation Expansion (narrow sense) are particularly valuable in countries where the off icial Enlargement/change in production programme statistics remain unreliable. The fi gure below shows 100 the high correlation of the survey results with actual growth in the world economy. 80

60 ifo World Economic Climate

40 Economic climate Assessment of economic situation Balances Economic expectations 20 100 80 0 60 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 40

ɭ Responses from manufacturing, weighted with company turnover. 20 Status: Spring of preceding year; 2017 provisional. 0 Source: ifo Investment Survey. © ifo Institute -20 -40 IFO INVESTMENT SURVEY OF LEASING -60 -80 With its business survey of the leasing sector the ifo Insti- -100 tute closes a statistical gap. Unlike in other areas of the in- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

vestment survey, this is a comprehensive survey, as there Source: ifo World Economic Survey (WES) IV/2017. © ifo Institute are no oﬀ icial statistics for the extrapolation of sample results. For over a decade the ifo Institute, in cooperation with the German Association of Leasing Companies In 2017, the ifo Institute also polled over 1,000 interna- based in Berlin, has conducted a regular economic sur- tional business experts at institutes or multinational Monthly survey vey of German leasing companies. The survey was initially enterprises on the economic situation and outlook in conducted as of 2003 conducted on a quarterly basis, but became monthly as some 120 industrial, emerging and developing econ- of 2003. The assessments by leasing companies of their omies. In return, participants received detailed sur- current business developments are particularly useful in vey results. The WES results are also published in the forecasting overall investment in equipment. quarterly English language journal ifo World Econom-

82 ifo Annual Report 2017 IFO CENTER FOR MACROECONOMICS AND SURVEYS

ic Survey, and in a condensed form in German in the JOINT ECONOMIC FORECAST ifo Schnelldienst. In Latin America the ifo Institute has In spring and autumn the department participates to- cooperated with Fundacao Getulio Vargas/Instituto gether with the department for business cycle research Brasilerio de Economia (FGB/IBRE) since 2007, which of the ETH (Swiss Federal Institute of Technology) Zu- publishes the WES results for this region. rich (KOF) at the Joint Economic Forecast (Gemein- schaft sdiagnose). In July 2016 a new two-year contract ifo wins new 2-year LOGISTICS INDICATOR was awarded to the ifo Institute by the Federal Ministry contract Since July 2017 the Logistics Indicator has been conduct- for Economic Aff airs and Energy. The other four success- ed on behalf of Bundesvereinigung Logistik e.V. (BVL) ful consortia were the German Institute for Economic within the context of the Institute's economic surveys. Research (DIW), together with the Austrian Institute of The objective is to gain a timely insight into developments Economic Research (WIFO), the Halle Leibniz Institute in the logistics industry. Monthly replies from over 4,000 for Economic Research (IWH), the RWI – Leibniz Insti- companies participating in the survey are used to answer tute for Economic Research, Essen, together with the questions about the current situation and expectations Institute for Advanced Studies in Vienna (IHS), as well as for the coming months. In addition to logistics service pro- the Kiel Institute for the World Economy (IfW). The Joint viders, users of logistics services are surveyed and sum- Economic Forecast comprises forecasts for Germany, marised in the overall aggregate of the logistics industry. the European Union and other major countries, as well The results are available for the period from 2005 in sea- as an evaluation of those economic policies that aff ect sonally adjusted form.The results are commented and Germany’s economic activity. It is presented at the fa- illustrations are created on a quarterly basis. The results cilities of the federal press conference (Bundespresse- and the comments will be published on the BVL website. konferenz) in Berlin and subsequently submitted to the Federal Ministry for Economic Aff airs and Energy.

IFO ECONOMIC FORECASTS EUROZONE ECONOMIC OUTLOOK At mid-year and year-end, the department publishes a The Eurozone Economic Outlook is a European joint detailed report on the German economy that includes initiative of the ifo Institute, KOF in Zurich and Istat in forecasts of gross domestic product (sector origin, use Rome. It provides an estimate (for the past quarter) and distribution), the labour market, infl ation, as well and a forecast (for the current and following quarters) as public expenditure and revenues. Thanks to the of real GDP, private consumption, industrial out-put German economy’s strong links with the world econ- and infl ation in the eurozone. Forecasting is conducted omy, and in particular with the European economy, a primarily by applying econometric forecasting meth- forecast is also made for the European Union and oth- ods. The projections are then rounded off using the er important countries. A well-founded analysis of the personal appraisals of the project team. The Eurozone economic situation is the basis of the forecast. Special Economic Outlook is published quarterly – in January, attention is paid to quantifying the dynamics of eco- April, July and October – as a two-page press release in nomic activity, and to identifying business-cycle turn- German and English. ing points. Since 2010, the department has also provided annual sector accounts for institutional sectors, EUROPEAN ECONOMIC ADVISORY GROUP (EEAG) the economy as a whole, non-fi nancial and fi nancial corporations, private households (including non-prof- The European Economic Advisory Group at CESifo it organisations), the government sector, as well as for (EEAG) is a European expert advisory board consisting EEAG launched the rest of the world. The accounts provide a systemat- of seven well-known economists from seven countries in 2001 ic overview of important transactions between sectors and currently chaired by John Driff ill, Birkbeck College. that are included in the overall economic fi gures. It was launched in 2001 by CESifo. The group writes detailed reports on specifi c economic policy issues. The The department frequently makes statements to the ifo Center for Macroeconomics and Surveys provides media on the current economic outlook and the eco- a forecast and analysis of economic activity in Europe nomic policy problems related to it. The economic im- and the world for the EEAG Report. Special matters are plications of fi scal and monetary policy decisions are also treated on a regular basis. The forecast is part of also analysed and commented upon. the “Economic Outlook” chapter.

ifo Annual Report 2017 83 IFO CENTER FOR MACROECONOMICS AND SURVEYS

ECONOMIC ANALYSES, PREPARATION OF ifo Business Survey for Bavaria INDICATORS AND FORECASTS P. Jäckel, F. Leiss for the Bavarian Ministry of Econom- ic Aff airs and Media, Energy and Technology, regular The project aims to compute monthly survey-based publication in Konjunktur in Bayern as well as on the electricity indicators to forecast electricity consump- client’s website. tion in Germany and in the ENBW customer base; and to build an appropriate econometric model to predict ifo Business Survey for Baden-Württemberg the target time series over a forecast horizon of up to S. Litsche for Landeskreditbank Baden-Württem- 12 months. The electricity indicators will be generat- berg – Förderbank, regular publication in the series ed from the disaggregated results of the ifo business L-Bank-ifo-Konjunkturtest and on the internet. surveys in the manufacturing industry and refl ect the cyclical variations in power demand. The forecasting model is based on the idea of improving predictive ifo Business Survey for Saxony accuracy by combining a larger number of individual M. Weber, regular publication in ifo Dresden berichtet. forecasts and models not only of business cycle fl uctuations, but also the medium term trend, seasonali- ifo Business Survey for North-Rhine Westphalia ty, temperature and structural eff ects of electricity A. Weichselberger for NRW Bank, regular publication in demand. Additionally, this project includes consulting the series NRW.Bank.ifo-Index and on the internet. services connected with the current state of the business cycle and economic policy issues. ifo Investment Survey Manufacturing Industry P. Jäckel, A. Weichselberger, regular publication in ifo Schnelldienst.

ifo-KfW Business Cycle Barometer for Medi- Service Projects in Detail um-sized Businesses S. Sauer, for the KfW Bank Group, regularly published by the client. ifo Business Survey K. Wohlrabe, P. Wojciechowski, L. Dorﬀ meister, S. Sau- ifo Employment Barometer er, S. Rumscheidt, S. Litsche, A. Bauer, F. Leiss, month- K. Wohlrabe, A. Bauer, monthly publication in Handels- ly publication in ifo Schnelldienst and ifo Konjunktur- blatt, ifo Konjunkturperspektiven and on the internet. perspektiven. ifo Export Expectations ifo World Economic Survey (WES) K. Wohlrabe, monthly publication as a press release K. Wohlrabe, J. Garnitz, D. Boumans, J. Nothhaft , quar- and on the internet. terly publication in ifo World Economic Survey and ifo Schnelldienst. ifo Managers Survey K. Wohlrabe, for Wirtschaft sWoche, regular publication ifo Investment Survey in Leasing in Wirtschaft sWoche and on the internet. A. Städtler, S. Sauer, M. Reif, regular publication in ifo Schnelldienst.

ifo Business Survey of the Insurance Sector S. Litsche for the Association of German Insurance Companies, information for clients and participants.

Proﬁ t situation and trend S. Litsche, quarterly determination of proﬁ t situation and trend in the metal and electric industry.

84 ifo Annual Report 2017 ifo Center for International Institutional Comparisons and Migration Research

The ifo Center for International Institutional Compari- THE JOURNAL CESIFO FORUM sons and Migration Research performs research in the CESifo Forum includes contributions from internation- fi eld of institutional economics and investigates how ally reputable authors on policy issues of worldwide institutions arise and what eff ects emanate from them interest, as well as data and information from the ifo in the areas of migration, political economy and bank- Institute. The English-language journal is published ing. With its publication of the ifo DICE Report and the quarterly by the CESifo GmbH and edited by Chang CESifo Forum, as well as the upkeep and development Woon Nam. of DICE (Database for Institutional Comparisons in Eu- rope), the center fulfi ls key service tasks for academia and the general public. RESEARCH In the area of migration research, two projects were DICE DATABASE AND THE JOURNAL IFO DICE completed with fi nal publications. One project analysed REPORT the welfare eff ects of immigration in OECD countries, Through research projects on current topics, and espe- taking into account both labour market eff ects and their cially against the background of the European Union’s impact on taxes and transfers. The contribution of this harmonisation eff orts, the ifo Institute has identifi ed project is to consider both eff ects simultaneously. The a glaring need for information on institutional regu- other project examines the self-selection of emigrants. Self-selection of lations on the part of both German and international It shows that emigrants from Denmark have better ed- emigrants interested parties. Its research questions focus on how ucation levels and earn more than people who do not respective national regulations diff er within the EU, as migrate. The unobservable productivity of emigrants, well as worldwide. measured as the percentage of income that cannot be explained by education, age and gender, is also higher. With its unique DICE Database, the ifo Institute contributes signifi cantly to closing these information Several ongoing migration projects focus on family mi- gaps. DICE off ers users one-stop-shop access to gration and political economy. One research question quantitative and qualitative information on institu- studies how couples decide on their emigration and the tions, which are compiled from numerous sources and role that preferences for a dual-earner model in which can be linked to other economically relevant indica- both partners work versus a male breadwinner mod- tors. The database addresses a wide range of users, el play in migration decisions and in partners’ labour including researchers and the interested public and supply abroad. A second research paper deals with the is accessible free of charge. The database current- factors that explain the return of families who previously covers the following topics: banking and fi nancial ly migrated to Denmark. From an institutional point of markets, business, education and innovation, energy, view, the impact of reforming family reunifi cation rules resources and natural environment, infrastructure, on the return patterns of migrants is of particular inter- Reforming family labour market, migration, public sector, social policy est. Another research question investigates the extent reunifi cation rules and values. At present, the database contains around to which international migrants select themselves into 3,800 entries. diff erent destination countries based on their attitudes towards redistribution. For the analysis in these proj- The database is closely linked to the “ifo DICE Report – ects, Danish register data is combined with survey data. Journal for Institutional Comparisons”. The quarterly journal analyses institutions, regulations and econom- Another important question is the extent to which na- ic policy approaches across countries. Its editors are tional immigration policy has an impact on third coun- Marcus Drometer, Yvonne Giesing, Christa Hainz and tries. To this end, the reform of family reunifi cation in Till Nikolka. In the “Forum” section, a selected topic Denmark is analysed for migration fl ows to Sweden. The is covered by several authors from diff erent perspec- empirical analysis combines Danish and Swedish regis- tives. The journal also features the following sections: ter data and is carried out in cooperation with research- “Research Report”, “Reform Model”, “Database” and ers from Uppsala University. Further projects in collab- “News”. oration with researchers from Uppsala University use geo-coded register data from Sweden to study the eff ect of allocating refugees to individual neighbourhoods.

ifo Annual Report 2017 85 IFO CENTER FOR INTERNATIONAL INSTITUTIONAL COMPARISONS AND MIGRATION RESEARCH

Further papers deal with the interplay between po- INTERNATIONAL ADVISORY AND RESEARCH litical economy and migration policy. For the USA, PROJECTS research examines whether naturalisations are used strategically by governments to increase their re-elec- The ifo Center for International Institutional Compari- tion probability. A second project looks at the relation- sons and Migration Research participates in various in- ship between elections and asylum policy in the Eu- terdepartmental international consulting and research ropean Union. It analyses how the number of asylum projects. The focus here is on the evaluation and analy- applications and the rejection of these applications sis of economic risks, as well as on institutional reforms. change before and aft er elections. Finally, another project deals with the question of how the emergence of immigration-critical parties aﬀ ects the decision of Projects Completed in 2017 migrants to migrate to a particular country.

The topics of migration and political economy also in- Qualifi ed Immigration in Germany: Proposal for Immigration and teract when studying the role played by immigration in a New Immigration Law Based on International electoral success of the electoral success of extreme parties. This analysis Experience extremists uses regional data on French presidential elections M. Burmann, M. Drometer, P. Poutvaara, C. Rhode, for the years 1988 to 2017. While there is already some study within the framework agreement with the Cham- work on how immigration is linked to electoral support ber of Commerce and Industry for Munich and Upper for the far-right, the French data makes it possible to Bavaria, September 2017 to December 2017. study support for both the far-right and far-left . Anoth- er project analyses how bitterness in life aff ects con- Given the growing shortage of skilled workers, it is be- cerns over immigration. Due to the economic crisis and coming increasingly important for companies in Ger- unexpected political events, like Brexit and the elec- many to recruit qualifi ed employees from abroad in tion of Donald Trump as the US President, this relation- order to remain innovative and competitive in the long ship is of great importance. term. To date, however, only a small proportion of migration to Germany has been accounted for by quali- In addition, the ifo Center studies the consequences of fi ed labour migrants from third countries. using referenda by examining the extent to which vot- Voting behaviour in ing behaviour in referenda can be explained by fi nancial This study fi rst analysed the current legal framework in referenda self-interest or social preferences. Another project on Germany for qualifi ed labour migration of third-country the foundations behind the welfare state examines what nationals. The legal framework was also considered in role beliefs about the causes of high and low incomes an international comparison and current policy propos- play in explaining preferences towards taxing those with als for a new immigration law were discussed. Finally, a high incomes, and transfers to those with low incomes. separate proposal for a two-track immigration system This project uses both data from Germany and from the to promote skilled migration to Germany was presented. United States. A further political economy project analy- This consisted of a market-based channel, which pre- ses the decision-making rules underlying the monetary supposes a job off er meeting a fi xed salary requirement, policy decisions of the European Central Bank. and a potential-oriented points system based on international standards with transparent admission criteria. The research area of banking focuses on two issues concerning the impact of institutional regulations. The DICE: Database for Institutional Comparisons in fi rst section looks at how the quality of property rights Europe aff ects the credit market. It examines its impact on ac- M. Drometer, C. Hainz, T. Nikolka, P. Poutvaara, K. Budi- cess to credit and interest rates, as well as the interac- mir, C. Rhode, K. Oesingmann, D. Wech. tion between the quality of property rights and competition between banks. The second section analyses In the BMBF project: “Development, implementation state guarantees to banks. To this end, the eff ects of and professionalization of transfer concepts in non-uni- removing state guarantees are looked at more closely versity economic research” (short knowledge-transfer for banks and the real economy. project), funded over the time period from 2015 to 2018,

86 ifo Annual Report 2017 IFO CENTER FOR INTERNATIONAL INSTITUTIONAL COMPARISONS AND MIGRATION RESEARCH

a systematic analysis of the potential for knowledge CESifo Forum transfer was carried out throughout the entire institute. C.W. Nam. Within the framework of his project DICE acted as a pilot project. To this end, a concept for restructuring the DICE In 2017, the “Focus” section of CESifo Forum addressed database and developing it methodically and technical- the following topics: how would a TTIP aﬀ ect Central ly was draft ed based on a user and demand analysis, and Eastern Europe, youth unemployment in the EU, which was conducted within the context of the knowl- innovation strategies, and digitalisation of the welfare edge transfer project. state. CESifo Forum articles can be downloaded from CESifo’s homepage. ifo DICE Report M. Drometer, C. Hainz, Y. Giesing, T. Nikolka, K. Budimir, C. Rhode, K. Oesingmann, D. Wech. 04 2017

Winter In 2017, the “Forum” section of the ifo DICE Report Vol. 18 discussed the following topics: populist voting, inte-

gration of immigrants, the gender pay gap and the SPECIALS SPOTLIGHT TRENDS European debt crisis. The “Research Reports” and “Re- Quantifying Trump: ×"/1%"/&0 Statistics Update The Costs of a Protec- Agreement – What’s tionist US Next? Worldwide form Models” rubrics are not thematically deﬁ ned, but Gabriel Felbermayr, Implementation Marina Steininger and Jana Lippelt and Lea Mayer again, they always cover country comparisons of the Erdal Yalcin Construction of organisation of economically relevant institutions. The 1+2 Family Homes in Germany: Is the “Database” section highlights and introduces new en- Golden Age Over? 2!4&$,/ƛ*"&01"/ tries in the DICE database. ifo DICE Report articles can be downloaded from the CESifo homepage. FOCUS

Digitalisation of the Welfare State "/+"/& %%,/01Ǿ)#&++"Ǿí/1"+)&5Ǿ 04 +&")2%/+!+7," "/ 2017 Winter Vol. 15

REFORM MODEL FORUM How Bracket Creep Creates Hidden Tax Increases: Determinants Evidence from Germany Florian Dorn, Clemens Fuest, Björn Kauder, Luisa Lorenz, of Populist Voting Martin Mosler and Niklas Potrafke Sascha O. Becker, Thiemo Fetzer, Dennis Novy, Manuel Funke, Christoph Trebesch, Lewis Davis, Sumit S. Deole, Carl C. Berning, RESEARCH REPORT Alkis Henri Otto, Max Friedrich Steinhardt, Andreas Steinmayr, Anthony Edo, Jonathan Öztunc, Panu Poutvaara ,"0,-2)&0* +Ö2"+ " Economic Policy Making? Insights from Economic Experts Around the World Dorine Boumans

DATABASE How Evidence-based is Current Projects Regulatory Policy? A Comparison Across OECD Governments Development Aid – Between Illusion and Reality Debt Crisis in the EU Member The Labour Market Integration of Refugees in States and Fiscal Rules Germany: Evidence from a Field Experiment NEWS New at DICE Database, M. Battisti, Y. Giesing in cooperation with N. Laurents- Conferences, Books yeva, CEPS, Brüssel, January 2015 to September 2018.

In 2015 and 2016 over a million refugees arrived in Germany. Their integration into the labour market is a challenge for a variety of reasons. A lack of job-related skills, including language, qualiﬁ cations, degrees and

ifo Annual Report 2017 87 IFO CENTER FOR INTERNATIONAL INSTITUTIONAL COMPARISONS AND MIGRATION RESEARCH

task-based human capital, make it more diﬀ icult to DICE Database for Institutional Comparisons integrate refugees into the labour market. In addition, in Europe and ifo DICE Report – Journal for matching frictions, a suboptimal network, residence Institutional Comparisons requirements and legal barriers may be greater than M. Drometer, C. Hainz, Y. Giesing, T. Nikolka, P. Pout- for locals or other migrants. vaara, K. Budimir, C. Rhode, K. Oesingmann, D. Wech.

A randomised controlled trial was designed to assess As part of the knowledge transfer project, the relaunch Role of matching the role of matching frictions in the employment pros- of DICE is already in the pipeline. There are plans to frictions in employ- pects of refugees. In a fi rst step, personal interviews continue publication of the ifo DICE Report. ment prospects of were conducted with approximately 500 job-seeking refugees refugees in Munich and data on job search, job expecta- CESifo Forum tions and experiences, education, skills and social inte- C. W. Nam. gration were collected. Subsequently, a German résumé was created for all participants and basic information The publication of the CESifo Forum series will continue. was provided for the job search. In a second step, half of the participants were randomly selected and added to the database of a NGO that sends résumés directly to employers. This intervention isolates the eff ects of matching friction, while not aff ecting the underlying capabilities of refugees. Our preliminary analysis shows that direct contact with employers can reduce matching frictions for certain groups of refugees, primarily leading to more job interviews. Signifi cant labour market successes, however, only seem to occur aft er a year.

ifo Center of Excellence for Migration and Integration Research (CEMIR) P. Poutvaara, G. Felbermayr, H. Rainer, L. Wößmann, M. Drometer, M. Burmann, T. Nikolka, M. Valeyatheep- illay, M. Battisti, J. Saurer, M. Piopiunik, in cooperation with the ifo research professors G. Borjas, Harvard University, Cambridge MA., and G. Peri, University of California, Davis.

CEMIR combines migration research at the ifo Institute with a forum for migration research beyond the Insti- tute. In 2017 CEMIR organised a series of Lunchtime Seminars to provide ifo postdoctoral and doctoral students and external guests the opportunity to pres- CEMIR organises ent their latest research. It also organised a number of junior economist Junior Economist Workshops. CEMIR played an active workshops role in the public debate too, with its researchers contributing to migration issues at various events and in the media.

88 ifo Annual Report 2017 ifo Center of Excellence for Migration and Integration Research – CEMIR

The ifo Center of Excellence for Migration and Integra- tion Research (CEMIR) was established in January 2012, and until December 2015 it was funded by the Leibniz Association project “Optimal Immigration Policies in Europe: From Confl icting Interests to Mutual Gains CEMIR (SAW-2012-ifo-3)”. CEMIR aims to bring together exper- Center of Excellence tise from four ifo research centers – the ifo Center for for Migration and Integration Research International Institutional Comparisons and Migration Research, which is responsible for coordinating CEMIR, the ifo Center for the Economics of Education, the ifo Center for International Economics, and the ifo Center As in previous years, CEMIR organised a junior econo- for Labour and Demographic Economics. The research mist workshop and a lunchtime seminar series, where conducted in these centers analyses migration and in- ifo researchers and external guests presented their tegration from the diff erent perspectives of labour eco- work. As for doctoral studies, Judith Saurer completed nomics, international economics, public economics, her dissertation on the integration of immigrants. and education economics. CEMIR’s research helps to answer the question of how receiving countries’ welfare state and labour market institutions, as well as their immigration policies, should ideally be designed so that migration can unlock mutual benefi ts for all parties involved. Through research, scientifi c conferences and discussion events, CEMIR aims to provide scientifi c information to guide the debate over migration in a Ger- man and European context.

In CEMIR, the directors of the four ifo centers, Panu Poutvaara, Ludger Wößmann, Gabriel Felbermayr and Helmut Rainer, worked together in 2017 along with the ifo researchers Martina Burmann, Marcus Drometer, Yvonne Giesing, Till Nikolka, Madhinee Valeyatheepil- lay (ifo Center for International Institutional Compari- sons and Migration Research), Marc Piopiunik (ifo Cen- ter for the Economics of Education), Michele Battisti (ifo Center for International Economics), and Judith Saurer (ifo Center for Labour Market Research and Family Eco- nomics). They worked in cooperation with a range of external researchers, including ifo research professors George Borjas, Harvard University, Cambridge MA., and Giovanni Peri, University of California, Davis, as well as the researchers Ilpo Kauppinen, VATT Institute for Eco- nomic Research, Helsinki, Romuald Méango, Munich Center for the Economics of Aging, Martin David Munk, Aalborg University, Anthony Edo, CEPII, and Nadzeya Laurentsyeva, CEPS.

ifo Annual Report 2017 89 Research Group Taxation and Fiscal Policy

The taxation and fi scal policy research group headed FISCAL POLICY GOVERNANCE IN THE EUROPEAN by ifo President Clemens Fuest was set up in October MONETARY UNION 2016 and focuses on taxation and fi scal policy issues. The recent economic and fi nancial crisis has put public Its main areas of research include the taxation of mul- fi nances in several EU member states under tremendous tinational companies, the role of taxation and fi scal pressure and raised concerns about the solvency of policy in the distribution of income and wealth und the sovereigns. The resulting sovereign debt crisis has con- governance of fi scal policy in the European Monetary strained fi scal capacity substantially and triggered heat- Union. The team assembled by Fuest consists of four ed debates about the common fi scal roadmap for the fu- researchers. ture. The question of how to improve fi scal governance in the EU is therefore taking centre stage in discussions CORPORATE TAXATION over the future of the European integration process. Growing global economic integration, along with the The prerequisite for any successful reform of European further liberalisation of international capital fl ows, fi scal policy, however, is a thorough understanding of have aggravated international tax competition. Reports the interactions between fi scal policy decision-making of multinational enterprises that reduce their tax bur- and existing institutional and legal frameworks. The den drastically by shift ing profi ts from high-tax to low- research group aims to evaluate the eff ectiveness of tax countries have triggered a fi erce public debate over various policy instruments for fi scal and economic gov- Analysis tax avoidance. In many cases, these enterprises exploit ernance. In this context, special consideration is given of tax avoidance by gaps in the interaction of diff erent national tax systems. to the analysis of the European Fiscal Compact, as well multinationals Consequently, there are calls for the international co- as the European Semester. Another research question is ordination of corporate tax legislation and a harmon- concerned with the design of fi scal rules to strengthen isation of the corporate tax base. The research group commitment and increase fi scal stability in the longer contributes to the ongoing discussion by analysing the run. The research group also analyses persistent diff er- tax avoidance strategies of multinational enterprises, ences across EU member states with respect to structur- studying the consequences of diff erences in national al economic characteristics and their importance for the tax legislation on multinational fi rms’ activities and future economic integration process. evaluating instruments to coordinate international corporate taxation like, for instance, bilateral tax treaties. Projects Completed in 2017 TAXATION, FISCAL POLICY AND INEQUALITY The distribution of income in an economy is an import- Economic Evaluation of Diff erent Wealth Tax ant indicator of citizens’ share in its wealth, as well as Concepts social equity. Personal income distribution in partic- C. Fuest, F. Neumeier, D. Stöhlker in cooperation with ular is a key concern. Since the distribution of income Ernst&Young Wirtschaft sprüfungsgesellschaft GmbH has become increasingly unequal in recent decades and M. Stimmelmayr, ETH Zurich, for the German Fed- in many developed countries, the sources and conse- eral Ministry of Economic Aff airs and Energy, March quences of income inequality are currently being close- 2017 to June 2017. ly scrutinised and fi ercely debated. The unequal distribution of income has also attracted public attention in Germany. With the discussion about income and wealth inequality gaining momentum in Germany, more attention This research group contributes to the ongoing debate has also been devoted to a possible wealth tax. Wealth by studying the development of important measures taxes lie between the confl icting priorities of growth Impact of of inequality over time and analysing the regional dis- enhancing and redistributive policies, constitutional globalisation on tribution of income and its determinants in Germany. requirements, federal structures, negative incentives, income distribution In this context, it examines the impact of globalisa- as well as administrative constraints with respect to tion on the income distribution, as well as the eff ects properly evaluating wealth and levying taxes. of economic policy reforms like the Hartz reforms, for example. In addition, the research group studies the The primary goal of the project is to present sever- economic and social consequences of inequality. al concepts for a wealth tax for Germany, to discuss

90 ifo Annual Report 2017 RESEARCH GROUP TAXATION AND FISCAL POLICY

their legal implications, quantify their eff ects on key The sovereign debt crisis has sparked a debate on the economic variables (including gross national product design of the European Economic and Monetary Union (GDP), short and long-term output growth, investment (EMU). On the one hand, there is the view that the euro- activities, employment, saving and consumption) and zone needs stronger elements of fi scal risk-sharing and provide projections of the revenues from wealth taxes. enhanced fi scal integration. Proponents of this view ar- gue that common fi scal stabilisation mechanisms are The quantifi cation of the economic eff ects of a wealth necessary to make the EMU more resilient to asymmet- Making EMU more tax in Germany is based on a computational gener- ric macroeconomic shocks. On the other hand, critics resilient al equilibrium model (CGE), which is calibrated to the of this view highlight the potentially undesirable con- current economic environment in Germany. The model sequences of fi scal stabilisation mechanisms. Firstly, is based on a theoretically-founded, dynamic growth if national cycles are highly synchronised so that sym- model that covers the domestic fi rm sector, as well metric shocks prevail, there is the risk that such stabi- as private households and government activities. It lisation mechanisms will inevitably lead to procyclical also incorporates domestic real estate holdings, as- transfers. Secondly, transfers could easily become sets held abroad by domestic citizens and interactions permanent if shocks become persistent. Persistent with other countries via foreign direct investment (FDI) shocks, however, require structural adjustments and fl ows as well as trade in capital and goods. Given the measures that increase fl exibility, like price and wage complexity of the model, it is particularly well-suited adjustments. A system of fi scal transfers could be det- for analysing the various eff ects of diff erent wealth tax rimental to the successful implementation of structur- proposals in Germany on key aggregate economic vari- al reforms due to negative incentive eff ects. ables, and specifi cally on overall output, investment activities and employment levels. Cyclical component of GDP

The results of the study suggest that the introduction % Germany Euro area 12 % Belgium Euro area 12 of a wealth tax in Germany would lead to a substantial ǕǾǖǕ ǕǾǖǕ ǕǾǕǚ ǕǾǕǚ drop in employment, investments, savings and overall ǕǾǕǕ ǕǾǕǕ economic growth – even given favourable tax rates on ʮǕǾǕǚ ʮǕǾǕǚ ʮǕǾǖǕ ʮǕǾǖǕ corporate wealth and high tax exemption levels. This is 1993 1998 2003 2008 2013 2018 1993 1998 2003 2008 2013 2018 due to the fact that a wealth tax would dilute incentives ǕǾǖǕ % Finland Euro area 12 ǕǾǖǕ % France Euro area 12 for fi rms to invest and accumulate capital, which would, ǕǾǕǚ ǕǾǕǚ in turn, reduce the economy’s production capacities. ǕǾǕǕ ǕǾǕǕ ʮǕǾǕǚ ʮǕǾǕǚ The eff ect would be particularly strong among foreign ʮǕǾǖǕ ʮǕǾǖǕ investors who would probably withdraw their invested 1993 1998 2003 2008 2013 2018 1993 1998 2003 2008 2013 2018 capital in response to the tax. The model simulations ǕǾǖǕ % Luxembourg Euro area 12 ǕǾǖǕ % Netherlands Euro area 12 suggest that the introduction of a wealth tax would ǕǾǕǚ ǕǾǕǚ dampen the annual growth rate of the economy by ǕǾǕǕ ǕǾǕǕ ʮǕǾǕǚ ʮǕǾǕǚ 0.3 to 0.35 percentage points within the fi rst eight years ʮǕǾǖǕ ʮǕǾǖǕ of its launch, depending on the specifi c design of the tax. 1993 1998 2003 2008 2013 2018 1993 1998 2003 2008 2013 2018

% Austria Euro area 12 ǕǾǖǕ The analysis also shows that a wealth tax would not ǕǾǕǚ ǕǾǕǕ pay off in fi scal terms, as the higher annual revenues ʮǕǾǕǚ from the wealth tax of around 14 billion euros would ʮǕǾǖǕ 1993 1998 2003 2008 2013 2018 be more than off set by declining tax returns from other Source: Calculations of the ifo Institute. © ifo Institute sources amounting to over 40 billion euros.

The Nature of Shocks in the Eurozone and their Against this background, the ﬁ rst part of this paper Absorption Channels examines the extent to which macroeconomic shocks C. Alcidi, M. Dolls, C. Fuest, C. Krolage, F. Neumeier, within the euro area are (a)symmetrical. Our analysis internal project, August 2017 to November 2017, pub- sheds light on the question whether national business lication as EconPol Policy Report 3, 2017. cycles are synchronised, i.e., whether booms and re-

ifo Annual Report 2017 91 RESEARCH GROUP TAXATION AND FISCAL POLICY

cessions tend to occur at the same time. In the second expected to pay off its share of fi nancial obligations to part of the paper, we discuss the degree to which mac- the EU. The other key issue is how the EU budget will roeconomic shocks can be smoothed by private mar- adjust. Since the UK is a net contributor, the EU will kets, for example through capital market integration. have to cut spending or increase contributions from the Our results indicate that the business cycles within remaining member states, or do a combination of both. the EMU are highly synchronised. However, we do fi nd some asymmetries in the amplitudes of national busi- The results of the analysis show that the distribution of ness cycles. Turning to the importance of diff erent sta- gains and losses in terms of net contributions is high- bilisation channels, we fi nd that a much larger fraction ly sensitive to the way in which the EU budget will be US smooths more GDP of GDP shocks remains unsmoothed in the Eurozone adjusted in response to the exit of the UK. While the shocks than EU compared to the US. An important explanation for magnitude of the fi nancial burden that needs to be this result is the weaker shock absorption capacity of absorbed seems manageable relative to the size of the capital markets in the euro area, which suggests that public sector in the EU, it is still signifi cant as a share of enhanced market risk sharing through capital market the EU budget and the absolute change in net contri- integration could substantially improve the smoothing butions may be considerable in the case of Germany, of asymmetric shocks. for example.

Economic Eff ects of Brexit on the European Economy G. Felbermayr, C. Fuest, J. Gröschl, D. Stöhlker, internal Current Projects project, April 2017 to November 2017, publication as EconPol Policy Report 4, 2017. Evaluation of Tax Concessions Negotiations between the EU27 and the UK on the im- C. Fuest, L. Immel, F. Neumeier in cooperation with the portant issues of exit and discussions on future politi- ifo Center for Public Finance and Political Economy, cal and economic relations between the EU27 and the FiFo Cologne, ZEW, Mannheim, dem Fraunhofer-Institut UK began in July 2017 and have since proven diff icult. für angewandte Informationstechnik for the German This report aims to lay a solid empirical foundation for Federal Ministry of Finance, June 2017 to July 2018. the political process with respect to future trade relations, as well as the structure of the EU budget. According to the guidelines for government subsidies (‘erweiterte subventionspolitische Leitlinien’) of the The fi rst part of the paper characterises the value German federal government, all government grants chains that tie the UK and the EU together. It subse- need to be evaluated on a regular basis. This applies to quently identifi es how the various goods and services direct subsidies, as well as tax concessions. In 2007 and sectors have benefi tted from the UK’s membership in 2008, 20 of the most important tax concessions were the EU Single Market and Customs Union. These bene- evaluated. Now, the remaining 32 concessions current- fi ts – on both the UK and the EU side – are now at risk ly eff ective are to be examined. The aim is to quantify ifo trade model used due to Brexit. Thirdly, the report simulates diff erent and to evaluate those concessions with respect to sev- to quantify impact of scenarios, using the ifo trade model, to quantify the eral factors including their eff ectiveness, eff iciency, Brexit consequences of Brexit for the UK and EU countries. transparency and sustainability.

The second part of the paper sheds light on budgetary The aim of the project is to quantify and evaluate 32 tax aspects of Brexit, that is, the issue of disentangling the concessions, which are divided into fi ve groups. For each UK fi nancially from the EU and the question of how the group, a fi nal report is prepared. In addition, a concise EU budget will change aft er the UK has left . Negotia- evaluation sheet (‘Subventionskennblatt’) is published tions between the UK and the EU over the EU budget for each of the 32 tax concessions. The evaluation sheet involve two diff erent but inter-related deals: fi rstly, a outlines the legal basis for the concession, provides one-time ‘divorce-bill’ or ‘Brexit bill’ settlement; and background information on the quantitative analyses secondly, possible contributions and EU expenditure in and discusses the main results of the evaluation with the UK aft er Brexit. With the one-off ‘exit bill’ the UK is regard to transparency, suitability, and the eff ective-

92 ifo Annual Report 2017 RESEARCH GROUP TAXATION AND FISCAL POLICY

ness of the tax concession measure in question, as well Tax Cuts Starve the Beast! Evidence from Ger- as policy recommendations. In order to ensure the con- many sistency of the evaluation, a uniform evaluation scheme C. Fuest, F. Neumeier, D. Stöhlker, internal project, begin: will be applied. October 2016.

Regional Inequality and Extremist Voting in This project analyses how exogenous changes in gov- Germany ernment revenues due to legislated tax changes aﬀ ect F. Dorn, C. Fuest, L. Immel, F. Neumeier, internal project, ﬁ scal expenditure and debt based on data from the begin: October 2016. German states (Bundesländer).

Over the past decades, many industrialised countries Short-time Work Subsidies in a Matching Model have experienced an increase in economic inequality. V. Meier, internal project, begin: March 2017. This trend has not only spurred research into its economic causes and consequences, but has also trig- This project looks at how changes in the maximum gered heated public debates about its political impli- eligibility period of short-time work subsidies aﬀ ect cations. Many pundits link the increase in inequality wages and unemployment. Moreover, a rule of optimal to the surge in public support for populist parties and eligibility for short-time work subsidies is derived, fo- movements cusing on its variability over the business cycle.

This project aims to investigate the development of diﬀ erent indicators of economic inequality at the regional level over time and analysing the relationship between inequality on the one hand and vote shares for left and right-wing populist parties on the other hand. To this end, we use data from the German Mi- crocensus in order to construct inequality measures at the county level.

Income Inequality 2014

0.20 – 0.22 0.22 – 0.24 0.24 – 0.26 0.26 – 0.28 0.28 – 0.30 Hamburg 0.30 – 0.32 0.32 – 0.35 0.35 – 0.40 0.40 – 0.45 Bremen

Hanover Berlin

Dortmund Leipzig Dusseldorf Dresden

Cologne

Frankfurt

Nuremberg

Stuttgart

Munich

Source: Calculations of the ifo Institute. © ifo Institute

ifo Annual Report 2017 93 Library

The library of the ifo Institute is primarily a service The ifo Institute’s library is a member of the library provider for ifo and CESifo, visiting researchers and association of the Northern German Länder, GBV and students of the Munich universities. With more than marks an important step in the harmonisation of the 138,500 bibliographical units, ca. 330 periodicals and ifo holdings with those of other large libraries in eco- 30 statistical reports, the Ifo library is one of the largest nomics. The ifo online public access catalogue (OPAC) libraries for economics in southern Germany. is a component of the Ifo website (under Publication Series/Database Search). The Institute’s electronic catalogue uses various de- scriptors, PTS country codes, and abstracts, as well as The library of the ifo Institute co-operates closely with the classiﬁ cation system of the Journal of Economic the German National Library of Economics (ZBW) in Literature (JEL). Kiel and Hamburg.

Thanks to its literature and database research, along with its procurement of data and information on selected economic and economic-political areas, the library fulﬁ ls an important service function.

94 ifo Annual Report 2017 Press, Publications, Conferences

The ifo Institute forms a bridge between academic 14 research and politics. The applied, scientiﬁ c economic 2017 research carried out by the ifo Institute aims to intensive- 27. Juli 2017 70. Jahrgang ly contribute to policy advice and the economic policy debate, as well as to provide services to researchers and the general public. Successfully transferring information KOMMENTAR ZUR DISKUSSION GESTELLT Der EU-Emissionshandel: to the public realm is the key task of the Press, Publica- Besser als sein Ruf Joachim Weimann Entfremdung tions, Conferences department. It prepares and conveys Armut in regionaler Sicht Klaus-Heiner Röhl und zwischen den USA the results of ifo’s research to its target audience of politi- Christoph Schröder und Europa: Geht cal and business decision-makers, public administrators, DATEN UND PROGNOSEN das »amerikanische Europäische Baunachfrage legt members of the academic community and the media. ÛÙÚà+, %*)0(/×&$"/72 2!4&$,/ƛ*"&01"/ Jahrhundert« zu Providing schools and the general public with econom- Rohstoffpreisänderungen und Ende? Leistungsbilanzsaldo Johannes Varwick, Josef Braml, Jürgen Hardt, Carlo Masala, Christian Grimme und Timo Galina Kolev, Stormy-Annika Mildner und Julia Howald ic information is another area of growing importance. Wollmershäuser The department also oﬀ ers services for ifo’s Executive IM BLICKPUNKT Board and its research departments, as well as support- Die neuen ifo Konjunktur- perspektiven ing them in their publications, organising major events Klaus Wohlrabe ifo Konjunkturumfragen Juni 2017 and by taking responsibility for the public image of the Klaus Wohlrabe Ifo Institute. This particularly includes the layout of ifo’s print and online media, as well as the design and editorial maintenance of its website. In addition, the department is responsible for the numerous video projects and the social media activities of the entire CESifo Group.

RELAUNCH OF THE CESIFO GROUP’S CORPORATE DESIGN The relaunch of the CESifo Group’s corporate design, which began in 2016, was completed for print media In view of this aim, a knowledge transfer concept ori- in 2017 and its new visual image was introduced on ented towards the future needs of the ifo Institute, 1 April 2017. which can also be used as a prototype for other research institutes, is under development as part of the Knowledge transfer The CESifo Group website was also given a face lift at project entitled: “The development, implementation project the same time. The complete relaunch of the website and professionalisation of knowledge transfer con- will take place in 2017 and 2018. In the process the en- cepts” funded by the German Federal Ministry for Edu- tire technical basis of the internet portal, including the cation and Research from June 2015 to May 2018. soft ware used, will be updated, the structure will be optimised and the website will be redesigned. In project year 2017 the main focus was on evaluating the needs of various groups. In addition to the target DEVELOPMENT, IMPLEMENTATION AND groups of politics, public administration and associa- PROFESSIONALISATION OF KNOWLEDGE tions, surveys primarily concentrated on (economics) TRANSFER CONCEPTS teachers. To obtain as speciﬁ c information as possi- To enhance the beneﬁ ts of its work for society, the ifo ble on target groups, interviews were conducted in Institute wishes to further develop the conceptual and addition to quantitative methods. At the same time, methodological bases for the transfer of knowledge two print surveys were developed for the readers of available in the ifo Institute and its working results CESifo Forum and ifo Schnelldienst together with to relevant social groups, and to tap fresh knowledge experts from the Institut für Kommunikationswis- transfer potential. With communication technologies senschaft und Medienforschung at the University of and behaviour undergoing rapid changes, the ifo Insti- Munich (IfKW). The surveys were supposed to gauge tute also wishes to align its expertise and the results of satisfaction with both publications and reveal areas its work with these new framework conditions. for improvement.

ifo Annual Report 2017 95 PRESS, PUBLICATIONS, CONFERENCES

The list of questions for evaluating the information school, which is particularly suitable for introducting needs of MPs as well as political party staff was ad- economic policy topics. In addition to specialist and justed on the basis of the online survey of members of scientifi c methodology contents, a discussion of the the Bavarian State Parliament conducted in 2016. The practical teaching aspects form a core component of surveys assessed information needs on the one hand, the planned further training in order to explicitly sup- especially in terms of economics issues, and media us- port knowledge transfer into the classroom. age, as well as an analysis of the ifo Institute’s position compared to that of its competitors on the other. The The second focus in 2017 was on the survey of ifo prod- results of both surveys should enable the ifo Institute ucts, especially on ifo Konjunkturperspektiven, ifo Providing to provide policy decisionmakers with highly-custom- Schnelldienst as well as CESifo Forum. In cooperation policymakers ised information on its research results. with the editors responsible and the communication with customised experts from the LMU a survey was developed that information A qualitative study was subsequently developed to covers the use of the respective publication, satisfac- provide an even more comprehensive picture of the tion with them and aims to assess improvement sug- information status and expectations. The focus was gestions. Surveys were conducted both in writing and on public administration (German Federal Ministry for online. The survey results yielded valuable recommen- Economics and Energy, the Bavarian State Ministry for dations for action that have already been implemented Economic Aff airs and the Media, Energy and Technol- for ifo Konjunkturperspektiven. In line with the results ogy) as well as on associations (German Engineering ifo Schnelldienst and CESifo Forum will also be adjust- Federation, German Association of the Automotive In- ed to the wishes and needs of users. dustry). The study aimed to provide insights in the daily use of economic information from the point of view of The publication has been published in a new form that associations and ministries and to identify support op- corresponds more closely to readers’ needs since the portunities for economics institutes. second quarter of 2017. The monthly publication features the latest results of the ifo Business Surveys in In 2016 a concept was developed in cooperation with graphics, tables and descriptive analyses. To facilitate the Association of Economics Teachers in Bavaria for a their interpretation, these data are complemented by special further training event specially geared towards fi gures from ifo forecasts, off icial statistics and rele- the needs of economics teachers. The “ifo Hands-On vant association reports. At readers’ requests more Modern Economics Teaching Days” took place for the space has been given to special tables and graphics. fi rst time in the fi rst quarter of 2017. This pilot event The monthly descriptive analyses and interpretations was so succssful that it was be expanded into a series of ifo Konjunkturperspektiven focus on a selection of of events. It also off ered a framework for identifying branches that are covered on a regular basis. There is the information needs of economics teachers and their a calendar showing which month features reports on wishes and demands of an information service for eco- specifi c branches. nomics teachers via a newsletter special designed for this target group. This newsletter has been sent out as The fi nal outstanding task is to process the evaluation “ifo classroom” the “ifo classroom” every two months since the second concepts, as well as individual measures, so that a launched in Q2 2017 quarter of 2017. transfer can take place from the ifo Institute to other Section B Leibniz institutes. To further improve the eff ectiveness of measures in the area of schools/education, another further training PRESS RELATIONS format was designed in cooperation with the Akademie für Lehrerfortbildung und Personalführung (ALP) in Dil- The task of the press off ice is to present the insti- lingen, which will be launched in 2018 as a pilot training tute’s research results to the media and the general course. ALP contributes didactical competences to the public in an understandable, non-technical form. planned event on the one hand, and as a state institu- Around 200 press releases in 2017 off ered information for teacher training, it also ensures the multiplica- tion on research results, current survey results, new tion and tracking of course contents. The event will fo- publications and events. As an intermediary between cus on a scientifi c seminar in the sixth form at grammer journalists and the ifo Institute, the press off ice co-

96 ifo Annual Report 2017 PRESS, PUBLICATIONS, CONFERENCES

ordinates press interviews with institute staff , organ- launched. Press releases have also been sent out in ises press conferences and answers queries. It also French since the fourth quarter of 2017 in order to raise provides the general public with relevant information ifo’s media profi le in the French-speaking world. The and material. releases are sent to a mailing list of around 600 Fran- cophone journalists. It continuous and active PR work is one of the reasons why the ifo Institute has a very high media profi le. In 21 young journalists (15 from the German School of 2017 the ifo Institute improved upon its leading posi- Journalism and 6 from BR) took part in the ifo Practi- ifo organises tion as Germany’s most frequently-cited economic cal Experience Days for High-Quality Journalism, which workshop for young research. This is partly due to the monthly publication were chaired by BR editor Jürgen Seitz and ifo press of- journalists of the Ifo Business Climate Index, the ifo Export Expec- fi cer Harald Schultz. Henriette Löwisch, Head of the Ger- tations, the Ifo Employment Barometer and other Ifo man School of Journalism, and Volker Stollorz, Science survey results. ifo’s forecasts of the economic outlook, Media Center in Köln, participated as the guest experts and above all ifo’s economic policy statements, also at- in the event. It aims to deepen participants’ understand- tract a great deal of media attention. ing of economic relations through the practice-oriented communication of economic and journalistic knowl- In the reporting year Hans-Werner Sinn, ifo’s former edge. Leading researchers from all ifo research de- president, and Clemens Fuest, ifo’s current president, partments presented their work and research results. contributed to the very high media presence of the ifo This highlighted typical mistakes made in reporting on Institute. With numerous interviews and op-eds in na- economics via practical examples. In addition to Timo tional print media, on television and on the radio, both Wollmershäuser’s explanation of ifo’s business cycle presidents repeatedly generated fresh momentum for analysis, Natalia Danzer’s presentation of her study on the economic policy debate. As regular columnists for Chernobyl was given a very positive reception. Another the German economics magazine Wirtschaft sWoche, highlight was Clemens Fuest’s explanation of the tasks both Hans-Werner Sinn and Clemens Fuest have con- facing Germany’s new federal government. tributed regularly to current economic policy topics. Their contributions to Project Syndicate are placed in PUBLICATIONS important national daily newspapers across the world. Another of the department’s responsibilities is the con- As interview partners in the radio, television and daily ception, production and distribution of ifo’s print and newspapers Hans-Werner Sinn and Clemens Fuest are digital publications. This includes developing topics of in high demand across Europe. Other ifo researchers, general current interest, editing and translating (Ger- and especially the heads of ifo’s research departments, man/English or English/German). The pre-printing work were also actively involved in the ifo Institute’s media is also done in the department, including the prepara- work in 2017 via interviews and press articles. tion of graphs and tables, as well as type-setting and Provides media layout, interfacing with the printers and address man- and publishing Clemens Fuest’s statements on the European Central agement. The press relations, publications and confer- support for other Bank’s monetary policy, taxation policy and Brex- ences team assists other departments in the profes- departments it, as well as his proposals on handling the euro cri- sional presentation of their publications and lectures. sis attracted a great deal of attention. His book “Der Odysseus-Komplex” (The Odysseus Complex) co-au- The ifo Institute publishes the following series of thored by Clemens Fuest and Johannes Becker, which publications: was published in 2017 and presented to the public at several events, also generated a great deal of media – ifo Schnelldienst: a bi-monthly journal containing interest. discussions of current policy issues and Ifo research fi ndings; To support the media in reporting on the Ifo Institute’s – ifo Konjunkturperspektiven: a monthly journal pre- results, Ifo’s press releases were more strongly ori- senting the current results of the ifo Business Survey ented towards journalists’ information needs in 2015 in graphs, tables and descriptive analyses; which and an additional service for the media off ering reg- focus on a selection of branches every month that ular notice of forthcoming regular press releases was recurs on a regular basis.

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– ifo–GfK-Konsumreport: a monthly journal reporting reports, in German, on the latest research fi ndings, key on the results of the Ifo Business Survey, GfK Wirt- publications, selected events, personnel particulars, schaft sdienst Konsum- und Sparklima and on con- important dates and a range of other news from the sumer confi dence in the EU (joint publication with Ifo Institute. The ifo Dresden Newsletter is a service GfK Marktforschung, Nürnberg); which was phased- off ered by the Dresden Branch of the Ifo Institute that out with the December 2016 issue. regularly reports on the latest publications and events organised by the branch. In addition, the publication – ifo Dresden berichtet: a journal of the Ifo Dresden of new issues of CESifo Forum, ifo DICE Report and ifo branch on economic policy and structural change in east Germany that appears six times a year; World Economic Survey is accompanied by a summary of contents and download options. – ifo World Economic Survey: a quarterly publication in English containing the results of an Ifo expert poll The CESifo Group also provides news via Twitter on on the world economy in graphs and tables with a its website in German (@ifo_Institut) and English (@ detailed analysis; as of 2017 the publication’s name CESifoGroup). Ifo President Clemens Fuest and for- was changed to ifo World Economic Survey; mer ifo President Hans-Werner Sinn also have Twitter – ifo Forum: a quarterly English-language journal accounts. Users can obtain further information on the published by CESifo GmbH focusing on current eco- latest news from the ifo Institute and the CESifo Group nomic topics of worldwide interest with contri- via its RSS feeds. Job vacancies at the ifo Institute are butions by internationally renowned authors; advertised via Xing and LinkedIn.

– ifo DICE Report: a quarterly English-language jour- Some ifo publications are distributed by international, nal with articles on institutional regulations and online service providers. A complete overview of the economic policy measures using a country-com- publications and ordering information is available at parative approach; as of 2017 the publication’s http://www.cesifo-group.de/publications. name was changed to the ifo DICE Report; – CESifo Economic Studies: a quarterly, refereed CONFERENCES academic journal in English. Articles present the The Press, Publications, Conferences department is re- results of economic research and address policy- sponsible for the organisation and realisation of the Ifo relevant issues. CESifo Economic Studies is pub- Institute’s major conferences, presenting the institute at lished by Oxford University Press. Its managing external conventions and conferences like, for instance, editor is Panu Poutvaara, who has been director of the Annual General Meeting of the Verein für Socialpoli- Ifo’s Center for International Institutions Compari- tik (Association for Social Politics), and for taking care of sons and Migration Research since 2010; groups of visitors to the institute. Key events in 2017 in- – ifo Beiträge zur Wirtschaft sforschung: a book series cluded the conference in honour of David Ricardo, one in which important research projects of the Ifo of the founding fathers of modern economics, and ifo’s Institute are published. Annual Meeting. Public events are mostly livestreamed on the internet to make them accessible to members of the public who are unable to attend in person. Since 2014 selected journals have also been available in EPUB format. In 2017 the ifo Institute once again invited German politicians from all political parties to a “Parliamentary The ifo Institute also publishes the results of expert Breakfast” in the Bavarian Representation in Berlin. This reports that do not appear in book form in the ifo For- kind of event aims to promote and intensify the direct schungsberichte and research conducted by the ifo exchange of information between the institute and pol- Dresden branch in ifo Dresden Studien, which deals iticians and/or their staﬀ . In March 2017 Clemens Fuest primarily with topics aﬀ ecting the new German federal discussed the contents, causes and implications of pop- states and their eastern neighbours ulist economic policy with MPs. The event scheduled for September was cancelled due to the federal government The ifo Newsletter, a free electronic information ser- elections in Germany and the lengthy delay in forming a vice, is distributed at the end of each month by email. It government.

98 ifo Annual Report 2017 PRESS, PUBLICATIONS, CONFERENCES

On 5 May 2017 the ifo Institute organised a conference tion of Economic Research (Friends of the ifo Institute) to honour David Ricardo, one of the founding fathers of for outstanding scientifi c achievement in the fi eld of modern economics. The event was organised with the empirical economic research was awarded. A detailed support of CESifo GmbH and in cooperation with the report on the prize is featured in the Personnel Devel- Chamber for Industry and Commerce for Munich and opments Section of this report and in ifo Schnelldienst Upper Bavaria and the Committee for International 70(13), 2017. Economic Theory and Policy of the Verein für Social- politik. Gabriel Felbermayr, Director of the ifo Center for International Economics, provided the impulse for the conference “Ricardo@200 – International Trade Theory in Turbulent Times”. The conference reviewed the historical debate over import tariff s in England and Ricardo’s infl uence over the current economic policy debate. The event attracted renowned speakers from the USA, England and Europe including Richard Bald- win, The Graduate Institute of International and Devel- opment Studies, Geneva, Daniel Bernhofen, American University, Washington, Douglas A. Irwin, Dartmouth College Hanover, Samuel S. Kortum, Yale University, Meinhard Knoche, Peter-Alexander Wacker, Clemens Fuest New Haven, and Peter Neary, University of Oxford. In a panel discussion Thilo Bode, Foodwatch, Peter Dries- The public part of the 2017 ifo Annual Meeting was sen, CCI for Munich and Upper Bavaria, Dieter Janecek, dominated by the retirement of Meinhard Knoche MP, Bündnis 90/Die Grünen, and Hans-Werner Sinn, and the thematic focus of the event was “Germany former ifo President, discussed the outlook for eco- as a Science and Innovation Base.” Professor Bernd nomic globalisation. The debate was chaired by Marc Huber, President of the LMU, opened the meeting by Beise, Süddeutsche Zeitung. warmly welcoming Meinhard Knoche and thanking him in the name of all those present for his outstand- On 28 June 2017 the 68th ifo Annual Meeting was held ing achievements at the ifo Institute. Bernd Huber ex- in the Great Hall of the University of Munich and focused pressed the hope that Meinhard Knoche would main- on bidding farewell to ifo Executive Board member Mein- tain close links with ifo and the University of Munich hard Knoche. During the General Meeting in the closed in the future. morning session Clemens Fuest, ifo President, reported on the institute’s activities in 2016, the fi rst year of his presidency. The annual accounts for the year ending 31 December 2016 were unanimously approved and ifo Executive Board Member Prof Meinhard Knoche and the Executive Board was unanimously discharged.

Aft er the election of members of the Board of Trustees, Peter-Alexander Wacker, Chariman of ifo’s Administra- tive Council and the Board of Trustees, gave a farewell speech for Meinhard Knoche, who was due to retire from ifo’s Executive Board aft er 22 years at the institute on 31 August 2017. He thanked Meinhard Knoche for his Bernd Huber, President of LMU outstandingly successful contribution as an ifo Ex- ecutive Board Member. Wacker described Meinhard In his short speech ifo President Clemens Fuest high- Knoche, who made a signiﬁ cant contribution to its lighted how heavily involved Meinhard Knoche had positive development and was crucial in turning the ifo been in the success of the ifo Institute and noted that Institute around, as a godsend to ifo. At the end of the his retirement represented a major turning point for ifo, General Meeting the Prize of the Society for the Promo- its staﬀ , its governing bodies and all those linked to the

ifo Annual Report 2017 99 PRESS, PUBLICATIONS, CONFERENCES

ifo Institute. However, Meinhard Knoche was not only committed to the ifo Institute, but also impacted the academic world in Germany by serving on the supervi- sory bodies of the Leibniz Association and other organisations like the ARGE. In the last year of his cooperation with Meinhard Knoche, Clemens Fuest noted that they Meinhard Knoche had made several changes at ifo and implemented new retires aft er 22 years initiatives, the most important of which was the found- at ifo ing of the European research network EconPol Europe with its oﬀ ice in Brussels. He expressed his deepest gratitude, both personally and on behalf of the advisory bodies of the ifo Institute and its staﬀ . He expressed his Marc Beise, Milagros Caiña-Andree, Meinhard Knoche, Angelika Niebler, sincerest hope that Meinhard Knoche would continue to Clemens Fuest remain in close contact with ifo.

At the beginning of his laudatory speech Integrating ac- The subsequent expert panel discussion, chaired by ademia and business: teaming up to boost innovation Marc Beise, Süddeutsche Zeitung, and involving Mein- Georg Schütte, Permanent State Secretary, Federal Min- hard Knoche, Milagros Caiña-Andree, Board Member istry of Education and Research, joined previous speak- of BMW AG, Angelika Niebler, European Member of Par- ers in wishing Meinhard Knoche all the very best on be- liament, and Clemens Fuest focused on Germany as a half of Minister Johanna Wanka and himself. He thanked location for science and innovation. A detailed report ifo’s Executive Board for its commitment in networking on the ifo Annual Meeting featuring contributions from the university and promoting international exchanges. laudatory speakers was published in ifo Schnelldienst In his speech he focused on the question of options for 69(13), 2017. improving framework conditions so that academic and science can innovate in the future. To attract young tal- On 8 November 2017 the ifo Institute in cooperation with ent and encourage the start-up of creative young com- the CCI for Munich and Upper Bavaria and sponsored by panies the German federal government has implement- the Bavarian State Ministry for Economic Aff airs and the ed a new research and innovation strategy featuring the Media, Energy and Technology, organised the 17th ifo four components: promoting research at universities Branchen-Dialog (ifo Industry Colloquium). The aim of this event is to analyse the economy as a whole and de- German government with the “excellence strategy”, reinforcing transfer and velopments in manufacturing, construction, wholesal- pursues “excellence knowledge through, for example, an open access and ing and retailing, as well as in selected service sectors. A strategy” open science strategy, applying key technologies and detailed report on the event is available in this report in digitalisation as a central cross-sectional task. the section on Industrial Organisation and New Technol- ogies, as well as in ifo Schnelldienst 71(1), 2018. In a speech entitled “Joint Research as an Innovation Strategy” Professor Matthias Kleiner, President of the Leibniz Association, emphasised that today’s major cri- INTERNET ses, like the euro crisis and the refugee crisis, Brexit or The ifo Institute has digitalised most of its activities the “Transatlantic relationship crisis” could only be joint- in research, policy advice and service and made this ly resolved. In his opinion, this calls for clear analysis and information available online. This applies not only scientifi c expertise, both of which the ifo Institute brings to internal and external communication, to searches into society by transcending the bounds of academia. and to knowledge management, but also to business According to Kleiner, breaking down borders between surveys, research projects and data provision to users disciplines and forming a bridge to debate in society is worldwide. The ifo Institute’s activities are linked with an innovation driver in academia. This driver is particu- those of its other partners in the CESifo Group. For this larly eff ective when academics work together in a team reason, the CESifo Group has a joint internet portal and together with representatives from diff erent back- (www.cesifo-group.de) that combines the information grounds. The ifo Institute and the Leibniz Association as off ered by the ifo Institute, CESifo GmbH and the Cen- a whole are outstanding examples of such teams. ter for Economic Studies (CES).

100 ifo Annual Report 2017 PRESS, PUBLICATIONS, CONFERENCES

The internet portal aims to provide the public with com- mobile devices ike tablets and E-Readers. The library of prehensive information from the working areas of the the ifo Institute also makes its electronic catalogue avail- CESifo Group and to improve the general level of knowl- able to external users. The DICE database (Database for edge in economics. It also has the goal of quality as- Institutional Comparisons in Europe) off ers information surance, by enabling complete transparency regarding in a systematic and comparable form on institutional the resources and output of the members of the CESifo regulations, especially within the European Union. The Group, so that a control function can be exerted by its off ering of “Visual Stories”, which off er a comprehensive users. graphic representation of data, was also expanded in 2015. The Ifo Resources Database, which was developed and is regularly updated by the ifo Center for Energy, Climate and Exhaustible Resources, is also frequently accessed by users. Based on tables and documents DICE off ers visual from several data suppliers, it provides a comprehen- stories sive overview of energy reserves and resources. Special service off erings for researchers include the databases iPEHD and GAME. The ifo Prussian Economic History Database (iPEHD) – ifo’s historical economics database on Prussia – off ers interested researchers a systematic collection of digitalised Prussian data available via ifo’s website. ifo GAME collects information on geological and meteorological events worldwide from 1979 to 2010 and summarises them in a structured and aggregated manner at a national level. Ifo GAME thus off ers a unique The CESifo Group website: http://www.cesifo-group.de dataset for economic analysis.

On the internet portal of the CESifo Group, the ifo In- Numerous lectures given by guest researchers at the stitute presents timely information on the institute, Center for Economic Studies (CES), as well as selected its services, its research topics, its economic-policy lectures at Ifo events, are made available in a video for- advice based on this research, and its future plans. mat to an international audience in the CESifo Group’s This also includes comprehensive information on the media library. The internet platform is also used to theoretical and policy-oriented output of ifo’s research conduct ifo’s business surveys and to provide the me- centers and its staff , as well as the media resonance of dia with information. CESifo GmbH and CES provide this output. a wide range of information on their work in the joint internet portal, especially with regard to the CESifo Re- On the start page information from the institute is pre- search Network and the scientifi c conferences organ- pared editorially in the form of ifo News and is comple- ised by CESifo. mented by images. In addition to topical press releases, these news pieces feature other research results, events, In addition to the CESifo Group website, ifo provides personnel changes, references to TV appearances and other project-related websites. In 2017 it launched a much more. This gives rise to a fl ow of news that can new website for EconPol Europe – The European Net- New website be directed by the institute in a targeted manner. Every work for Economic and Fiscal Policy Research: econpol. launched for EconPol news is also published on Twitter, creating a direct con- eu. The website off ers regular publications for down- Europe nection with the ifo Institute’s social media activities. load and reports on events with images and videos.

The range of services for the transfer of knowledge is be- At the same time as the relaunch of ifo’s print media in ing continuously expanded. In internet databases, pub- April 2017, the design of its website was also adapted lications can be easily searched and ordered and some in line with the CESifo Group’s new corporate design can be retrieved in full-text form. Several ifo journals introduced in 2016. The homogeneity of the layout of have also been oﬀ ered as downloads in the .epub format print and online media should make Ifo’s public image as of 2014, which is particularly suitable for viewing on more instantly recognisable.

ifo Annual Report 2017 101 PRESS, PUBLICATIONS, CONFERENCES

Preparations for a complete relaunch of the CESifo Group website continued in 2017. In the course of these preparations, the entire technical foundation of the internet portal, including the soft ware used, will be changed and updated. Several content management systems were evaluated in terms of their suitability for meeting the speciﬁ c needs of the ifo Institute and new approaches to optimising the content and structure of the website were developed. This work will continue on 2018 with external support.

VIDEOS Video contributions are becoming an increasingly important instrument for conveying information. Re- cordings of speeches, lectures, panel discussions and other events document the CESifo Group’s work. CES and ifo began recording events and producing video fi lms back in the 1990s, meaning that the CESifo Group now has a vast pool of video recordings, some of which have now acquired scientifi c importance. Users have central access to its entire off ering of videos via the user-friendly media library. A well-established focus of ifo’s use of video is livestreaming, or the live broad- cast of events via the internet, which are subsequently made available in its media library. This technology has signifi cantly raised the public profi le of CESifo events.

CESifo’s Media Library also serves as a virtual audito- rium: lectures and presentations are oft en viewed in their entirety. The CESifo Lectures, which can be accessed via the CESifo website, are recordings of lectures given by international academics at CES and ifo. In 2017 the collection of online lectures was expanded to include the Munich Lectures in Economics by Susan Athey on: “Using Big Data and Machine Learning to Un- derstand the Impact of Digitization”.

In addition to livestreams via the internet, a growing number of self-produced video clips will also be added to the media library in the future. The key ﬁ ndings of conferences organised by the ifo Institute are also presented in short event reports. Recordings of selected events have also been supplemented by short interviews with the panellists. To reach a greater number of users, recordings of events were also made available on the video platform YouTube.

102 ifo Annual Report 2017 ifo Dresden ifo Dresden Branch

The Dresden Branch, established by the ifo Institute in and academia. The results of more comprehensive re- 1993, conducts empirical economic research that fo- search projects are published in the series ifo Dresden cuses on the special conditions in the New Länder, es- Studien. In 2017, two issues were published: No. 78 pecially in the Free State of Saxony. ifo Dresden Branch “Auswirkungen der demografi schen Entwicklung auf prepares economic analyses dealing with economic den ostdeutschen Wohnungsmarkt” (“Demograph- developments in Eastern Germany and the Free State ic Developments and Their Impact on the Residential of Saxony. It off ers policy advice and information to the Market”) and No. 79 “Optionen einer Weiterentwick- public. The branch receives fi nancial support from the lung der Indikatorik für die von der EU abgegrenzten Free State of Saxony and draws on the experience of Regionalfördergebiete nach 2020” (“Options for Fur- the ifo Institute, its parent institute in Munich. ther Developing Indicators for the EU-Determined Re- gional Subsidy Areas aft er 2020”). The layout of all ifo ifo Dresden The Dresden Branch currently works in the following Dresden publications was revised in line with the ifo publications adopted research areas: Institute’s new corporate identity. ifo’s new corporate identity – Business-cycle and growth in Saxony and the New Conferences and workshops like the working group for Länder, economic forecasts regularly take place on the prem- – Human capital, structural change and the position ises of ifo Dresden. Workshops in 2017 included the of Saxony and the New Länder in locational com- 11th ifo Dresden Workshop on “Macroeconomics and petition, the Economic Cycle” (20/21 January 2017), the 11th ifo – Labour market and social policy in Saxony and the Dresden Workshop on “Political Economy” (1/2 De- New Laender, cember 2017) together with CESifo, TU Dresden and TU Braunschweig, the 7th ifo Dresden Workshop on “La- – Integration of Saxony and the other New Laender bour Markets and Social Policy” in co-operation with into the international division of labour (especially TU Dresden (23/24 March 2017) and the 7th ifo Dres- with Central and Eastern Europe) and den Workshop on “Regional Economics and Structural – Public fi nance and support of economic develop- Change” also together with TU Dresden and TU Braun- ment in Saxony and the New Länder. schweig (28/29 September 2017).

In the Dresdner Vorträge zur Wirtschaft spolitik series, ifo Dresden is also working on the general topic “impli- prominent economists present their latest research cations of demographic change the economic develop- fi ndings in economics and fi nance. In 2017, four lec- 4 top economists ment.” The shrinking and ageing of the population will tures were held in this series. Herbert Brücker, head of presented their latest have a signifi cant impact on nearly all fi elds of social the International Comparisons and European Integra- research and economic development and thereby pose new tion department at the Institut für Arbeitsmarkt- und challenges to economic policy. Berufsforschung (IAB), Nuremberg, Christina Gath- mann, head of the Labour Market Economy and New In addition to economic research, ifo Dresden off ers Political Economy Departmemt at the Alfred-Weber-In- an extensive range of services. Economic-policy ori- stitut, University of Heidelberg and deputy head of the ented analyses are published in the journal ifo Dresden Advisory Council to the German Federal Ministry for berichtet and in the book series, ifo Dresden Studien. ifo Economic Aff airs and Energy, Jens Bullerjahn, former Dresden provides information and advice on current Minister of Finance in Saxony-Anhalt and Stefan Hom- economic-policy issues to policymakers, companies burg, head of the Institute for Public Finance at the and businesses. It also organises workshops and con- Leibniz University of Hannover, discussed their views ferences. on current policy issues with audience members from academia, policy and public administration. The journal ifo Dresden berichtet has been published every two months since 1994. In this journal, ifo Dres- Under the management of Marcel Thum and Joachim den researchers and external authors publish their Ragnitz, 15 economists are currently conducting re- current research fi ndings on the economic situation in search at the branch, nine of which are doctoral can- the New Länder for a wider public in politics, business didates. The team is completed by two non-scientifi c

ifo Annual Report 2017 105 IFO DRESDEN BRANCH

staff members and a number of student research as- to 2020” on behalf of the Saxon State Ministry for Eco- sistants. ifo Dresden Branch closely cooperates with nomic Aff airs, Labour and Transport. This project is the Technische Universität (TU) Dresden and the Sta- conducted together with the GEFRA, the Joanneum tistical Off ice of the Free State of Saxony. Cooperation Research Forschungsgesellschaft mbH and Kovalis. agreements specifi cally cover visiting fellowships of researchers, joint activities and presentations. Addition- Since 2016, ifo Dresden provides “Quarterly Business ally, the ifo Dresden Branch extends project-related Cycle Report for Saxony-Anhalt” on behalf of the Min- work experience to interested students of economics. istry of Economy, Science and Digitalisation in Sax- ony-Anhalt. The reports are published on the ifo web- ECONOMIC ACTIVITY AND GROWTH IN SAXONY AND site. In 2017, the project contract was renewed until the THE NEW LÄNDER end of the year 2018. A specifi c focus of the ifo Dresden Branch is the observa- ifo Dresden publishes monthly regional reports fea- tion and forecast of the business cycle of the Free State turing the results of the ifo Business Survey for East- ifo Dresden forecasts of Saxony and of Eastern Germany as a whole. For these ern German and the Free State of Saxony. The results business cycle in regions, ifo Dresden publishes the ifo Business Survey are disseminated via monthly press releases and as Saxony on a monthly basis, as well as business cycle forecasts articles in the journals Wirtschaft + Markt as well as twice a year. Researchers in this area also work on proj- WIRtschaft in Sachsen – das Entscheidermagazin der ects that explore the infl uence of growth policies. Sächsischen Zeitung. In 2017, ifo Dresden and the Institute for Financial and Regional Analyses (GEFRA) jointly developed “Opportu- ifo Business Climateɭ for Eastern Germany nities for the Further Development of the Indicators for Seasonally adjusted the EU’s Regional Development Areas aft er 2020” on be- ifo Business Climate half of the German Federal Ministry for Economic Aff airs Assessment of business situation and Energy. The results were published as ifo Dresden Business expectations Index, 2005 = 100 Studie 79 and were summarised in an article published 130 in issue 6/2017 of the journal ifo Dresden berichtet. 120

110 GDP Seasonally, calendar and price adjusted 100 Saxony-Anhalt 90 Germany Index 2016 = 100 104 80 102 70 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 100 ɭ Manufacturing, construction, wholesaling and retailing. 98 Source: ifo Business Survey, December 2017. © ifo Institute 96 94 ifo Dresden complements the monthly business cycle 92 reports by business cycle forecasts for Eastern Germa- 90 ny and the Free State of Saxony twice a year, in June 88 and December. The forecasts are disseminated via 2012 2013 2014 2015 2016 2017 press releases and articles in the journal ifo Dresden Source: State Statistical Oƛice of Saxony-Anhalt; Federal Statistical berichtet (issues 1/2017 and 4/2017). They are also pre- Oƛice; calculations of the ifo Institute. © ifo Institute sented at a press conference and at the “ifo Working Group on Economic Forecasts for the Free State of Sax- The Dresden Branch is also involved in a project on the ony” workshop. The workshop is held at the ifo Dres- “Continuous Evaluation of the Operational Program den Branch and brings together representatives from of the Free State of Saxony for the European Regional ifo Dresden, the ifo Institute in Munich, the Federal Em- Development Fund in the Funding Period from 2014 ployment Agency, the Regional Oﬀ ice of the Institute of

106 ifo Annual Report 2017 IFO DRESDEN BRANCH

Employment Research in Saxony, various Saxon min- were able to show that the market for single-family istries, the credit reporting agency Creditreform, the homes reacts strongly to tax changes. The tax changes Chamber of Craft s Dresden, the Chamber of Industry the date of the transaction and inhibits home purchas- and Commerce Dresden and others. The 39th and 40th es. An overview of the results of international studies workshops took place in 2017. on the eff ects of real estate transaction taxes was published in issue 5/2017 of ifo Dresden berichtet. ifo Dresden also comments on the off icial growth fi g- ures. The growth fi gures of the federal states were sig- The real estate market was also at the center of stud- nifi cantly revised in 2015. Jannik Nauerth and Michael ies on behalf of the Federal Ministry of Economic Af- Weber discuss this revision in an article in issue 4/2017 fairs and Energy. The study: “Impact of Demographic Study focuses on real of ifo Dresden berichtet. They conclude that the revision Development on the Eastern German Housing Mar- estate market not only refl ects the availability of new data, but also ket” was carried out together with the Leibniz Insti- the diff iculties of estimating the usage of intermediate tute of Ecological Urban and Regional Development goods in production. Intermediate goods as a share of (IÖR) and Gesine Marquardt, Professor for Social and total sales has shown an erratic pattern in recent years Health Care Buildings and Design at TU Dresden, and and is therefore diff icult to forecast. was completed in January 2017. The results were published in the series ifo Dresden Studien (No. 78). Carolin Finally, in 2017 ifo Dresden and the Helmut-Schmidt-Uni- Fritzsche and Lars Vandrei also published a summary versity Hamburg jointly organised the 11th ifo Dresden of the study’s fi ndings in issue 3/2017 of ifo Dresden Workshop on “Macroeconomics and the Business Cycle”. berichtet.

HUMAN CAPITAL, STRUCTURAL CHANGE AND THE On behalf of the German Federal Ministry for Economic POSITION OF SAXONY AND THE NEW LÄNDER IN Aff airs and Energy, the project “Growth Strategies of LOCATIONAL COMPETITION Firms in East German States”, which started back in 2016, was fi nalised. This joint project of ifo Dresden, This fi eld of work analyses regional and sectoral disag- Rambøll Management Consulting and Creditreform gregated growth and convergence processes. The focus Rating AG analyses the growth determinants and strat- is on comparative analyses of Eastern and Western Ger- egies of Eastern German fi rms. The study was complet- many, as well as rural and urban areas. This research ed in summer 2017. Its key results were presented at group aims to propose policy options for adjusting the the ‘Ostdeutsche Wirtschaft sforum’ in November 2017. living conditions of economically backward regions. The published study can be accessed via the Ministry’s Economic indicators on demographic change and the webpage. Two related articles will be published in the convergence progress of Eastern German regions are constantly monitored. Moreover, the research group issue 1/2018 of ifo Dresden berichtet. focuses on relevant tendencies in education economics and the long-term causes of spatial socio-economic On behalf of the Umweltbundesamt, the ifo Dresden diff erences. The 7th ifo Dresden Workshop on “Regional Branch – together with the Wuppertal Institut für Kli- Economics” took place on the 28th and 29th of Septem- ma, Umwelt, Energie gGmbH and the TU Dresden – is ber 2017. The workshop was jointly organised by Kath- working on a case study on the structural change in arina Heisig, Julia Sonnenburg and Christian Ochsner the Saxon region of Lusatia. This case study, which was Structural change in in cooperation with Christian Leßmann from the TU begun in November 2016, examines the causes and ef- Lusatia Braunschweig. As in previous years, the workshop re- fects of structural change processes. Previously imple- ceived far more submissions than slots available. Aside mented measures aimed at mitigating or fostering the from German speakers, the number of European partic- structural change of Lusatia will also be evaluated. The ipants is steadily increasing. study will be completed in August 2019.

In 2017, the project “Homes-uP – Single-Family Homes On behalf of the Federal Ministry of Economic Aff airs under Pressure” conducted on behalf of the Leibniz and Energy, ifo Dresden in co-operation with the ifo In- Association was completed. Carolin Fritzsche and Lars stitute in Munich and the University of Passau engages Vandrei analysed the eff ects of real estate transaction in evaluating the diff erences in attitudes between East- taxes on single-family home transactions. The authors ern and Western Germany.

ifo Annual Report 2017 107 IFO DRESDEN BRANCH

In March 2017, the joint project “Innovation Workshop liberated by the Red Army aft er WWII would lag behind Dresden” was launched, which is also being carried Western German regions, even if the Red Army had out on behalf of the Federal Ministry of Research. The completely withdrawn from Eastern Germany as early project is conducted by ifo Dresden in cooperation with as summer 1945. the Helmholtz-Zentrum Dresden-Rossendorf, Univer- sity of Applied Sciences Dresden, and TU Dresden. Its LABOUR MARKET AND SOCIAL POLICY IN SAXONY main goal is to strengthen the cooperation between AND EASTERN GERMANY fundamental research institutions and small and medium-sized enterprises. Katharina Heisig and Joachim In the area of labour market and social policy, ifo Dres- Ragnitz are in charge of the economic analysis and the den focuses on how policy and demographic trends evaluation of new instruments. The project will be com- aff ect labour market outcomes. This year’s emphasis pleted by February 2020. lay on current policy-relevant topics like the future dif- fi culties of fi lling vacancies when older workers retire Numerous studies have been published in ifo Dres- and the decreasing numbers of applicants for the dual den berichtet, mainly on contemporary issues in ed- education system. Additionally, the research group ucation economics and the long-term causes of re- organised the 7th ifo Dresden Workshop on “Labour gional economic growth. A study by Katharina Heisig Economics and Social Policy” (23rd and 24th of March 2017) with both national and international partici- and Julia Sonnenburg investigated the gap between pants. Eastern and Western German in terms of school School drop-out gap dropouts (young adults who leave school without On behalf of the State Chancellery of Saxony, ifo Dres- at least a graduation certifi cate from the German den worked on the project “Employment in the Public ‘Hauptschule’). Results suggest that this gap is main- Sector in the Free State of Saxony up to 2030”. From ly caused by diff erences in the social environment in 2015 to 2030, nearly half of the workforce in Sax- which children grow up. The study was published in is- ony’s public sector will retire. The project analysed sue 06/2017 of ifo Dresden berichtet. In another study, whether fi lling these vacancies with younger workers Katharina Heisig, Felix Rösel and Julia Sonnenburg may prove diff icult, as the public sector and the pri- explore the increasing share of high school gradua- vate sector will be competing for the same groups of tions with the grade 1.0. They fi nd a larger increase in skilled workers. The results of the study will be pub- the share of 1.0 graduations in schools with high com- lished in 2018. petitive pressure. By contrast, diff erences between urban and rural areas and public and private schools Katharina Heisig and Michael Weber analysed the in- are less important. The study was published in issue creasing diff iculties in fi lling vocational training posi- 05/2017 of ifo Dresden berichtet. tions in Saxony. There are two major reasons for this trend: fi rstly, pupils increasingly aim to graduate from Christian Ochsner studies the causes of regional eco- high school (Abitur) and start their university edu- nomic inequality in ifo Working Paper No. 240 entitled: cation. Secondly, there is a mismatch for vocational “Dismantled Once, Diverged Forever? A Quasi-natural training positions. The analysis was published in issue Causes of regional Experiment of Red Army’s Misdeeds in Post-WWII Eu- 5/2017 of ifo Dresden berichtet. Several print and online economic inequality rope.” The working paper analyses the causal long-run media reported on the results of the study. consequences of a short period of Red Army misdeeds aft er World War II on subsequent regional economic activity. Based on a quasi-natural experiment in INTEGRATION OF SAXONY AND EASTERN GERMANY South Austria, Christian Ochsner shows that regions IN THE INTERNATIONAL DIVISION OF LABOUR liberated and briefl y occupied by the Red Army face The economic interaction between Saxony’s compa- a decline in population growth that persists until to- nies and inhabitants with their neighbours in Poland day. Measures of local labour productivity in 2011 and the Czech Republic has become increasingly im- also lag behind in these regions. These fi ndings were portant over the last two decades. It was signifi cantly also discussed in an Eastern German context in the is- facilitated by the eastern enlargement of the Euro- sue 5/2017 of ifo Dresden berichtet. The results imply pean Union in 2004. The free movement for workers that those Eastern German regions that had been across borders is also visible in the labour statistics

108 ifo Annual Report 2017 IFO DRESDEN BRANCH

of Eastern German states. In an article published in of Saxony, David Bauer, Christian Ochsner, Joachim issue 2/2017 of ifo Dresden berichtet, Antje Fanghänel Ragnitz and Michael Weber elaborated potential rec- and Michael Weber showed that the net increase of ommendations for action for the State Chancellery employment contracts in Eastern Germany is mainly of Saxony regarding the reorientation of the Saxon caused by foreigners. More than one in two job va- funding policy. Based on current social and economic Future EU funds for cancies in Eastern Germany is fi lled by a non-German conditions in the Free State of Saxony, the strengths, Saxony resident. Five years earlier, the same share was just weaknesses, opportunities and threats of Saxony were 12 percent. Most of the newly employed workers in identifi ed. In a simulation approach, the authors esti- Eastern Germany originate from Poland, the Czech mated the future allocation of European funds for Sax- Republic, Bulgaria and Romania. ony aft er 2020. The study also contains an assessment of the current funding landscape in the Free State of PUBLIC FINANCE AND THE SUPPORT OF ECONOMIC Saxony in terms of its eff ectiveness and its economic DEVELOPMENT IN SAXONY eff iciency. The research area of public fi nance and economic Questions of municipal structures were also addressed development focused on local-level and state-level in 2017. In two journal articles for the Perspektiven der public fi nance in 2017. With elections taking place in Wirtschaft spolitik with Sebastian Blesse of ZEW Mann- numerous countries, the causes and consequences heim and the European Journal of Political Economy, of right-wing populism became a focus of attention. Felix Rösel shows that territorial reforms have hardly In 2017, ifo Dresden’s staff compiled many studies ad- any fi scal impact, but may impair the functioning of dressing the complex phenomena of populism. In ad- democracy at the local level. Felix Rösel presented his dition, Felix Rösel focused on the topic of right-wing populism in his successfully defended dissertation en- fi ndings in two hearings in the Saxon State Parliament, titled: “On Electoral Institutions and Outcomes”. Felix as well as in the Brandenburg State Parliament and in Rösel examined the infl uence of formal and informal numerous other lectures to practitioners in Branden- institutions on the development of election results. burg, Thuringia, Rhineland-Palatinate and the Saar- Among others, Felix Rösel present his results at the land. Lindau Meeting of Nobel Laureates. In the CESifo Work- ing Paper No. 6764 (“Compulsory Voting, Voter Turnout A project for KfW group (“Demographic Change, Urban- and Asymmetrical Habit-formation”), Stefanie Gäbler, ization, and the Costs of Public Services in Municipali- Niklas Potrafke and Felix Rösel show that the introduc- ties”) examined the relationship between demographic tion of compulsory voting in Austria had no long-term change and municipal fi nances from 1950 to 2012. For Demographic change eff ect on voter behaviour. this study, Xenia Frei, Felix Rösel and Joachim Ragnitz and municipal distinguished periods of population growth and popu- fi nances The public staff of federal states was the focus of a relation decline. They show an asymmetrical eff ect on export for the Free State of Saxony. On behalf of the State penditure per capita (cost stickiness). The importance Chancellery of Saxony, David Bauer and Joachim Rag- of urban areas was investigated in addition to chang- nitz examined “Benchmarking for Public Employment es in responsiveness over time. Future fi scal develop- at the Federal State Level”. If each inhabitant demands ments and the evolution of fi scal disparities between a fi xed number of public services, a higher level of pub- cities in the long run were also assessed based on cur- lic staff ing per capita may indicate ineff iciencies of task rent population projections. Its results will be dissemi- fulfi llment. However, the authors show that compari- nated via ifo Dresden Studien, ifo Dresden berichtet and sons between states are tricky due to diff erent degrees other external publications. of the decentralisation of public tasks.

The provision of ﬁ scal transfers remains a matter of outstanding importance to the Eastern German states. In the years ahead, the Free State of Saxony will face a reduction of ﬁ nancial support from both the federal government and from the European Union for its operational programs. In a report for the State Chancellery

ifo Annual Report 2017 109 IFO DRESDEN BRANCH

Projects Completed in 2017 The investigation of the situation in Germany was supplemented by comparative studies inside Europe, as well as in Japan and the United States. The interna- Research Area Human Capital, Structural tional perspective was underpinned by several inter- Change and the Position of Saxony and the New national cooperating partners and an international Laender in Locational Competition (Human- advisory board. The results were presented at a scien- kapital, Strukturwandel und die Position im tifi c conference in Dresden and at an expert meeting Standortwettbewerb) for practitioners and professionals in Frankfurt am Main. Homes-uP – Single-Family Homes under Pressure Impact of Demographic Developments on the C. Fritzsche, M. Thum, L. Vandrei for the Leibniz Asso- Eastern German Housing Market ciation, January 2015 to December 2017, publication in J. Ragnitz, C. Fritzsche, J. Kluge, M. Thum, L. Vandrei ifo Dresden berichtet 24(2), 2017; 24/3), 2017. in cooperation with G. Marquardt, TU Dresden, for the German Federal Ministry of Economic Aff airs and Ener- In many countries, single-family homes constitute the gy, November 2015 to January 2017, publication as ifo majority of residential buildings. Economic and fi nan- Dresden Studie Nr. 78, ifo Institute, Munich, 2017, and in cial crises, demographic and social structural change, ifo Dresden berichtet 24(3), 2017; 24(4), 2017. User preferences as well as changes in user preferences are raising new challenge segment challenges to this segment of the housing stock. Out- The study analysed the extent to which the Eastern side economic growth centres, stagnating or drop- German housing market is prepared for current and ping prices, diff iculties in selling, and even vacancies future demographic developments like a shrinking are no longer a rarity in this segment in many regions. and ageing society. The study describes the socio- Nonetheless, these developments and their possible economic characteristics of Eastern Germany and consequences have hardly been investigated. Stud- the current situation of the Eastern German housing ies from a number of relevant perspectives are now market. The rapidly ageing society poses a challenge needed. for the Eastern German housing market with regard to age-appropriate living. The study also describes the Together with the Leibniz Institute of Ecological present system of subsidies and housing regulations. Urban and Regional Development (IÖR, Dresden), the Key results of our study are: Research Institute for Regional and Urban Development – The Eastern German housing market is characterised (ILS, Dortmund), the Institute for Social-Ecological by high vacancy rates with huge diff erences between Research (ISOE, Frankfurt/Main) and the Centre for urban and rural areas, an old housing stock and low European Economic Research (ZEW, Mannheim), ifo ownership rates. Dresden pursued three key objectives: – Over one million dwellings will be vacant by the – A description of trends in traditional and novel year 2030 and a new wave of low occupancy can be single-family homes user groups and their housing expected for shrinking regions. preferences. – There is high demand for barrier-free residential – A description of the characteristics of current single- space. In Eastern Germany, only 4.4% of all dwellings family homes building stocks. with one or more elderly inhabitants have no or – An understanding of the eff ects of these changes. almost no barriers. We are interested in the implications for the market – The German states have set diff erent priorities outcome, and particularly for prices and vacancies, in their housing policies and already face many and we study their impact on the use of natural challenges created by demographic developments. resources. There is a glaring need for political action in the – The identifi cation of possible development scenarios future, especially with regard to the construction of and approaches to action. barrier-free residential spaces.

110 ifo Annual Report 2017 IFO DRESDEN BRANCH

Development in Vacancy Rates in Eastern German States Public Finance and Support of Economic (with the Exception of Berlin) through 2020 Development in Saxony and the New Länder Absolute change versus 1991 Research Area (Öﬀ entliche Finanzen und Absolute change in number of households in 1991 Wirtschaft sförderung) Resulting change in vacancy rates Forecasts are represented as dotted line. Figures in 1,000 Demographic Change, Urbanisation, and the 1,000 Cost of Public Services in Municipalities X. Frei, J. Ragnitz, F. Rösel for the KfW Group Frankfurt 800 am Main, September 2016 to December 2017.

600 Demographic change in Germany will aff ect society 400 and the public sector in many ways. This project for the KfW group examines the relationship of demographic 200 change, urbanisation, and the costs of public service provision. The ifo Dresden Branch investigated wheth- 0 er increases and decreases in population size aff ect 1995 2000 2005 2010 2015 2020 2025 2030 public expenditure asymmetrically. Vacancy rate through 2030 p.a.: +27,000 residential units. Source: German Federal Statistics Oƛice (2015; 2016); IOER calculations. © ifo Institute Potential and Limits of Task-Oriented Compari- son of Public Staff at the Federal State Level D. Bauer, J. Ragnitz for the State Chancellery of Saxony, November 2016 to January 2017. Growth Strategies of Firms in Eastern German States The central task of federal states is the provision of C. Ochsner, J. Ragnitz in cooperation with Rambøll public services. As demand for public services is rough- Management Consulting GmbH and Creditreform Rat- ly proportional to population size, the number of pub- ing AG for the German Federal Ministry for Economic lic employees per inhabitant should be approximately Aff airs and Energy, November 2016 to June 2017, publi- the same in all states. Diff erences in public sector size cation by the German Federal Ministry for Economic Af- may be interpreted as a measure of ineff iciency in the fairs and Energy and in ifo Dresden berichtet 25(1), 2018. production of public services. On behalf of the State Chancellery of Saxony, ifo Dresden analysed whether Fast growing fi rms are crucial for regional employment measures of public employment per inhabitant can be growth. International studies show that only a small used for benchmarking purposes. share of all fi rms accounts for most of the increase in regional employment. This study analyses the growth Possibilities of Further Development of the dynamics and its determinants for Eastern German Indicators for EU Regional Development Areas fi rms. To this end, ifo Dresden cooperated with Ram- Aft er 2020 bøll Management Consulting and Creditreform Rating J. Ragnitz, M. Weber for the Federal Ministry for Eco- AG. The study starts with an overview of the current nomic Aff airs and Energy, November 2016 to May 2017, literature that describes determinants of fast growing publication as ifo Dresden Studie Nr. 79, ifo Institute, fi rms. It reveals that nearly 50 percent of all newly cre- 2017, and in ifo Dresden berichtet 24(6), 2017. ated jobs in Eastern Germany can be attributed to fast growing fi rms, i.e., fi rms that posted annual growth of Creating equal living conditions in all regions is one of at least 10 percent within a three-year period. Final- the major goals of German regional policies. To this ly, the study provides a typology of eff ective growth end, support programmes like the ‘common task of im- strategies for fi rms; and suggests potential policies provement of regional economic structure’ (GRW) are that may accelerate fi rm growth. The study can be of the utmost importance. Such programmes provide accessed via the webpage of the Federal Ministry for assistance to regions that are economically lagging Economic Aff airs and Energy, which commissioned the behind national averages. However, when identifying study. those regions, special guidelines imposed by the Eu-

ifo Annual Report 2017 111 IFO DRESDEN BRANCH

ropean Union must be observed. For instance, these er workers may well prove very diff icult, as the public guidelines result in a ceiling for regions that receive re- sector and the private sector will be competing for the gional funding (currently: 25.85% of the entire German same groups of skilled workers. population) that is determined by a comparison of different indicators of regional performance between all ifo Dresden investigated the future challenges in fi lling European regions. vacancies in the Saxon job market. This analysis is conducted at the level of the workers’ qualifi cation levels As Germany is currently experiencing a positive eco- and occupations, as well as the economic sector. The nomic development compared to most other EU mem- study identifi ed the domains in which the private sector ber states, the population ceiling for Germany is ex- and the public sector are competing for workers. It also EU population pected to decrease in the next structural fund period analysed the potential eff ectiveness of various personnel ceilings and their (2021–2028). Additionally, Brexit will lower the popula- strategies in the public sector. In addition to an increase implications tion ceiling for Germany. This study begins by estimat- in the number of public staff in education and internal ing the level of the population ceilings for all EU member security, the impact of reducing overcapacities among states aft er 2021 if the current approach were to remain public staff was also taken into consideration. Market unaltered, and subsequently examines the eff ects of adjustment processes and technological and structural modifying the method and the set of indicators used to change were taken into account too. determine the population ceilings. Modifi cations of the method for determining the population ceiling and al- Long-term Eff ects of a Reform of the Fiscal ternative (or additional) indicators were analysed. Equalisation Scheme in Germany D. Bauer, J. Ragnitz, F. Rösel for the Friedrich Ebert Strategies for the Best Equipment and Use of Foundation, Berlin, January 2017, publication in ifo Funds aft er 2020 Dresden berichtet 24(3), 2017. D. Bauer, C. Ochsner, J. Ragnitz for the State Chancel- lery of Saxony, April 2017 to November 2017. The study assesses the long-term eff ects of a proposed reform to redesign the fi scal equalisation scheme in The Free State of Saxony will face further reductions Germany. It uses growth and tax revenue forecasts of fi nancial support from both the federal govern- and shows that the proposed equalisation scheme at ment and from the European Union for its operational least partially helps to mitigate fi scal inequalities be- programmes aft er the year 2020. ifo Dresden recom- tween federal states. The authors also show that high- mended adjustments in the Saxon funding policy to ly indebted federal states would benefi t even more SWOT analysis for the State Chancellery of Saxony. The authors conduct from an alternative proposal by Eichel et al. (2013). Saxony a SWOT analysis on the strengths, weaknesses, op- Allocating transfers from the federal government with portunities and threats to the Saxon economy. Based respect to GDP per capita may help to further reduce on this analysis, considerations on the evaluation of inequalities. current funding policies and the adequate implementation of Saxon funding policies aft er 2020 were discussed. Current Projects Public Staff through 2030 in the Free State of Saxony and the Competitive Situation in the Private Sector Research Area Business-Cycle and Growth in D. Bauer, J. Sonnenburg, J. Ragnitz, M. Weber for the Saxony and the New Länder (Konjunktur und Saxon State Ministry of Finance (SMF), April 2017 to De- Wachstum) cember 2017. Quarterly Business Cycle Report for The public sector in the Free State of Saxony is under- Saxony-Anhalt going major demographic changes. Between 2015 and J. A. Nauerth, J. Ragnitz, M. Weber for the Ministry of 2030, nearly half of the workforce in Saxony’s public Science, Economics and Digitalisation of Saxony-An- sector will retire. Filling these vacancies with young- halt, January 2016 to March 2018.

112 ifo Annual Report 2017 IFO DRESDEN BRANCH

The German off icial statistics provide data on the devel- The economic and industrial structure of Lusatia, a re- opment of gross domestic product (GDP) and gross val- gion in Southern Brandenburg and Eastern Saxony, is ue added (GVA) for Germany and each of the 16 states. characterised by the mining and energy sectors. Until German data is published at a quarterly frequency, but German reunifi cation, over half of the employees of state-level time series are released only once a year. The Lusatia worked in these sectors. With the breakdown ifo Dresden Branch calculates quarterly GDP and GVA of the former GDR, employment in this region dropped data for the state of Saxony Anhalt on behalf of the Min- sharply. Structural change in Lusatia is an ongoing pro- Climate policy istry of Science, Economics and Digitalisation of Sax- cess. Climate policy measures have speeded up the exit triggers structural ony-Anhalt for 2016. The calculation combines off icial of coal-fi red power plants coal, thus triggering further change in Lusatia GVA data with quarterly and monthly time series using structural changes. On behalf of the Umweltbundes- the Chow-Lin method. The same method is employed amt (UBA), ifo Dresden – together with the Wuppertal by Eurostat for GDP data in European regions and by the Institut für Klima, Umwelt, Energie gGmbH – works on ifo Institute to generate quarterly GDP and GVA data for a case study of historical structural change in the Lu- the Free State of Saxony. The Quarterly Business Cycle satia. It examines the causes and impact of structural Report for Saxony-Anhalt is published on ifo’s website. change processes and evaluates previously implemented measures, which aim to mitigate/foster the Research Area Human Capital, Structural Change structural change of Lusatia. and the Position of Saxony and the New Länder in Locational Competition (Humankapital, Struktur- Innovation Workshop Dresden – Joint wandel und die Position im Standortwettbewerb) Project: Strengthening the Cooperation of Fundamental Research Institutions and Germany 2017 (Deutschland 2017) Small and Medium-Sized Enterprises (SMEs) – J. Ragnitz, ifo Center for Labour and Demographic Eco- Subproject: Economic Analysis and Evaluation nomics for the Federal Ministry for Economic Aff airs of New Instruments and Energy, March 2016 to March 2018. K. Heisig, J. Ragnitz in cooperation with Deutsches Zentrum für Luft - und Raumfahrt, Helmholtz-Zentrum The study’s main goal is to investigate the current atti- Dresden-Rossendorf, University of Applied Sciences tudes of Germany’s citizens. The preceding study “Ger- Dresden and the TU Dresden for the Federal Ministry of many 2014” described the development of German Education and Research, March 2017 to February 2020. citizens’ attitudes in the East and West over a longer period, i.e. from the time of the country’s division until Entrepreneurial innovation activities are crucial to a 2014. Building on this work, the study extends the anal- country’s successful economic activity. In Germany, the ysis to include the most recently available data. Apart majority of businesses are small and medium-sized en- from a purely descriptive analysis of attitudes towards terprises (SME), whose overall innovation activity is de- politics, the economy, values, norms and identities, as clining. The major obstacles to investing in research and well as the challenges currently facing society, it also development (R&D) for SMEs are a variety of innovation examines the determinants thereof. costs like hiring qualifi ed personnel or implementing innovation management, and high economic risk. R&D R&D spending by The study consists of two major parts. In the fi rst part, a expenditure by publicly fi nanced fundamental research German SMEs literature review summarises recent research from the institutions in Germany, by contrast, have been rising intersecting areas of economics, sociology, psychology in recent years. Research institutions are increasingly and political sciences. The second part concentrates on showing eff orts to improving the transfer of knowledge an empirical analysis and examines diff erent datasets. to enterprises. SMEs, however, are still underrepresent- ed in these joint R&D activities. The focus of this proj- Structural Change in Coal Regions as a Process ect lies on SMEs in Dresden and its surrounding area. of Economic and Socioeconomic Transitions – It aims to implement strategies for giving SMEs access Opportunities for a Socially Compatible Struc- to the R&D know-how of fundamental research institu- tural Change in the Light of Climate Policy Goals tions and universities. The project seeks to encourage J. A. Nauerth, J. Ragnitz for the Wuppertal Institut for the SMEs to use existing research infrastructure, qualifi ed Umweltbundesamt (UBA), November 2016 to August 2019. personnel and expertise in market development.

ifo Annual Report 2017 113 IFO DRESDEN BRANCH

Industry Reports uated with regard to its eff ectiveness, eff iciency and C. Boede, U. Mandalka for the Volks- und Raiff eisenban- impact. This evaluation is the subject of the project at ken, since 2006 on-going. hand. The project also provides ad-hoc assessments of proposed amendments to the socalled operational As part of the project “Branchen special”, ifo Dres- programme. den produces reports for 15 selected branches twice a year. Analyses and forecasts are provided for the structure of these branches, their business prospects, profi ts and competitiveness. The information of these special reports can indicate intermediate-term prospects for respective branches, as well as chances and risks within the structural transformation. The “Branchen special” reports are employed primarily by co-operative banks in their lending and consulting business. Company consultants are provided with a survey of prospects and the risk profi les of individual branches.

Research Area Public Finance and Support of Economic Development in Saxony and the New Länder (Öﬀ entliche Finanzen und Wirtschaft s- förderung)

Evaluating the Economic Eligibility of Subsidy Applications on behalf of the Federal State of Brandenburg D. Bauer, J. Ragnitz, F. Rösel for the Ministry for Eco- nomic Aﬀ airs and Energy of the Federal State Branden- burg, March 2016 to March 2018.

ifo Dresden evaluates the economic eligibility of applications for ﬁ nancial support. The relevance of the applicant company is evaluated in terms of gross value added, local labour market relevance and productivity.

Evaluation of the Operational Programme of the Free State of Saxony for the European Regional Development Fund in the Funding Period from 2014 to 2020 J. Ragnitz in cooperation with the Institute for Finan- cial and Regional Analyses (GEFRA), the Joanneum Reseach Forschungsgesellschaft , and S. Meyer, Kova- lis, for the Saxon State Ministry for Economic Aﬀ airs, Labour and Transport, November 2016 to August 2019.

Between 2014 and 2020, the Free State of Saxony will receive 2.1 billion euros from the European Regional Development Fund (ERDF). According to the Europe- an Union’s guidelines, the programme has to be eval-

114 ifo Annual Report 2017

Munich Society for the Promotion of Economic Research – CESifo GmbH

CESifo GmbH (off icial name: Münchener Gesellschaft spective fi eld and who have been invited to visit CES zur Förderung der Wirtschaft swissenschaft – CESifo or the ifo Institute as a guest researcher on the basis of GmbH, i.e. Munich Society for the Promotion of a refereed selection procedure. The CESifo Research Economic Research) links the Department of Economics Network continued to expand in 2017 and totalled of the Ludwig-Maximilian University (LMU Munich) 1,455 members by 31 December, 2017, making it the and the ifo Institute with the international economic second biggest network of its kind in the world. research community. CESifo GmbH is a private corporation founded in 1999 and owned in equal parts The CESifo Research Network’s members consist of by ifo Institute and LMU Munich. The main tasks of 1,068 fellows and 387 aff iliates. Fellows are senior CESifo network has CESifo GmbH include the: researchers who typically hold a full professorship at 1,068 fellows in 2017 – Support of exchanges between the LMU and the ifo a university, while aff iliates are ambitious young re- Institute and the promotion of junior economists, searchers who wish to join the network at the early stages of their career. Most of the fellows come from – Administration of the worldwide CESifo Research Europe and North America. However, the network Network, also has members in a large number of countries, – Analysis of economic events in the European Union which ensures that the CESifo Group’s products are and stimulating the debate over European economic well-known and used worldwide. The network mem- policy, bers come from over 40 countries and their fi elds of expertise span most areas of economics. To guaran- – Publication of economic research, tee the internationality of the network, the network – Organisation of conferences and seminars. has a strict quota for German members, who account for a maximum of 20%.

EXCHANGES BETWEEN THE LMU AND THE CESifo Research Network members by region: IFO INSTITUTE Region in % Number CESifo GmbH supports the active participation of re- North Amerika 30.87 449 searchers from the LMU and the ifo Institute in various Germany 19.66 286 academic conferences. Rest of Europe (total) 45.48 662 – Western and Southern Europe 34.71 505 The joint appointment of professors, who work both – Central and Eastern Europe 1.31 19 at the ifo Institute and also have a chair at the LMU, – Scandinavia 9.48 138 remains particularly important. These endowed pro- Others 3.99 58 fessorships are a key way of attracting outstanding researchers to become center directors at the ifo Insti- tute and take up chairs at the LMU. These joint appoint- To promote an intensive exchange of ideas between its ments not only strengthen the links between the ifo members, the network is subdivided into several areas. Institute and the LMU in research, but also in the teach- These are headed by internationally renowned econo- ing and promotion of PhD students. A total of eight en- mists, or so-called “Area Directors”, who contribute dowed professorships have been jointly established by to the network with their international standing and the ifo Institute and the LMU to date, with CESifo GmbH expertise. In 2017, a ninth Area on the “Economics of Ninth Area network contributing to the ﬁ nancing of two of them. Digitization” was founded. The Director of this Area is on “Economics of Stephen P. Ryan, Professor at the Olin Business School Digitization” founded (Washington University) in St. Louis, USA. RESEARCH NETWORK The CESifo Research Network aims to bring research- The network’s area directors are: ers with common research interests into contact with – Christian Gollier, University of Toulouse, Area Director one another and to promote cooperation between of Applied Microeconomics network members and CESifo Group staﬀ via events and publications. The network is primarily composed – Ernst Fehr, University of Zurich, and Klaus Schmidt, of economists with a proven track record in their re- LMU, Area Directors of Behavioural Economics

ifo Annual Report 2017 117 CESIFO GMBH

– Stephen P. Ryan, Washington University in St. Louis, The CESifo Distinguished Aﬀ iliates of 2017 were: Area Director of Economics of Digitization – Applied Microeconomics: – Eric Hanushek, Stanford University, Area Director of Daniel Barron, Northwestern University the Economics of Education – Behavioural Economics: – Kai A. Konrad, Max Planck Institute for Tax Law and Benjamin Enke, Harvard University Public Finance, Munich, Area Director of Employment – Economics of Digitization: and Social Protection Bo Cowgill, Columbia University – Michael Hoel, University of Oslo, Area Director of – Economics of Education: Energy and Climate Economics Will S. Dobbie, Princeton University – Peter Egger, ETH Zurich, Area Director of Global Simon Jaeger, MIT Economy Jens Ruhose, University of Hannover – Markus Brunnermeier, Princeton University, Area – Employment and Social Protection: Director of Macro, Money and International Finance Petra Persson, Stanford University Melanie Wasserman, UCLA – Rick van der Ploeg, University of Oxford, Area Director of Public Sector Economics – Energy and Climate Economics: Raphael Calel, Georgetown University The international reputation of the area directors has – Public Sector Economics: boosted the attractiveness of the CESifo Research Ulrich Glogowsky, LMU Munich Network, which is reﬂ ected in its growing number of Dominik Sachs, LMU Munich members.

CESifo Research Network members by research area: The close links between the members of the CESifo Group and external researchers are further strength- Research area in % Number ened by the Visitor Programme. In 2017, 43 interna- Applied Microeconomics 12.78 186 tional researchers were welcomed at the ifo Institute Behavioural Economics 7.84 114 and another 23 guest researchers at CES in order to Economics of Digitization 3.92 57 initiate or continue joint projects with members of the Economics of Education 6.53 95 CESifo Group. The Programme is closely linked to the Employment and Social Protection 9.83 143 evolution of the research network, as a successful visit Energy and Climate Economics 6.67 97 is typically a prerequisite for any invitation to join the Global Economy 12.30 179 network. Macro, Money and International Finance 17.04 248 23.09 336 Public Sector Economics ANALYSIS OF ECONOMIC DEVELOPMENTS IN THE EU AND PARTICIPATION IN THE EUROPEAN ECONOMIC POLICY DEBATE CESifo GmbH provides network members with the EU topics are becoming increasingly important to the English-language publications of the CESifo Group. future of Europe’s citizens. The discourse at the Euro- Together with the ifo Institute, it organises numerous pean level, which centres on Brussels, is leading to a international conferences. The annual Area Confer- new political reality that is changing Europe. It is im- ences provide a platform for lively discussions among portant that economists participate in this discourse, network members. As part of each of the Area Confer- as much of what happens has an economic dimension, ences, the “CESifo Distinguished Aﬀ iliate” prize has costs a lot of money and leads to ﬁ scal redistribution in annually been awarded to a young economist since Europe. CESifo GmbH was founded to provide econom- 2008. The aim of this prize is to identify promising ic-policy impulses at the European level and the latter’s young researchers and to establish early links to the importance is growing steadily. CESifo Network.

118 ifo Annual Report 2017 CESIFO GMBH

As part of CESifo’s activities, numerous documents have 2018 already been released in past years that engage critical- Vol. 17 ly with possible developments in the EU, and especially in the euro area. Network members, as well as CES and ifo staff , have engaged intensively in the European debate, which is gradually shaping a new form of state. What Now, With Whom, Where To – A particularly important role in this debate has been The Future of the EU played by the European Economic Advisory Group at Macroeconomic Conditions and Outlook CESifo. The EEAG is a European council of economic Building Trust between Suspicious Minds experts that provides policymakers and the general All Together Now: The European Union and the Country Clubs public with an independent and scientifi cally-based It’s OK to Be Different: assessment of current economic developments in the Policy Coordination and Economic Convergence EU. The EEAG is unique in both its composition and its focus. This year’s council members are outstanding economists from several European countries and the USA, namely: – Torben Andersen, Aarhus University – Giuseppe Bertola (Vice-Chairman), University of Turin – John Driff ill (Chairman), Yale-NUS College, National University of Singapore European Economic Advisory Group @ – Harold James, Princeton University – Clemens Fuest, LMU Munich – ifo Institute Various ifo research centers contribute to the report – Jan-Egbert Sturm, KOF, ETH Zurich with background research, as well as to the editing and – Branko Urosevic, University of Belgrade typesetting process. The European economic forecast is prepared almost entirely by the ifo Institute.

The EEAG releases an annual report in which it not only The Munich Seminars, jointly organised by CESifo and analyses the current state of the European economy, but the Süddeutsche Zeitung, one of Germany’s leading dai- also provides an in-depth evaluation of several other lies, are also part of the regular event calendar. Their economic-policy issues of topical importance for Europe. popularity among guests from business, public administration, academia and the press demonstrates As in previous years, the EEAG Report was presented at the overwhelming demand for accessible discussion press conferences in a number of European cities. De- of economic problems and solutions. In 2017 a total of Eleven Munich tailed articles in leading European newspapers and in- eleven Munich Seminars were organised. Full reports Seminars held in 2017 terviews on major TV channels refl ect the need for sci- on most Munich Seminar lectures are published in entifi cally-based economic policy analyses. The report the Süddeutsche Zeitung, making their fi ndings acces- was also once again sent to policymakers and experts sible to a wide readership. This, in turn, enhances the in science, economics and politics across Europe. standing of the Munich Seminars and helps to attract renowned personalities as speakers A preview of the results of the EEAG Report 2018 was presented at the EconPol Europe founding conference CONFERENCES AND EVENTS in Brussels, November 9–10. This event brought together around 200 high-profi le researchers, politicians, As in past years, a major focus of CESifo GmbH’s ac- experts and journalists to exchange their ideas on the tivities was the organisation and administration of economic and institutional development of the EU and academic conferences. With the goal of strengthening the Eurozone. Munich’s standing as a science and research location

ifo Annual Report 2017 119 CESIFO GMBH

and supporting empirical and theoretical research in – “New Evidence on Consumption, Household Be- economics, CESifo (co-)organised 25 scientiﬁ c confer- haviour, and Inequality”. Scientiﬁ c organizers: ences and events in 2017. Thomas Crossley, Joachim Winter and Hamish Low

– “Exchange Rate Adjustment in the Euro Area”. CESifo hosts two diff erent types of conferences. In Scientifi c organizers: Zeno Enders and Gernot J. Müller addition to the established annual area conferences relating to the individual areas of the CESifo Research – “Place-Based Policies”. Scientifi c organizers: Jens Network, CESifo also hosts conferences that are ini- Südekum, Tobias Seidel and Maximilan von Ehrlich tiated and supported by network members and deal – “Dynamics of Confl ict – Results from Theory and with topical issues in the fi eld of economic research. Experiments”. Scientifi c organizers: Toke Aidt, Kai These include, for example, the CESifo Venice Summer Konrad and Dan Kovenock Institute. – “Fiscal Competition and Mobility: Theory and Empirics”. The Musgrave Lecture in honour of Richard Musgrave Scientifi c organizers: David R. Agrawal and William was a special highlight in 2017. The associated prize is H. Hoyt awarded to an internationally renowned economist working in the area of public fi nance, following a selec- In 2017, CESifo also organised nine area conferences: tion by the President of the ifo Institute and the Presi- dent and Vice-Presidents of the International Institute – CESifo Area Conference “Applied Microeconomics”, of Public Finance (IIPF). Professor Rachel Griff ith (In- March 2017 stitute for Fiscal Studies (IFS)) was awarded the prize in 2017 and delivered a lecture entitled: “Do Sin Taxes – CESifo Area Conference “Public Sector Economics”, Work?” April 2017 – CESifo Area Conference “Global Economy”, May 2017

– CESifo Area Conference “Employment and Social Protection”, May 2017

– CESifo Area Conference “Macro, Money and Inter- national Finance”, June/July 2017

– CESifo Area Conference “Economics of Education”, September 2017

– CESifo Area Conference “Energy and Climate Eco- nomics”, October 2017

– CESifo Area Conference “Behavioural Economics”, October 2017

– CESifo Area Conference “Economics of Digitization”, November 2017

Prof. Clemens Fuest, President, Prof. Rachel Griﬀ ith, Prof. Monika Bütler, In addition, CESifo organised or assisted partner IIPF organisations with several of their scientiﬁ c events including:

– “EGIT – Economic Geography and International The CESifo Venice Summer Institute has become a tra- Trade”, together with the ifo Institute, the DICE and dition in the CESifo event calendar and has earned a the University of Darmstadt, February 2017 solid reputation among international economists. In 2017, the Venice Summer Institute comprised of ﬁ ve – “Ricardo@200”, together with the ifo Institute, workshops, dealing with the following topics: May 2017

120 ifo Annual Report 2017 CESIFO GMBH

– PhD Workshop “Economics of Digitization”, together members of the European Commission and the media. with ParisTech, the University of Toulouse and the It also reports on CESifo events and provides articles University of Liège, May 2017 on selected CESifo Working Papers in a form that is easily accessible to the non-specialist reader. – PhD Workshop “Public Economics”, together with the IIPF, May 2017 CESifo has two book series with MIT Press: the CESifo – “CEMIR Junior Economist Workshop on Migration Seminar Series and the CESifo Book Series. All books Research”, together with the ifo Institute, June 2017 cover a topical policy issue in economics and are sub- – “Norwegian German Seminar on Public Economics”, jected to a careful, multi-stage refereeing process. In together with the Norwegian Center for Taxation at 2017, four new books were published on “Demographic NHH and Oslo Fiscal Studies at the University of Change and Long-Run Development”, “International Oslo, November 2017 Currency Exposure”, “Energy Tax and Regulatory Policy in Europe – Reform Priorities” and “Social Economics: – PhD Workshop “Maschine Learning Methods”, Current and Emerging Avenues”. November 2017 – “ifo Dresden Political Economy Workshop”, together with the Technical University of Dresden and the the Dresden branch of the ifo Institute, December 2017 – “ifo Survey Data”, together with the ifo Institute, December 2017 – “CESifo Economic Studies Conference”, December 2017

These international conferences benefi t the CESifo Group in two ways: fi rstly, they off er CESifo Group researchers an opportunity to interact with researchers from all over the world and establish co-operations; and secondly, the events promote the international reputation of the CESifo Group.

PUBLICATIONS CESifo has developed a number of publications aimed at contributing to the discussion of economic issues in Eu- rope. An important role is played by the CESifo Working Paper Series, which disseminates the early-phase ﬁ ndings of academic research conducted by network members, making them available for professional discussion.

In 2017, nearly 550 papers were published in this series. All papers are distributed electronically via the CESifo The CESifo Group website is a portal of choice in its ﬁ eld. Group’s website and various online databases includ- It contains a wealth of information on the entire range ing SSRN (Social Sciences Research Network), RePEc of products and activities of the CESifo Group in Ger- (Research Papers in Economics), and Econstor (Open man and English, documents the combined research Access server of the German National Library of Eco- output of CES, ifo and CESifo as far as conferences, nomics – Leibniz Information Centre for Economics). seminars and publications are concerned, and oﬀ ers a wide spectrum of further topics that are of interest to The CESifo Newsletter, distributed electronically, pro- economists, politicians and the business community. vides up-to-date information and commentary for a More detailed information on the website is provided in wide spectrum of readers, ranging from academics to the Press, Publications, Conferences section.

ifo Annual Report 2017 121 CESIFO GMBH

In short, the research cooperation between the ifo Institute, the LMU and the international scientiﬁ c community continued to ﬂ ourish very successfully in 2017. The CESifo Group provides a unique platform in Europe for exchange among economists and for public discourse. It has now secured an outstanding international reputation that extends well beyond European borders. In light of the epochal changes that are taking place in the EU, this kind of platform is now more important than ever before.

Further details of CESifo’s activities can be found in the German online version of the Annual Report on pages 233–250 (http://www.cesifo-group.de/Jahresbericht).

122 ifo Annual Report 2017 Conferences, Publications and External Relations of the ifo Institute

Information on the ifo Institute’s events, publications, – SEEM – Seminar on Energy and Environmental Eco- teaching activities and links to institutions/individuals, nomics “Relating Long-Run Marginal Cost to Product as well as further details of CESifo’s activities can be Prices: Evidence from Solar Photovoltaic Modules” found in the German online version of the Annual Re- – CEMIR Junior Economist Workshop on “Migration port on pages 165–250 (http://www.cesifo-group.de/ Research” Jahresbericht). – SEEM – Seminar on Energy and Environmental Eco- nomics “System-Optimal Expansion of Renewables CONFERENCES in Germany: A Model-Based Analysis of Regionally Besides regular events, like the Annual Meeting, Euro- Diff erentiated Tariff s” construct, ifo Industry Colloquium (ifo Branchen- – Energy Policy Workshop on “Electro Mobility – Dialog), a number of special conferences, workshops Mobility of the Future?” and press conferences were held during 2017. These included: – SEEM – Seminar on Energy and Environmental Eco- nomics “Carbon Pricing and Firm Profi ts: Theory – SEEM – Seminar on Energy and Environmental and Estimates for US Airlines” Economics “Air Quality and Labour Supply: Evi- dence from Social Security Data” – Workshop on “Regional Economics”

– Workshop “Macroeconomics und Business Cycle” – ifo Workshop on “Economic Uncertainty and the Family (EcUFam)” – SEEM –Seminar on Energy and Environmental Economics “Voluntary Contributions to Protect the – Workshop on “Good Scientiﬁ c Practice and Data Ma- Climate – Evidence from Germany” nagement” – Workshop on “Regional GDP” – Conference on “Common Economic Space from Lisbon to Vladivostok” – SEEM – Seminar on Energy and Environmental Eco- nomics “Home Bias in International Emissions Tra- – Workshop on “EGIT – Economic Geography and In- ding: Evidence from the EU ETS” ternational Trade Research Meeting” – SEEM – Seminar on Energy and Environmental Eco- – Workshop on “Labour Market and Social Policy” nomics “Some Economics of Energy Storage”

– ifo CEMIR seminar on “Birthright Citizenship and – Workshop “Political Economy“ Discrimination in a Migration Society” – Conference on “Global Markets in Transition – does – SEEM –Seminar on Energy and Environmental Europe use its Opportunities?” Economics “The Nexus of CO Emissions, Energy 2 – ifo Conference on “Macroeconomics and Survey Consumption, Economic Growth, and Trade-Open- Data” ness in WTO Countries” – SEEM – Seminar on Energy and Environmental – ifo CEMIR seminar on “The Immigrant Health Pa- Economics “Self-Certifi ed Energy Eff iciency: The radox in Europe” Imperfections of Supply-Side Labeling of Consumer – ifo CEMIR seminar on “Information, Perceived Edu- Durables” cation Level, and Attitudes Toward Refugees: Evidence from a Randomized Survey Experiment” Lunchtime Seminars are held on a weekly basis. They serve the purpose of putting current research and new – Conference on “Ricardo@200 – International Trade economic developments up for discussion. Partici- Theory in Turbulent Times” pants are researchers from the ifo Institute, CES, the University of Munich and CES visitors. – 1st Doctoral Workshop on “The Economics of Di- gitization” In 2017 a large number of ifo staff members gave 209 pa- – Research seminar on “Economics of Education” pers and presentations at external conferences.

ifo Annual Report 2017 123 CONFERENCES, PUBLICATIONS AND EXTERNAL RELATIONS OF THE IFO INSTITUTE

PUBLICATIONS Mathias Doll, University of Mainz ifo publications include: Markus Drometer, University of Munich – ifo Schnelldienst – a journal on policy issues, research Oliver Falck, University of Munich results and forecasts; twice monthly Gabriel Felbermayr, University of Munich – ifo Konjunkturperspektiven – a monthly publication Clemens Fuest, University of Munich presenting in detail the results of the ifo Business Survey Carolin Fritzsche, Dresden University of Technology – ifo Dresden berichtet – a bi-monthly report on the Yvonne Giesing, Summer School Bologna economy, structure and economic policy in the State Christa Hainz, University of Munich of Saxony Timo Hener, University of Munich – CESifo Forum – a quarterly English-language magazine focusing on major current topics of inter- Christian Holzner, University of Munich national interest, including European policy issues Lea Immel, University of Munich and economic trends Niko Jaakkola, University of Munich – ifo DICE Report – a quarterly English-language Björn Kauder, University of Munich journal for institutional comparisons Meinhard Knoche, University of Applied Sciences, Wei- – ifo World Economic Survey – a quarterly English- language journal publishing the results of the ifo henstephan-Triesdorf Institute’s quarterly poll of international economic Philipp Lergetporer, University of Munich activity Christina Littlejohn, University of Munich – CESifo Economic Studies – a quarterly refereed journal in economics Waldemar Marz, University of Munich Volker Meier, University of Munich – ifo Beiträge zur Wirtschaft sforschung – a series in which important research projects of the ifo In- Chang Woon Nam, University of Applied Sciences, stitute are published Erding – ifo Forschungsberichte – other studies of the In- Till Nikolka, Macromedia University of Applied Scien- stitute are documented in this series and made available to the public ces, Munich

– ifo Dresden Studien – studies of the ifo Dresden Christian Ochsner, Dresden University of Technology branch which deals primarily with topics aﬀ ecting Marc Piopiunik, University of Munich the new German federal states and their eastern Karen Pittel, University of Munich neighbours Niklas Potrafke, University of Munich – ifo Working Papers Panu Poutvaara, University of Munich TEACHING AND EXTERNAL RELATIONS Joachim Ragnitz, Dresden University of Technology and A number of ifo staﬀ taught or presented lectures at University of Leipzig universities in 2017: Helmut Rainer, University of Munich Michele Battisti, University of Munich Patrick Reich, University of Munich David Bauer, Dresden University of Technology Sven Resnjanskij, University of Munich Martin Braml, University of Munich Felix Rösel, Dresden University of Technology Kristina Burman, University of Munich Alexander Sandkamp, University of Munich Natalia Danzer, University of Munich Fabian Siuda, University of Munich

124 ifo Annual Report 2017 CONFERENCES, PUBLICATIONS AND EXTERNAL RELATIONS OF THE IFO INSTITUTE

Alex Schmitt, University of Munich Simone Schüller, University of Munich Suphi Sen, University of Munich Daniel Stöhlker, University of Munich Marcel Thum, Dresden University of Technology Lars Vandrei, Dresden University of Technology Ludger Wößmann, University of Zurich and University of Munich Klaus Wohlrabe, University of Munich Erdal Yalcin, University of Munich Markus Zimmer, University of Munich

The ifo Institute was host to 43 visiting researchers from a variety of countries. 56 students in Munich and 8 students in Dresden were able to gather ini-tial experience in empirical economic research.

ifo Annual Report 2017 125

Personnel, Finances and Organisational Bodies

Personnel Development

Following the change of president in 2016, the sec- TRENDS IN EMPLOYEE NUMBERS ond member of the Executive Board, Prof. Meinhard As of 31 December 2017, the number of staff at the in- Knoche, left in 2017 aft er having reached the statutory stitute increased by ten (+4.7%) to 220. Half of this is retirement age in March 2016. Dr. Stephanie Dittmer attributable to researchers. There were two addition- succeeded him as new member of the Executive Board al doctoral candidates, one less person among the responsible for personnel and general management as specialist, and the number of technical staff/assis- of 1 September 2017. tants remained constant. Specialists are academically trained staff who are appointed to key positions at the ifo recruits fi ve new There was also a new addition to the directors of the interface between research and service. The number specialists eight ifo research centers. These are headed by pro- of non-scientifi c staff rose by fi ve, two of which have fessors who are jointly appointed by the Ludwig Max- management responsibilities. The number of trainees imilian University of Munich (LMU) and hold a chair at dropped by one person, as only one suitable candidate the LMU in the Economics Faculty parallel to their man- could be found to start training in autumn 2017. agement function at the ifo Institute. Aft er the department head of the ifo Center for Business Cycle Analysis The increase in the number of employees has also led and Surveys left the institute in 2014, this department to a rise in the current number of part-time staff by fi ve was under provisional management to enable the new to a total of 108 (+4.9%). This mainly applied to the in- president to participate in the appointment. The joint frastructure sector (plus fi ve), but also in research and appointment procedure with the LMU for the position, service there were two additional part-time research- which includes a chair in macroeconomics and business ers and one specialist. The share of part-time staff cycle research, was successfully completed in spring among doctoral students – who usually have contracts 2017. Prof. Andreas Peichl began his duties in Munich on for three quarters of a full position – has fallen, howev- 1 June 2017. In accord with its research priorities, the er, as some contracts for work on commissioned proj- research department was renamed the ifo Center for ects have been expanded. Macroeconomics and Surveys in autumn 2017. On the basis of the Academic Fixed-Term Contract In 2017 nine researchers received calls, underscoring Law, doctoral students and researchers (post-docs) the research strength of the institute. Dr. Simon Wie- employed by the ifo Institute are given fi xed-term derhold, research assistant at the ifo Center for the contracts. Only in the presence of special conditions, Economics of Education, accepted a call to the Catholic which are defi ned in the career guidelines of the ifo University of Eichstätt. Dr. Francesco Cinnirella, from Institute, can the time limits of researcher contracts the same ifo center, joined the University of Southern be removed. In 2017, the time limit was lift ed from one Denmark as assistant professor. Dr. Timo Hener of the such contract. ifo Center for Labour and Demographic Economics received a call as professor to the University of Innsbruck All in all, the number of fi xed-term contracts has in- and a call as associate professor at Aarhus University; creased by three to 98, which now applies to 44.5% of the Nearly 45% he accepted the call to Aarhus. Dr. Bastian Schulz of the total workforce. In general, time limits are mainly found fi xed-term contracts same research department also went to Aarhus Univer- in the areas of research and service. In the Institute’s in- sity as assistant professor. A third member of this ifo re- frastructure, they apply to staff that have been hired to search center, Dr. Natalia Danzer, received a call to the temporarily replace employees on parental leave. Free University of Berlin, the appointment procedure for which is still not concluded. Michele Battisti from The number of female staff increased by eleven to the ifo Center for International Economics accepted an 121 (+10%) – a greater increase than for the overall ifo appointment as assistant professor at the University of workforce. This means that the number of women as Trento. From the ifo Center for Industrial Organisation a share of total employees has risen further to 55% and New Technologies, Thomas Triebs and Justin Tum- (2016: 52.4%). Three additional women were added to linson went to Loughborough University, the former as the research staff and three more female doctoral stu- lecturer in Economics (comparable to an assistant pro- dents joined ifo. The number of specialists and techni- fessor) the latter as senior lecturer (comparable to an cal staff/assistants has remained constant. For the fi rst Associate Professor). time, the 50% mark was exceeded for doctoral candi-

ifo Annual Report 2017 129 PERSONNEL DEVELOPMENT

dates, which now stands at 51.7% women (previous Number of Staﬀ at Year-End 2017 and 2016

year: 48.2%). This means that the Executive Board’s Total staﬀ Women

goal of achieving a balanced gender ratio among doc- 2017 2016 2017 2016 toral students has been reached. This increases the Research and service chances of employing women who have successful- Scientific staff 57 52 12 9 ly completed their doctorates on the research staff , Doctoral students* 58 56 30 27 Specialists 21 22 13 13 thus further strengthening the share of female post- Technical staff/assistants 21 21 20 20 docs. The share of women on the research staff also Infrastructure Share of women increased in 2017: from 17.3% in 2016 to 21%. Among Non-scientific staff 61 56 44 38 researchers rose of which staff with management specialists, the percentage of women rose from 59.1% responsibilities** 15 13 11 8 to 21% to 61.9% because the number of male specialists de- Trainees 2 3 2 3 clined by one person. Among non-scientifi c staff , the Total 220 210 121 110

number of women increased by six, further enlarging Part-time Limited duration the high share of women. workers contracts 2017 2016 2017 2016 The Institute’s personnel policy goals also include Research and service gradually increasing the share of researchers with doc- Scientific staff 14 12 33 30 Doctoral students* 52 55 58 56 torates in the total number of scientifi c staff to 100%. Specialists 6 5 1 2 In the reporting year, this share stood at 86% (previous Technical staff/assistants 13 13 0 1 year: 84.6%). If doctoral students are included in the Infrastructure fi gure, a total of 93% of the academic employees either Non-scientific staff 23 18 4 3 of which staff with management held a doctorate or were working on their doctorates responsibilities** 4 3 2 2 as of 31 December 2017 (previous year: 92.6%). The Trainees 0 0 2 3 share of professors and researchers with habilitation Total 108 103 98 95 degrees has increased from 28.8% to 29.8% of the re- Post-docs/ of which habilitations, women search staff since the previous year. professors

2017 2016 2017 2016

The international orientation of the ifo Institute is Scientific staﬀ 49/17 44/15 9/1 5/1

also refl ected in the fact that a growing share of sci- * Without guest doctoral students. – **Non-scientific staff compensated according entifi c staff are foreign nationals or Germans who to TV-L E13 and upwards. previously held positions abroad or completed their studies abroad and returned to Germany to work at Growing number of the ifo Institute. On the reference date of 31 Decem- FURTHER EDUCATION FOR RESEARCHERS foreign nationals ber 2017, this fi gure rose by a further two persons The ifo Institute endeavours to remain a very attractive to 32. Four heads of ifo research centers are foreign employer for policy-oriented research economists. It nationals (3) or have held positions in foreign univer- does everything in its power to attract excellent re- sities before being appointed by the ifo Institute (1). searchers by providing the ideal conditions for excel- On the research staff , there are ten foreign nationals lent performance. Creating a productive environment (2016: 8) and, as in 2016, four “returnees”. Eleven doc- for top researchers is a comprehensive strategic task. toral students are non-German nationals (2016: 8) and This involves, for example, the close cooperation with another seven (2016: 6) studied abroad before being universities, which is a precondition for the joint ap- appointed by the ifo Institute. As in 2016, 27.8% of the pointment of ifo department heads as mentioned ini- research staff were foreign nationals or Germans who tially, international orientation and networking and had worked at a foreign university or who had com- also the recognition of special achievements through pleted their studies abroad. bonuses. The central sphere of activity here is the consistent support of scientifi c profi le formation of the researchers employed at the Institute at all levels, which includes networking with international researchers and, above all, promoting a culture of discussion at a very high scientifi c level within the Institute. The prin-

130 ifo Annual Report 2017 PERSONNEL DEVELOPMENT

ciples for this comprehensive strategy for scientifi c and Integrating doctoral students in empirical research professional qualifi cation in the ifo Institute are stipu- and in work on policy-oriented projects strengthens lated in an agreement with the Works Council. the empirical side of their economic education. As a rule, they complete their doctorates at the Economics To highlight the orientation of its personnel policy to- Faculty of the University of Munich, become members wards providing excellent framework conditions for of the Munich Graduate School of Economics and also attracting researchers from Germany and abroad and attend graduate school courses there. In addition to supporting their further qualifi cation the ifo Institute many other interested members of ifo staff , its doctor- ifo organises signed up to the “European Charter for Researchers” al students all attend the lunchtime seminars run by lunchtime seminars passed by the European Commission in 2016, which is the Center for Economic Studies and the ifo Institute. linked to the “Code of Conduct for the Recruitment of The regular research seminars held within each depart- Researchers.” The personnel policy and organisation- ment also play an important role for doctoral students. al conditions for the activities of researchers at the ifo Institute are continuously being further developed in The joint appointment of all departmental heads as line with the targets set out in the “European Charter professors at the University of Munich has made it pos- for Researchers.” sible for almost all ifo doctoral students’ work to be supervised by their department heads. The situation is The promotion of young talent – especially the training similar at the Dresden branch of the ifo Institute since of doctoral students – is particularly important. The ifo its Director holds a chair at the Technical University of doctoral programme serves the general promotion of Dresden (TUD) and his Deputy Director, Joachim Rag- junior researchers in the fi eld of empirical economic nitz, has an honorary professorship there research. This training lays the foundations for both an academic career and for a practice-oriented role Supported by department heads, appointed in con- in business or public administration. Only a small per- junction with the LMU, and experienced post-docs, centage of doctoral students have the opportunity to the students are introduced early on to presenting re- continue their professional career at the ifo Institute. search fi ndings at international forums. Presentations In 2017, the Executive Board continued to off er strong at high-level economic conferences with selection pro- support to its doctoral candidates that have completed cedures prepare the young academics at an early stage their studies in making their next career move. of their career to publish articles in internationally renowned refereed journals. In 2017, ifo researchers gave The very high level of graduate training now off ered by 209 presentations at international conferences. The fur- the ifo Institute is refl ected in the signifi cant volume of ther qualifi cation of doctoral students is also support- peer-reviewed scientifi c publications that ifo doctoral ed by internal training seminars, professional editing of students produce year aft er year. The on-going pol- English-language papers and participation in external Customised training icy of employing a large number of doctoral students summer schools and workshops. Doctoral students can for doctoral students working at the ifo Institute was fi nancially possible ow- also take advantage of customised training measures. ing to a series of DFG projects, successful bids in the Fourteen male ifo researchers and six female research- competitive process of the Leibniz Association (SAW ers were working on their habilitation in 2017. projects) and projects fi nanced by private foundations (including Deutsche Telekom Foundation, Thyssen Numerous researchers at the ifo Institute teach at uni- Foundation). Doctoral students receive support not versities with which ifo cooperates closely, which gives only from their respective department heads and post- them the opportunity to constantly revise and expand docs but also from the “doctoral-student off icers” with their own expert knowledge base. In the summer se- cross-departmental responsibilities. Dr. Marc Piopiunik mester 2017 and in the winter semester 2017/2018 a to- and Dr. Timo Hener, both of whom themselves com- tal of 80 university courses, especially with an empirical pleted ifo’s doctoral students programme, performed orientation, were off ered by ifo staff . Additionally, all this task with great commitment. In February 2018, researchers at the Institute are given the opportunity Timo Hener left the Institute to accept a call from the to keep abreast of research developments by attending University of Aarhus; Marc Piopiunik will continue to the appropriate lectures and seminars at the University lend support to ifo’s doctoral students in this position. of Munich. An important contribution to the exchange

ifo Annual Report 2017 131 PERSONNEL DEVELOPMENT

of new research ideas is provided by the weekly lunch- To this end the qualifi cation requirements of all staff time seminars – a forum for the discussion of current members are systematically surveyed at the beginning research and research fi ndings as well as new develop- of each year. Overall, 190 further training measures ments in economics. Speakers and attendees are pri- were approved in 2017, of which 118 were also con- marily from the ifo staff and the University of Munich. ducted in that year. Most of the remaining measures Workshops lasting several days at which ifo research are to be completed in 2018. The large number of re- teams can exchange information on current projects search stays meant that the staff members in ques- are also organised outside the Institute and make a sig- tion cancelled their requests for training as a result. nifi cant contribution to further scientifi c training. A large share of the training measures requested are usually in the fi eld of computers, whereby the focus Academic competence is developed primarily in relies on schooling for the specifi c IT requirements of search projects. Here, internal ifo competence is ex- individual employees. These measures were comple- tended in cooperation with external experts. Guest mented by customised courses to deal with challenges researchers play a special role in this respect. The num- encountered in individual tasks. In 2017 the strategy 61 guest researcher ber of guest researcher stays totalled 61 in 2017 (2015: was further pursued of supporting further qualifi ca- stays in 2017 44). In recent years, ifo researchers spending several tion related to innovation and problem solving. These months on research leave has become an established courses are usually integrated directly into the specifi c practice. The total fi gure for 2017 was 18 guest stays, workplace and thus have a high degree of eff iciency. As with four of these stays lasting several months and tak- an example, several employees took part in a further ing place exclusively at top universities in the United education measure in “Design Thinking” off ered by an States and the United Kingdom. Research stays at top external fi rm. Training in this area is important for the universities benefi t the academic performance of ifo’s development of products and instruments with a user research departments, since the academics on leave and demand orientation. A training off ered by the Leib- can further deepen their academic expertise during niz Association entitled “Enabling Innovation” focused their research stays abroad, can pave the way for new on examining the innovative capacity of a scientifi c in- joint projects with international co-authors and, at the stitution. same, continue to work on their ongoing projects. The Institute also endeavours to promote young staff The promotion of junior economists begins in the ifo in the non-academic area. It regularly off ers an Off ice Institute with the employment of interns. Their impor- Communication Trainee Programme. Two young train- tance for the Institute should not be underestimated, ees successfully completed this course in January 2017. since former interns oft en apply successfully for posts Two young women are currently in the programme and ifo employs 64 interns as doctoral students. A total of 64 interns gained their one young trainee will begin this programme in Sep- fi rst experiences of empirical economic research in tember 2018. 2017 (2016: 60). Of this total, 35.9% were women (2016: 36.7%). The Institute’s goal is to achieve a 50% share of female interns. AWARDS The Board of Trustees (Friends of the ifo Institute) FURTHER EDUCATION FOR NON-RESEARCHERS awards annual prizes to researchers at the Institute who have attracted attention thanks to their outstand- The further education of staff working in the non-re- ing scientifi c achievements. A prize can only be award- search areas also has a high priority for the Institute. ed if a scientifi c article was published in an internation- The above-mentioned agreement with the Works’ ally renowned peer-refereed journal. In 2017 this prize Council also regulates all aspects of the professional was awarded to Dr. Natalia Danzer, postdoc at the Ifo education of non-research personnel. The further edu- Center for Labour and Demographic Economics, for her cation of non-research staff is aimed at providing them article published in 2016, together with Alexander M. with the optimal qualifi cations for managing their cur- Danzer, in the Journal of Public Economics: “The Long- rent tasks and preparing them for future ones, thereby Run Consequences of Chernobyl: Evidence on Subjec- insuring that their individual qualifi cations keep pace tive Well-Being, Mental Health and Welfare”, which an- with the demands of their respective positions. alysed the indirect costs of disasters.

132 ifo Annual Report 2017 PERSONNEL DEVELOPMENT

ducing the under-representation of women at all levels of the scientifi c career ladder. The working conditions and development opportunities for women are ideally designed in such a way that work at the ifo Institute is Promoting equal attractive to female researchers and that the share of opportunities women on the research staff is further increased. The Institute’s internal rules on equality are also part of the certifi ed management system of the ifo Institute, which is annually audited by external auditors. This means that the continued certifi cation of ifo’s management system also depends on the strict observation and continuous further development of gender equality Clemens Fuest, Veronika Grimm, Natalia Danzer and Roland Berger regulations.

In 2017, the annual prize for outstanding achievement A special concern of the ifo Institute is to qualify female in third-party research went to the project team Dr. researchers for management positions in scientiﬁ c in- Markus Zimmer, Prof. Karen Pittel, Prof. Gabriel Fel- stitutions. It expressly supports applications for proj- bermayr, Dr. Rahel Aichele, Anna Sophia Ciesielski, ects in the Leibniz tendering process that service to Dr. Julian Dieler, Ana Maria Montoya Gómez, Dr. Jas- promote women for leadership positions in research. min Gröschel, Dr. Inga Heiland and Dr. Tilmann Rave, This Leibniz line of funding aims to particularly increase supported by Ulrike Budel, for successful work on the the likelihood of the respective project/working group project “Integrated Assessment of Instruments and the leader being appointed to a W2 or W3 professorial po- Fiscal and Market-based Incentives of International Cli- sition. In the Leibniz tendering procedures of 2015 and mate Policy and its Eﬀ ects (IACCP)” commissioned by 2016, the ifo Institute was successful with correspond- the Federal Ministry of Education and Research. ing project proposals. One of the two female project leaders has since received a call to the Free University of Berlin.

The promotion of equal opportunities for men and women with scientifi c positions also involves the setting of fl exible target quotas along the lines of the cascade principle of research-oriented equality standards ifo adopts DFG established by the Deutsche Forschungsgemeinschaft fl exible target quotas (DFG). The ifo Institute has anchored such fl exible target quotas for the compensation levels of senior scientifi c staff in its Programme Budget, which is the basis of institutional support by the federal and state governments. The time frame for these target quotas extends until the year 2020. Clemens Fuest, Jasmin Gröschl, Markus Zimmer, Karen Pittel and Julian Dieler In 2017, the share of female researchers increased again, as mentioned above, and among the doctoral EQUAL OPPORTUNITIES AT THE IFO INSTITUTE students the share surpassed the 50-percent mark. The ifo Institute has actively promoted equal opportu- Dr. Christa Hainz, an experienced researcher from the nities for women and men for many years. In this im- ifo Center for International Institutional Comparisons portant task, the Executive Board is supported by an and Migration Research, is the mentor for the female Equal Opportunity Off icer at its Munich location and by doctoral students and helps ifo’s Executive Board im- a woman’s representative at its Dresden branch. The prove the general conditions for these staff members. current equal opportunities plan, which is valid until She is their contact person and deals with the special autumn 2019, has the primary objective of gradually re- concerns of young female economists such as the qual-

ifo Annual Report 2017 133 PERSONNEL DEVELOPMENT

ifi cation events that are aimed exclusively at female doctoral students. Overall, the share of women among scientifi c staff , including doctoral students, rose from 35.2% to 36.5% in 2017.

The availability of part-time positions remains an important element of the family-friendly organisation of work at the ifo Institute. The proportion of women among part-time employees rose from 66.9% to 69.4% in 2017. If doctoral students are excluded from this number, the proportion of women is 87.5%, as was also the case in the previous year. The ifo Institute will continue to oﬀ er and promote part-time employment to advance and achieve a positive work-life balance.

The option of teleworking is also part of the family-friendly organisation of work at the ifo Institute. The ifo off ers framework conditions are laid out in an agreement family-friendly with the Works Council, as well as the option for staff initatives on parental leave to continue to use the further-training opportunities off ered by the Institute during their leave of absence. To enable parents to resume their careers swift ly, the ifo Institute signed a cooperation agreement in 2013 with a municipal operator of day- care centers for children of working parents. The In- stitute fi nances the prospective entitlement to three child-care places off ered to its employees. At present, three ifo employees are taking advantage of day-care places off ered at a reasonable municipally regulated price.

Another contribution to equal opportunity at the Insti- tute is that women are increasingly being appointed to the various boards. In the Administrative Board, this is largely not controllable by the Institute as the majority Number of women on of seats are linked to an external function. Neverthe- ifo boards rises less, of the Administrative Board members elected at the Annual Meeting, 60 percent are currently women. Of the twelve members of the Scientiﬁ c Advisory Coun- cil, four are female academics. Three of the nine members of the ifo User Advisory Council are women, and 15 members of the ifo Institute’s Board of Trustees (total 71) are now women.

The Institute’s cooperation with the Dual Career Oﬀ ices of the two major Munich universities is also important for women and men. This service is becoming increasingly signiﬁ cant in terms of attracting renowned researchers to the Institute. The cooperation with the universities has already met with success.

134 ifo Annual Report 2017 Financial Development

The ifo Institute is a non-profi t institution that aims short-term receivables and accruals and deferred in- to serve academia and research. The ifo Institute’s come fell by –25,000 euros and liquid funds fell by objective is to provide research and services as pub- 178,000 euros. lic goods, and not to generate fi nancial profi ts. This also applies to contract research conducted on be- On the liabilities side, an increase was seen in the Insti- half of state or private institutions. ifo’s fi ndings are tute’s assets (+179,000 euros), down-payments received also made public, which strengthens the foundations (+645,000 euros) and other liabilities (+131,000 euros), of all of the Institute’s work. The Institute’s fi nancial as well as liabilities vis-à-vis banks (+1,000 euros). Provi- strategy aims to achieve a balanced long-term cost sions (–267,000 euros), by contrast, declined. and earnings structure that permits a large service and research output that benefi ts the general pub- From the annual surplus of 179,000 euros cited above, ifo posts annual lic. Suff icient fi nancial reserves help off set income 165,000 euros was channelled off into research reserves, surplus fl uctuations and allow a fl exible reaction to special bringing the latter up to a total of 1.56 million euros by demands. 31 December 2017. Voluntary payments beyond membership fees, which are managed by the ifo Institute’s Administrative Council, amounted to 14,000 euros. This SUMMARY OF KEY DEVELOPMENTS sum was added, in accordance with the ifo statutes The Institute’s fi nancial statement for 2017 shows a (Art. 4. Sec. 2), to the earmarked reserves, which total- surplus of 179,000 euros. This was channelled into re- led 816,000 euros. This increased the Institute’s assets serves, increasing the Institute’s assets to a total of to a total of 2.37 million euros by 31 December 2018. 2.37 million euros as of 31 December 2017. Liquid funds were available at all times throughout In 2016 the ifo Institute received public funds total- 2017. The stock of liquid assets compared to 2016 fell ling 11.13 million euros as part of research promotion by 179,000 euros to 6.46 million euros. Cash fl ow from based on Art. 91b Basic Law (German constitution). current operations was positive (222,000 euros), while Of this amount 10.81 million euros was used for cur- cash fl ow from investment activity (–401,000 euros) was rent operations and 315,000 euros was used for in- negative in 2017. vestment. The funds for current operations include 523,000 euros in special funding for a four-year lim- Balance Sheet of the ifo Institute for 2017 in ited period to build up the Energy, Climate and Ex- Thousands of Euros (abridged version) haustible Resources research area. A cash balance of 31.12.2017 31.12.2016 1.25 million euros, which was accumulated in 2016 Assets and carried over into 2017, also remained at the dis- Fixed assets 89 113 posal of the ifo Institute. This cash balance was spent Current assets in the fi rst quarter of 2017. The sum of 850,000 thou- Inventory 1,308 867 sand euros in institutional funding was not used in Receivables and accruals 949 499 2017 thanks to savings, particularly in terms of per- Liquid funds 6,461 6,639 sonnel expenditure, and the postponement of soft - Total assets 8,807 8,118 ware projects. This sum was accumulated in a cash Liabilities balance that was carried forward into 2018. The ifo Net worth Institute therefore disposed of a total of 11.53 million Earmarked funds 816 802 euros in 2017 from general research funding and the withdrawals/ 0 0 additions 14 14 balance fi gure related to the use and appropriation of Research reserves 1,557 1,392 a cash balance. withdrawals/ 0 0 additions 165 111 ASSETS AND FINANCES Short-term debt Reserves 3,869 4,136 The balance sheet total rose by 689,000 euros (+8.5%) Liabilities vis-à-vis banks 1 0 versus last year to 8.81 million euros. On the asset side, Down payments received 2,113 1,468 Other liabilities 451 320 this was due to the fact, that within the fl oating assets, Total liabilities 8,807 8,118 inventory and liquid funds rose by 891,000 euros, while

ifo Annual Report 2017 135 FINANCIAL DEVELOPMENT

INCOME to the investment subsidies received in the reporting year from public research funding bodies. Other oper- Operating income grew signifi cantly by 1.48 million ating expenses (balanced by other operating income) euros in 2017 to reach a total of 18.85 million euros. rose by 63,000 euros to 3.26 million euros. The upturn was largely due to an increase in public fi - nancial support consisting of the institutional support This means that income exceeded costs by 247,000 eu- of the ifo Institute as part of the collective research ros (income from on-going business). This fi nancial re- funding received from the federal government and the sult was due to negative interest rate, which became Free State of Bavaria according to Art. 91b Basic Law on eff ective for an entire year for the fi rst time, leading to a the one hand, and the support of the Dresden Branch by the Free State of Saxony on the other. This support negative balance of –18,000 euros. In addition, the Insti- increased by 1.02 million euros to 12.26 million euros. tute posted 5,000 euros in slightly negative neutral and The cash balance mentioned at the beginning of this out-of-period results due to a change in provisions from Collective research report resulting from funds carried over from the pre- previous years. The Institute also had to pay taxes of funding increased vious year and its allocation as a cash reserve in 2017 45,000 euros, giving it an annual result of 179,000 euros. in 2017 (400,000 euros) is included in this sum. Profit and Loss Statement of the ifo Institute for 2017 Income from third-party activities, comprising of in Thousands of Euros (abridged version)

revenue from publications and data-base services, 31.12.2017 31.12.2016 earmarked subsidies and contract research as well Institutional support 12,258 11,236 as the corresponding changes in inventory, rose from Earmarked financial support 2,315 2,239 5,366 thousand euros in 2015 to 6,022 thousand euros Obligatory membership fees 125 130 in 2016 (12.2%). Voluntary membership fees 14 14 Income from publications and data bank services, conferences 335 289 Income from third-party activities, comprising of ear- Income from commissioned activities 3,242 3,050 marked subsidies, revenue from publications, data- Other revenues 117 164 base services and events, other revenues and revenues Change in stocks of non-invoiced services 443 280 from third-party work (contract-based research), as Operating income 18,849 17,402 well as the corresponding changes in inventory, rose Expenditure for material and purchased from 6.02 million euros in 2016 to 6.45 million euros services 1,698 1,461 Personnel expenditure 13,367 12,424 in 2017. Regular depreciation 25 49 Unplanned depreciation 255 228 The number of Association members fell from 341 in Other operating expenses minus income 3,257 3,194 Operating expenses 18,602 17,356 Number of 2016 to 325 on 31 December 2017. Income from mem- Operating profit 247 46 association members bership fees (obligatory and voluntary) therefore de- Financial profit –18 0 fell to 325 creased slightly from 144,000 euros to 139,000 euros. Taxes on income and profit –45 –57 Neutral income and income unrelated to the accounting period –5 136 With the increase in revenues from commissioned Profit for the year 179 125 ac-tivities, the cost of materials and related services Withdrawals from research reserves 0 0 was also 237,000 euros higher than in 2016. Additions to research reserves 165 111 Withdrawals from statutory reserves 0 0 Additions to statutory reserves 14 14 Personnel expenses, by contrast, rose by 943,000 euros Profit brought forward 0 0 (8%) to 13.42 million euros. This development in personnel costs was primarily due to an increase in collective compensation (2%) and growth in the Institute’s For the output that the ifo Institute produces in re- staff base. The number of staff rose by 8 versus 2016 search, policy consulting and services as an institu- to 227 on the reporting date (2016: 219). tion of the Leibniz Association, it receives institutional support from the federal government and the federal Regular depreciations (25,000 euros) refer to fi xed as- states as part of the collective research support accord- sets fi nanced out of the Institute’s own funds, while ing to Art. 91b Basic Law. Institutional support from the un-scheduled depreciations (255,000 euros) Bavarian State Ministry for Economic Aff airs, Transport correspond

136 ifo Annual Report 2017 FINANCIAL DEVELOPMENT

and Technology as well as from the Bavarian State Min- istry for Finance and Energy amounted to 11.13 million euros. It also had reserves of 1.25 million euros from 2016. The sum of 10.81 million euros of available funds was used for day-to-day operations and 315,000 euros was spent on investments and maintenance. As already mentioned, the funds granted totalling 850,000 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 institutional support from the Free State of Saxony according to Art. 91b Basic Law. Aft er deduction of the surplus, the institutional support of the Dresden Branch by the Saxon Min- istry for Economic Aﬀ airs and Labour amounted to 732,000 euros (of the 750,000 euros in funding orig- inally granted, 18,000 euros were not used).

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

ifo Annual Report 2017 137 ifo Institute Poschingerstr. 5, 81679 Munich Postbox 860460, 81631 Munich Organisation Chart Phone +49 (0)89/92 24 - 0 1 May 2018 Fax +49 (0)89/98 53 69 http://www.cesifo-group.de Email: [email protected]

Prof. Dr. Dr. h.c. Clemens Fuest (President) Executive Board Dr. Stephanie Dittmer ifo Centers for Macroeconomics and Surveys Public Finance and Political Economy Labour and Demographic Economics The Economics of Education

Prof. Dr. Andreas Peichl Prof. Dr. Niklas Potrafke Prof. Helmut Rainer, Ph.D. Prof. Dr. Ludger Wößmann Economic policy analyses &0 )#"!"/)&0*+!), )Ɯ++ "0 Labour Economics: Time Allocation, Labour Education and individual outcomes: Forecasting 3)21&,+,#Ɯ0 )+!151&,+-,)& 6 Supply, Search and Matching, Migration labour markets and lifecycles Inequality and redistribution Government debt in Germany and Europe and Integration Education and long-term development: Survey data and methodological expertise Political economy Demographic Economics: Marriage, Fertility, economic growth and prosperity Business cycle indicators and macroeconomic Family Structure, Domestic Abuse, Health Determinants of education: culture, forecasts resources and institutions ,3"/++ ",#"!2 1&,+ǿ"ƛ& &"+ 6 and equity

Industrial Organisation and Energy, Climate and International Economics International Institutional Comparisons New Technologies Resources and Migration Research

Prof. Dr. Oliver Falck Prof. Dr. Karen Pittel Prof. Gabriel Felbermayr, Ph.D. Prof. Panu Poutvaara, Ph.D. Industrial organisation and Climate and resources Globalisation and labour markets Research on institutions and industry-level analysis Environment Trade costs and trade policy international comparisons New technologies Energy Trade and environmental policy Research on migration and coordination ,))" 1&,+,#Ɯ/*Ȓ)"3")+!&+!201/6Ȓ)"3")!1 of the Center of Excellence for Migration LMU-ifo Economics and Research Director and Integration Research Business Data Center (EBDC) Prof. Dr. Christian Traeger Database for Institutional Comparisons In Europe (DICE) Publication of the ifo DICE Report and the CESifo Forum

Executive Departments 5" 21&3"2--,/11ƛ Quality Management Research Group Taxation and Fiscal Policy Dresden Branch Dr. Wolfgang Auer Przemyslaw Brandt Leader: Prof. Dr. Dr. h.c. Clemens Fuest Prof. Dr. Marcel Thum Susanne Crefeld Stefan Sauer (Director) Franca Fogli-Götz Julia Schricker International Advisory Projects Prof. Dr. Joachim Ragnitz Barbara Hebele Prof. Dr. Siegfried Schönherr Managing Director) Anja Hülsewig Controlling/Equal Opportunity AGG Annika Lorenz Dr. Dorothea Pohlmann Susanne Richter Julia Schertich Data Protection Caroline Schiller Angela Wagner )/& % %/ņƝ Central Departments Human Resources and Law Finances and Centralised Services Information Technology Library Press, Publications, Conferences Angela Wagner Sabine Dehof Christian Pitsch Petra Braitacher Dr. Stephanie Dittmer

Ombudsman Prof. Dr. Heinrich Ursprung