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Project C5:
(formerly B3)

The international context of tax and public sector reform decisions
 

Coordinators:

Prof. Dr. Friedrich Heinemann  /   Prof. Dr. Eckhard Janeba


 Researchers:

Sebastian Blesse / Valerio Dotti, Ph.D. / Christoph Esslinger


 Associate:

Prof. Galina Zudenkova, Ph.D. / Dr. Mathias Dolls

 Duration:01.01.2010 - 31.12.2017


Summary

Our project targets the cross-border dimension of reform processes with a strong emphasis on fiscal reforms. We will pay tribute to the experience of the European debt crisis which stresses the importance of appropriate fiscal institution, but also offers an interesting experimental testing ground for examining crossborder waves of institutional reforms. The introduction of new fiscal rules, such as the German debt brake, is a particularly promising type of reform. Through the Fiscal Compact, a similar type of rule is being implemented in 25 EU countries and thus offers a reform area which is comparable across countries: This almost uniform reform allows us to study expectations and preferences with respect to these institutional innovations
in a cross-country comparison, and to test the predictions of models describing cross-border strategic interdependencies.

Our empirical research is based on a unique database consisting of extensive surveys of members of parliaments. In the current phase of the Collaborative Research Centre we have laid the ground through a first survey of all 16 German state parliaments with respect to their members’ fiscal expectations and preferences. This base will be extended in three directions during the application period: i) repeated survey of German state parliaments to measure the dynamics of expectations with the 2016/2020 deadlines of the German debt brake approaching; ii) surveys of selected national parliaments in the EU with respect to the new national debt brakes being implemented as a contractual obligation following the Fiscal Compact; and iii) voter surveys of debt preferences from the German Internet Panel (GIP) for comparison with politicians’ beliefs and preferences.

Our efforts in theoretical modelling are directed towards supporting and informing our empirical work in the context of fiscal rules. In particular, we are interested in the effects of delays when new rules become effective, and in the incentives of individual governments to implement national rules (earlier or stricter than required). We also wish to extend the literature on fiscal capacity, which models a state’s ability and efforts to raise tax revenues in the future, by incorporating the debt decision. Thereby, we intend to integrate the literature on fiscal capacity and the political economy of dynamic fiscal policy and fiscal rules. Related to both theory and our surveys is the complementary use of experiments. Thereby we hope to test specific mechanisms through which fiscal reforms spread across countries, and avoid framing effects that may arise in our survey.