If we are to solve the challenges facing our society, such as public debt crisis and demographic change, first of all we need a sound theoretical and empirical analysis of public budgets and social insurance systems. Responding to this need, the researchers of the unit ‘Public Finance, Social Security Systems, Income and Wealth Distribution’ examine the fiscal consequences of specific government policies, analyse the incentive and distribution effects for companies and private households and evaluate governmental redistribution policies.
Our aim is to develop ideas for effective long-term financial policies and reliable and efficient social insurance coverage for the major risks in life, i.e. old age, illness and long- term care. In the European context this requires a profound analysis of the Member States’ regulatory framework in order to understand interdependencies between varying national subsystems.
Public Finance and Tax Policy
Besides the public debt crisis, the issue of profit shifting is a case of major importance for international tax policy. Tax competition makes it possible for multinational enterprises subject to taxation in different countries to minimise their tax burden. While national governments tend to see this as a risk to their tax revenues, multinational companies must be considered a boon to the German treasury. Despite the opportunities for transferring profits abroad, they decently contribute to the country’s fiscal system. The EU Commission’s current initiative on harmonising taxation of multinational enterprises in Europe comes on time. However, reflecting these findings there is only a low incidence of tax avoidance in Germany.
Income and Wealth Distribution
Using European microdata we analyse the redistributive effects of levies and monetary social transfers in Germany and other EU Member States. The results indicate that the incidence of income redistribution in Germany is significantly above average. Whereas Western Europe, Scandinavia and certain Eastern European countries have a high degree of redistribution, in the Baltic States and the countries of Southern Europe the level is significantly lower. Forthcoming research will focus on two questions: first, the effects of low interest rates on income inequality, and second, on whether there is indeed a negative correlation between income inequality and economic growth, as predicted by two prominent studies of the OECD and the IMF.
Social Security Systems
The ageing of the European population will have a considerable impact on the sustainability of the Member States’ pay-as-you-go financed social security schemes. The demographic challenge will continue to exist, even after the crisis will have been solved. Therefore, it is important to focus on long-term scenarios when reforming social security systems like old age provision or health care. In our current study about the demographic challenge for the Member States’ public pension schemes we put an emphasis on the nation-specific elements of old age provision. As they differ in various aspects, we argue that pension policy should remain a national issue. However, the Commission’s reporting can encourage transparency and might help to induce necessary debates within the Member States.
German Pharmaceutical Industry
Demographic change is not only a matter of social security systems but also of safeguarding Germany’s ability to attract business investment. With this in mind, the unit ‘German Pharmaceutical Industry’ investigates location criteria for the health industry in Germany, taking the pharmaceutical sector as an example.