European Integration

The international research programme, Strengthening Efficiency and Competitiveness in the European Knowledge Economies (SEEK), at ZEW Mannheim was dedicated to analysing the most pressing issues of European economic policy through application-oriented research.

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French, Italian and German MPs are open to granting the EU more competencies in the fields of defense and immigration policy. There is also broad agreement on giving legislative initiative to the European Parliament and on increasing national investment expenditure to boost economic growth. There is, however, considerable disagreement over certain reform proposals for the eurozone: French and Italian MPs support the implementation of new European Monetary Union (EMU) institutions such as a euro area budget and Eurobonds, while the Germans oppose them.

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The German government should start pushing for the EU to redistribute responsibilities between Brussels and the Member States. For example, responsibilities such as safeguarding farmers’ income should return to the remit of the individual countries. On the other hand, EU institutions should be assuming far greater responsibility for development aid, defence, and asylum policy.

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Current research on the impact of monetary versus fiscal policy announcements on euro area government bond spreads in the unfolding Covid-19 pandemic.

To the publication in the “Journal of International Money and Finance”

In a globalised and digitalised economy, the mobility of capital and labour is increasing. This promotes global tax competition: in the case of corporate income taxation, a race to the bottom can still be observed today. Contrary to this trend, the effective average tax burden of a highly qualified employee is noticeably stagnating, while top statutory tax rates for high-income earners are rising. In the future, however, the taxation of highly qualified, mobile workers could become more important due to the massive digitalisation boost caused by the coronavirus pandemic.

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The debt-equity bias is a deep-rooted issue in today’s tax system and inhibits equity-financed investments. A recent ZEW policy brief shows that harmonisation at the European level is not suitable for solving the tax-induced distortion. Instead, the researchers recommend addressing the debt-equity  bias on national level, e.g. by implementing a dual income tax.

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European companies will be obliged to disclose their country-related profits and income taxes in the form of so-called country-by-country reporting in the future. A corresponding draft directive was approved today by the Parliament of the European Union. The aim of the directive is to detect and curb tax avoidance practices. The announcement of a preliminary political agreement on 1 June 2021 to introduce such a directive had already led to noticeable reactions on the capital market: A current study by ZEW Mannheim, in cooperation with the University of Mannheim, identified cumulative average abnormal returns between ‑0.499 and ‑0.699 per cent for up to two days after the announcement. This corresponds to a cumulative loss in firm value of 48 to 65 billion euros.

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The financial market experts’ sentiment concerning the economic development of the eurozone increased by 1.5 points in June and currently stands at minus 28.0 points. The situation indicator rose to a new level of minus 26.4 points, increasing 8.6 points compared to the previous month. Inflation expectations for the eurozone declined again in the June survey. The indicator currently stands at minus 32.4 points, 21.8 points lower than in May.

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Well before the Great Recession, the strikingly successful socio-economic regime of growth of the three decades after WWII came to an end as the smooth matching among technological innovation, productivity growth, income distribution and aggregate demand increasingly broke down. However, a new virtuous regime is hardly emerging and growth of income and productivity remains sluggish especially in Europe. Our project GROWINPRO has the goal of delivering a set of policy solutions aimed at restoring sustained and inclusive growth

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Innovation is essential for economic growth and governments must encourage firms to increase their investments in innovation. Europe is losing ground to its main Asian competitors when it comes to R&D investment and is barely keeping pace with the U.S. Moreover, the rate of return on innovation has become significantly weaker in Europe. This has been caused by its relative lack of innovative SMEs, the slow diffusion of innovation, and the increasingly competitive innovation marketplace. In this light, scholars and policy makers are arguing for a new approach to European innovation policy that puts more weight on the development of disruptive innovation and on the diffusion of new technologies throughout the market.

Read more in our ZEW policy brief 18-07