Forward looking dynamics in spatial CGE modelling

This paper sets up a multiregional dynamic framework by combining the optimal savings model with investment adjustment costs and the spatially disaggregated model with Dixit-Stiglitz structure in the modern sector. Because of increasing product diversity on the dynamic equilibrium path, the model belongs to the category of semi-endogenous growth models. The distinction of goods, factors, firms, and households by location, and the incorporation of trade costs in the model allow to study a variety of issues in regional and transport economics. We describe the model calibration and a taylor-made solution algorithm. The functionality is demonstrated using two illustrative examples

Investment Subsidies and Regional Welfare: A Dynamic Framework

Subsidising investment in lagging regions is an important regional policy instrument in many countries. Some argue that this instrument is not specific enough to concentrate the aid towards the regions that are lagging behind most, because investment subsidies benefit capital owners who might reside elsewhere, possibly in very rich places. Checking under which conditions this is true is thus highly policy relevant. The present paper studies regional investment subsidies in a multiregional neoclassical dynamic framework. We set up a model with trade in heterogeneous goods, with a perfectly integrated financial capital market and sluggish adjustment of regional capital stocks. Consumers and investors act under perfect foresight. We derive the equilibrium system, show how to solve it, and simulate actual European regional subsidies in computational applications. We find that the size of the welfare gains depends on the portfolio distribution held by the households. If households own diversified asset portfolios, we find that the supported regions gain roughly the amounts that are allocated to them in the form of investment subsidies. If they only own local capital stocks, a part of the money is lost through the drop in share prices. From the point of view of total welfare, the subsidy is not efficient. It can lead to a welfare loss for the EU as a whole and definitely leads to welfare losses in the rest of the world, from where investment ows to the supported EU regions

The Flypaper Effect in Germany: An East-West Comparison

We investigate the effect of general-purpose transfers on different expenditure categories and tax rates in the municipalities of Saxony (eastern Germany) and North Rhine-Westphalia (western Germany). Findings from the panel data analysis suggest the existence of the “flypaper effect” – municipalities use transfers to increase expenditures but do not reduce taxes. For most expenditure subcategories the estimated coefficients are alike, suggesting similarity of spending priorities in the two federal states despite the differences in the transfer dependency. Targeted support of eastern municipalities could potentially explain few identified differences in the spending behavior

Modelling spatial economic effects of transport infrastructure policies: a computable general equilibrium approach

The purpose of this doctoral thesis is to suggest and operationalise several important extensions and improvements in the methodology used to evaluate regional economic effects of the large-scale transport infrastructure and pricing policies. The main contributions are divided into the static modelling part and the dynamic modelling part. In the static modelling part, our focus is on the implications of the assumptions of partial capital mobility and wage rigidity for the evaluation of border-crossing infrastructure projects. In particular, we introduce a negative relationship between the regional real wage and the unemployment rate, usually called the "wage curve", into the model. We show that including these assumptions substantially increases the magnitude of the indirect effects predicted by the model. We also identify and describe the mechanisms governing these effects. In the dynamic modelling part, we make a first attempt to introduce full forward-looking dynamics into the spatial CGE modelling framework by specifying the intertemporal optimization problems of the households and the firms. This framework also allows us to rep-resent incomplete capital mobility in a more plausible way than in the static model by introducing the costs of investment. We perform numerical simulations in order to study the properties of the model, and to understand the added value of this approach as compared to static analysis. Both models are employed to analyse the economic impacts of the Fehmarn Belt railway axis project, in particular the indirect effects thereof

Equal split in the informal market for group train travel

In this paper we make use of a unique dataset collected in the central train station of Kiel, Germany. A group ticket is used by individual proposers who search for co-travelers to share the ride with shortly before the train departure. The bargaining behavior resembles the Ultimatum game to the extent that proposers request a fixed price for a shared ride and potential co-travelers usually accept or reject the deal. We observe that the prevailing price corresponds to the equal split of the ticket cost between the maximum possible number of co-travelers. This result is remarkable because the positions of the bargaining parties are hardly symmetric and the formation of the full group is not guaranteed. Using a simple agent-based model we are able to identify some sufficient conditions leading to the observed distribution of prices. Finally, we observed that the probability to accept an unusually high offer is decreasing with the price and increasing when the offer is made right before the train departure

The Effect of Land Consumption on Municipal Tax Revenue: Evidence from Bavaria

This paper aims to quantify the municipal tax revenue effects of built-up area increases. The assumed existence of these effects is one of the key reasons for ongoing land consumption on the side of the municipalities. Some previous case studies however suggested that these effects might be not large enough especially in rural municipalities and would thus make land development not profitable. We estimate the effect of built-up industrial and commercial (BIC) area change on the business tax revenues in cross-sectional instrumental variable (IV) estimations. Based on detailed data for Bavaria, we find a significant and positive tax revenue effect of an increase in municipal BIC area. There exist strong differences in the size of this effect between urban and rural municipalities. The largest effects are generated by the BIC area in the large cities and become substantially smaller when these are dropped from the sample. Based on these findings, we reflect on the tradable planning permits (TPP) scheme recently discussed in the land use literature in the context of policies aiming to limit land consumption. Furthermore, we relate our estimates to the average municipal costs for land development and execute a number of robustness checks

Equalization Transfers and the Pattern of Municipal Spending: An Investigation of the Flypaper Effect in Germany

We investigate how lump-sum equalization transfers affect expenditures and taxes in the municipalities of the largest German state North Rhine-Westphalia. In general, those general-purpose transfers cannot be treated as exogenous variables. Thus, for the identification of causal effects, two exogenous adjustments in the transfer allocation formula are used as instrumental variables. Findings suggest the existence of the “flypaper effect” – municipalities use transfers to increase expenditures but do not reduce tax rates. Extra money from transfers is mainly used to finance social expenditures and public facilities. A set of robustness checks, including a spatial dependence model, confirm the results

The hidden homeownership welfare state: an international long-term perspective on the tax treatment of homeowners

Welfare is traditionally understood as social security decommodifying labour markets or as social investment policies. In the domain of housing, however, welfare for homeowners is largely hidden in the tax codes’ fiscal exemptions. Based on a content analysis of legislation, this article introduces a novel yearly database of 37 countries between 1901 and 2020 to uncover the “hidden welfare state” of taxes on imputed rent, deductibility of mortgage payments, housing capital gains tax, and value-added tax on newly built dwellings. Summary indices of homeownership attractiveness and neutrality of the tax code show that fiscal homeownership policies have been in decline until the 1980s and risen ever since. They are in place where finance is liberally and labour restrictively regulated. Contrary to the classical welfare state, they are not associated with an economic logic of industrialism or left-wing governments. They rather are an alternative to rent regulation used by Common-law jurisdictions or smaller countries. As welfare for property owners, the logic of fiscal homeownership welfare diverges from the classical welfare for the labouring classes

Do the selected Trans European transport investments pass the Cost Benefit test?

This paper assesses the economic justification for the selection of priority projects defined under the auspices of the Trans-European transport network. In analyzing the current list of 30 priority projects, we apply three different transport models to undertake a cost-benefit comparison. We find that many projects do not pass the cost-benefit test and only a few of the economically justifiable projects would need European subsidies to make them happen. Two remedies are proposed to minimize the inefficiencies in future project selection. The first remedy obliges each member state or group of states to perform a cost-benefit analysis (followed by a peer review) and to make the results public prior to ranking priority projects. The second remedy would require federal funding to be available only for projects with important spillovers to other countries, in order to avoid pork barrel behaviour.transport infrastructure, cost benefit analysis, Europe Union

Do the selected Trans European transport investments pass the cost benefit test?.

This paper assesses the economic justification for the selection of priority projects defined under the auspices of the Trans-European transport network. In analyzing the current list of 30 priority projects, we apply three different transport models to undertake a cost-benefit comparison. We find that many projects do not pass the cost-benefit test and only a few of the economically justifiable projects would need European subsidies to make them happen. Two remedies are proposed to minimize the inefficiencies in future project selection. The first remedy obliges each member state or group of states to perform a cost-benefit analysis (followed by a peer review) and to make the results public prior to ranking priority projects. The second remedy would require federal funding to be available only for projects with important spillovers to other countries, in order to avoid pork barrel behaviour.