The research from these two major fields deals with economic policy questions, mostly in highly developed OECD countries and cover in some parts also developing countries. The main focus is the analyses and consequences of state activities (in a broad sense) on the economy.
(1) Public Choice/Constitutional Economics
Since over 30 years I’m doing research with various coauthors (B.S. Frey, G. Kirchgaessner, W.W. Pommerehne, H. Weck-Hannemann, L. Feld and others) in the area of Public Choice. Public Choice deals with the behaviour of governments (politicians), parties, voters, bureaucracies and interest groups (and others) using the (neoclassical) economic approach of selfish utility maximizing of individuals subject to constraints. My research uses Public Choice analyses of voters’ and government’s behaviour in representative democracies. I demonstrated that at general elections the voters behaviour is systematically influenced by the economic situation and that a government, who knows this, systematically tries to influence the economy in such a way that its re-election chance is raising. I also analysed this relationship for the case of direct democracy in Switzerland using the median voter model. I did also studies about interest group behaviour, where I could demonstrate that due to conflicting interests of the various pressure groups their overall influence is not dominating any government fiscal and monetary policy. Central Bank behaviour was also analysed by Bruno S. Frey and myself showing that the institutional arrangements are critical in order to maintain an independent central bank. I also applied constitutional economics to the problem whether one needs an European Federal Constitution after having created an European Monetary Union. A first draft of an European constitution was developed by an European constitutional group (with me as one member) and was presented at various conferences from 2003 to 2009. The public choice approach was also applied by me to the issue of deregulation and/or privatization in highly developed OECD countries; e.g. calculating the potential size of privatization in Austria. Lately I used the public choice method to explain why we observed so little use of incentive orientated instruments (emission taxes and tradeable permits) in environmental policy leading to a substitution and not only to revenue creating effect. Jürgen Volkert, Gebhard Kirchgässner and I showed in several papers that neither voters nor the government are interested in an efficient environmental policy mainly due to the fact that the costs of such an policy have to be carried immediately by the voters and government, but the benefits are effective much later and all are benefiting from them also those who do not bear the costs. Lately and together with Gebhard Kirchgässner we dealt with two questions, (1) what are the origins of the financial crisis in 2009 and (2) what did economists contribute, or why did economists fail to provide a convincing answer for the origins of the crisis, and possible solutions to overcome it? The economics profession at least in 2009 was unaware of the looming worldwide financial and economic crisis, and significantly underestimated its global dimensions and consequences. A first and preliminary analysis is undertaken to explain reasons for these failures.
Literature (selection):
1. F. Schneider, B. S. Frey, 1978, An Empirical Study of Politico Economic Interaction in the United States Review of Economics and Statistics, 60/2, p. 174 183.
2. F. Schneider, B. S. Frey, 1978, A Politico Economic Model of the United Kingdom The Economic Journal, 88/2, pp. 243 253.
3. F. Schneider, B. S. Frey, 1981, Central Bank Behavior: A Positive Empirical Analysis Journal of Monetary Economics, 7/1, pp.291 315.
4. F. Schneider, 1991, A European Public Choice Perspective. Public Choice, 71/1, pp. 197 - 200.
5. F. Schneider, 1994, Public Choice - Economic Theory of Politics: A Survey in Selected Areas In: Essays on Economic Psychology, Hermann Brandstätter and Werner Güth (eds.), Heidelberg, Springer Verlag, pp. 177-192.
6. F. Schneider, J.C. Pardo, 1996, Current Issues in Public Choice, Cheltenham, UK: Edward Elgar.
7. F. Schneider, 1998, Einige grundlegende Elemente einer europäisch föderalen Verfassung unter Zuhilfenahme der konstitutionellen ökonomischen Theorie In: Dieter Cassel (ed.), Perspektiven der Systemforschung, Schriftenreihe des Ausschusses zum Vergleich von Wirtschaftssystemen der Gesellschaft für Wirtschafts- und Sozialwissenschaften (Verein für Socialpolitik), Berlin: Duncker & Humblot, pp. 123-146.
8. F. Schneider, 1998, Probleme der Vertiefung und Erweiterung der Europäischen Union: Die EU-Beihilfenkontrolle als Wettbewerbsordnung: Probleme aus der Perspektive des Wettbewerbs zwischen Jurisdiktionen. In: Dieter Cassel (ed.), Europäische Integration als ordnungspolitische Gestaltungsaufgabe, Berlin: Duncker & Humblot Verlag, pp.75-79.
9. F. Schneider, 1999, Die Entwicklung der Sozialpolitik in repräsentativen und in direkten Demokratien: Königsweg oder Sackgasse? Einige Bemerkungen aus der „Public Choice“-Perspektive.“, Schweizerische Zeitschrift für Volkswirtschaft und Statistik, Vol. 135 (3), p.387-406.
10. F. Schneider, J. Volkert, 1999, No Chance for Incentive-oriented Environmental Policies in Representative Democracies?", in: Ecological Economics, 31/1, Elsevier Science, pp.123-138..
11. F. Schneider, H. Berger, 2000, The Bundesbank's Reaction to Policy Conflicts, in: Jakob de Haan (Hrsg.): 50 Years of Bundesbank: Lessons for the ECB, London: Routledge, pp. 43-66.
12. F. Schneider, 2000, A first draft of six major elements of an European Constitution: Some thoughts using political economy, in: Paul J. J. Welfens: Economic globalization and International Organizations and Crisis Management, Heidelberg: Springer publishing company, pp.185-207.
13. F. Schneider, A. Wagner, 2001, Subsidiarity, federalism and direct democracy: Major elements of a federal European constitution: First ideas using constitutional eonomics, in: Ram Mudambi, Giuseppi Sobbrio and Pietro Navarra (Hrsg.): Rules and reasons: Perspectives on constitutional political economy, Cambridge (Mass.), Cambridge University Press, p. 289-312.
14. F. Schneider, L. P. Feld, 2001, State and Local Taxation, In: International Encyclopedia of Social and Behavioral Science, Bd. 12 Economics, Orley Ashenfelter (ed.), Amsterdam: Elsevier Science Publishing Company.
15. F. Schneider, L. P. Feld, 2002, Zum Wandel des föderalen Aufgaben-, Ausgaben- und Finanzierungsspektrums: Österreich und die Schweiz im Vergleich, In: Engelbert Theurl, Rupert Sausgruber and Hannes Winner (eds.), Kompendium der österreichischen Finanzpolitik, Heidelberg: Springer Verlag.
16. F. Schneider, 2002, Privatisierung und Deregulierung in Österreich in den 90er Jahren: Einige Anmerkungen aus Sicht der Neuen Politischen Ökonomie, In: Hartmut Berg (ed.), Aktuelle wirtschaftspolitische Fragen, Berlin: Duncker&Humblot.
17. F. Schneider, G. Kirchgaessner, 2003, On the Political Economy of Environmental Policy, Public Choice 115/4, pp.369-396.
18. F. Schneider, P. Bernholz, R. Vaubel, F. Vibert, 2004, An Alternative Constitutional Treaty for the European Union, Public Choice 118/4, pp.451-468.
19. F. Schneider, A. Belke, Privatization in Austria: Some Theoretical Reasons and First Results about the Privatization Proceeds, in: Hans-Werner Sinn and Marko Koethenburger (eds.), Privatization Experiences in OECD-Countries, Boston: MIT Press, forthcoming in 2004.
20. F. Schneider, G. Eusepi (eds.), 2004, Changing Institution in the European Union: A Public Choice Perspective, Edward Elgar Publishing, UK.
21. F. Schneider, Ch. Rowley (eds.), 2004, The Encyclopedia of Public Choice Vol.I und II, Kluwer Academic Publishers, Dordrecht/Boston/London.
22. F. Schneider, H. Weck-Hannemann, Why isn’t Economic Theory Considered in Environmental Policy Practice?, in: Christoph Boehringer and Andreas Lange (eds.), Frontiers in an Applied Environmental and Ressource Economics, Heidelberg: Physica and Springer Publishing Company, 2005.
23. F. Schneider, Is a Federal European Constitution for an Enlarged European Union Necessary? Some Preliminary Suggestions Using Public Choice Analysis, Swiss Political Science Review 11/4 (Special Editors Lars P. Feld and Simon Hug), 2005, pp.203-225.
24. F. Schneider, H. Pitlik and H. Strotmann, Legislative Malapportionment and the Politicization of Germany’s Intergovernmental Transfer System, Public Finance Review 34/1, 2006, pp.1-26.
25. Ansgar Belke, Frank Baumgärtner, Friedrich Schneider and Ralph Setzer, The Different Extend of Privatization Proceeds in OECD Countries: A Preliminary Explanation Using a Public Choice Approach, Finanzarchiv: Public Finance Analyses 63/2, June 2007, pp.211-243.
26. Friedrich Schneider, Is an European Constitution for an enlarged European Union necessary? Some thoughts using Public Choice analysis, in: Richard Tilly, Paul J.J. Welfens, and Michael Heise (eds.), 15 Years of a EU economic dynamics: Integration, financial markets and innovation, Berlin/Heidelberg: Springer Verlag, pp.341-356.
27. Charles K. Rowley and Friedrich Schneider (eds.): Readings in Public Choice and Constitutional Political Economy, Heidelberg: Springer Publishing Company, 2008.
28. Friedrich Schneider and Gebhard Kirchgässner: Financial and World Economic Crisis: What did Economists contribute? Public Choice 140/3-4, September 2009, pp. 319-327.
29. Friedrich Schneider, Martin Halla und Mario Lackner: An Empirical Analysis of the Dynamics of the Welfare State: The Case of Benefit Morale, Kyklos Vol. 63 - Feb 2010, No 1, pp. 55-74.
(2) Shadow Economy
Since over 25 years I’m engaged in mostly empirically orientated research of the shadow economy and tax evasion. My research started with two questions: (1) how to define a shadow (underground, black, cash, parallel, criminal) economy and (2) how to measure the size and development of the shadow economy. Hence, the shadow economy is variously defined, but the predominant definition is to compromise all at present not officially recorded productive (i.e. value-adding) activities, which should be part of gross national income. Economists (including myself) have devised a considerable number of approaches to measure the size and development of the shadow economy and tax evasion. The difficulties in measuring the size and development of the shadow economy and tax evasion was (and still is) a major part of my research since the eighties considering 165 developing, developed and transition countries. The direct approaches are based on surveys and the examination of tax returns, the indirect approaches analyze the discrepancies between what would be normal and what is actually observed with respect to spending, employment, and the use of money. For the IMF, the World Bank and public institutions in Germany, Austria and Switzerland I have empirically estimated the size and development of the shadow economy of 165 countries over the period 1994 to 2007. My other major research areas are the consequences of a rising shadow economy and its interaction with the official one. One of my major concern is that due to shadow economy activities, government revenues (from taxation and social security contributions) are (partly) lost. On the other hand, underground activities are value-creating and introduce a dynamic element into the “official” economy; the latter effects I showed in various studies for Germany and Austria. Furthermore, the interaction of the shadow economy with the official one has been excessively investigated by Dominik Enste and me in two books, appeared by Cambridge University Press, December 2002. One major finding is that 2/3 of the shadow economy activities are complementary to official activities. Hence the substitution effect between official and shadow economy activities is only 1/3! Another challenging result is that roughly 66% of the income earned in the shadow economy is spend immediately in the official economy – hence this black money considerably stimulates the official economy and compensates a part of the revenue losses. Another research area is the interaction of the shadow and corruption: Theoretically the question is unsettled whether there is a substitutive or complementary relationship. Empirically this question is preliminary solved; my research with Axel Dreher shows a complementary (substitutive) relationship in developed (developing) countries, but the results are not robust. Lately, together with Lars Feld we undertook microeconometric investigations why people evade taxes and/or work in the shadow economy.
Literature (selection):
1. F. Schneider, D. Enste, 2000, Schattenwirtschaft und Schwarzarbeit: Umfang, Ursachen, Wirkungen und wirtschaftspolitische Empfehlungen: Forum Wirtschaft und Soziales (FWS), R. Oldenbourg Verlag, München-Wien.
2. F. Schneider, D. Enste, 2000, Shadow Economies: Sizes, Causes, and Consequences, Journal of Economic Literature, Vol. 38/1, p. 77-114.
3. F. Schneider, 2000, Dimensions of the Shadow Economy, The Independent Review 5/1, p.81-92.
4. F. Schneider, 2000, Illegal activities and the generation of value added: size, causes and measurements of shadow economies, in: Bulletin on Narcotics, Vol. LII, Nos. 1 and 2, p. 99-134.
5. F. Schneider, 2001, What Do We Know About the Shadow Economy? Evidence from 21 OECD countries, in: World Economics, Vol. 2, p. 19-32.
6. F. Schneider, 2001, What Do We Know About the Shadow Economy? Evidence from 21 OECD countries, in: World Economics, Vol. 2, , p. 19-32.
7. F. Schneider, J. Volkert, S. Caspar, 2002, Schattenwirtschaft und Schwarzarbeit: Beliebt bei Vielen – Problem für alle: Analyse der schattenwirtschaftlichen Aktivitäten in Deutschland (am Beispiel Baden-Württembergs) und mögliche politische Konsequenzen, Baden-Baden: Nomos Verlagsgesellschaft.
8. F. Schneider, D. Enste, 2002, The Shadow Economy: Theoretical Approaches, Empirical Studies, and Political Implications, Cambridge (UK): Cambridge University Press.
9. F. Schneider, D. Enste, 2002, Hiding in the Shadows, The Growth of the Underground Economy, International Monetary Found, Pamphlet.
10. F. Schneider, A. Mummert, 2003, The German Shadow Economy: Parted in a United Germany?, in: Finanzarchiv.
11. F. Schneider, 2003, Les Economies Souterraines dans le Monde: Importance, Causes et Consequences, Revue Belge de Securite Sociale 45/3, pp.825-882.
12. F. Schneider, Ch. Bajada, The Development and the Size of the Shadow Economies in the Asia Pacific, forthcoming in Pacific Economic Review 2005.
13. F. Schneider, 2003, The Size and Development of the Shadow Economies and Shadow Economy Labor Force of 22 Transition and 21 OECD Countries: What do we really know?, in: Boyan Belev (ed.), The Informal Economy in the EU Assessment Countries: Size, Scope, Trends and Challenges of the Process of EU-enlargement, Center for Study of Democracy, Sofia, pp.23-62.
14. F. Schneider, J. Alm, J. Martinez-Vazques, Sizing: “The Problem of the Hard to Tax”, in: Sally Wallace, James Alm and Jorge Martinez-Vazquez (eds.), The Hard-To-Tax, Amsterdam, Elsevier Publishing Company, 2005, pp.11-76.
15. F. Schneider, 2005, Shadow Economies around the world: What do we really know?, in Journal of Political Economy 23/1, pp.598-642.
16. The Size and Development of the Shadow Economy: An Empirical Investigation from States of India (together with Kausik Chaudhuri and Sumana Chat-topadhyay), forthcoming in Journal of Development Economics 80/2, 2006, pp.428-443.
17. F. Schneider and C. Bajada, Size, Causes and Consequences of the Underground Economy: An International Perspektive, Ashgate Publishing Company, UK, 2005.
18. F. Schneider and A. Dreher, Corruption and the Shadow Economy – Substitudes or Complements?, in: Martin Kreutner (ed.): The Corruption Monster: Ethik, Politik und Korruption, Wien, Czernin Verlag, 2006, pp.363-370.
19. Dominik H. Enste and Friedrich Schneider, Jahrbuch für Schattenwirtschaft 2006-2007, Berlin: LIT-Verlag, 2006.
20. Friedrich Schneider, Shadow Economies and Corruption all over the World: New Estimates for 145 Countries, Economics, The Open Access, Open Assessment, E-journal, No. 2007-9, July 24, 2007.
21. Benno Torgler and Friedrich Schneider, What Shapes the Attitudes Towards Paying Taxes? Evidence from Multicultural European Countries, Social Science Quarterly 88/2, June 2007, pp.443-470.
22. Friedrich Schneider, Shadow Economies and Corruption all over the World: New Estimates for 145 Countries, Economics: The Open Access, Open Assessment, E-journal, Nr. 2007-9.
23. Friedrich Schneider (ed.), The Economics of the Hidden Economy, in the book series of Mark Blaug: The International Library of Critical Writings in Economics, Edward Elgar Publishing Company, 2008.