ceMEP - English Summary

JKU Centre of Excellence "Markets and Economic Policy"

Brief Summary
The enormous economic progress observed in many countries over the past century is unthinkable without the existence of markets as a framework for the unfolding of individual abilities for mutual benefit. However, profound and accelerating changes in technology, as well as the organisation of enterprises and the economy at large, have had significant impacts on the functioning of markets, improving it in many cases, while at the same time leading to market failures in others.

Investigating conditions for well-functioning markets and market failures is, thus, an intellectual challenge in its own right. But it is also of prime importance for the design of appropriate economic policies. There is widespread concern that rapid technological change and globalisation may contribute to adverse developments, such as environmental degradation, exhaustion of natural resources, abuse of market power, dismantling of the welfare state, enduring recessions, and unjust distribution of income and wealth. As a result, governments face ample demand for policy interventions to correct market failures.

Public policies that maintain the effectiveness, while at the same time avoiding and correcting market failures, require scientific economic analysis geared towards a thorough understanding of the fundamental economic processes involved. The appropriateness of specific policies proposed for certain problems should be subject to rigorous evaluation, based on established economic theory. The Department of Economics at JKU Linz has a strong tradition of research in several pertinent areas of economics. With the expertise thus accumulated, it forms the core of what can appropriately be termed a Centre of Excellence in “Markets and Economic Policy” (ceMEP).

Reflecting the special strengths and experience of present department members, the research efforts undertaken by the ceMEP can be characterised along different lines. The primary objective is academic research in its classic meaning, oriented towards the pursuit of scientific knowledge recognised by the international scientific community. At the same time, urgent real world problems are to be addressed, both on a national and international level. The ceMEP thus seeks to strike a balance between theoretical and applied work, with due emphasis on applying state-of-the-art econometric methods and developing of new econometric techniques and applications to meet new challenges of the time.

Successful research needs cooperation with leading national and international institutions. The ceMEP will benefit from significant strengths of the Department of Economics in several dimensions: participation in international research networks, leading positions or advisory activities at research institutions, sabbaticals at outstanding universities, as well as joint research projects. The achievements of the department have been recognised by several recent evaluations, consistently ranking the Department of Economics as one of the top academic institutions not only in Austria, but also among all German-speaking economics departments.

A strong research record is also reflected in high quality teaching, based on the rich research experience of the department’s faculty. In addition, it implies an early involvement of advanced students in ongoing research, eventually leading to successful doctoral dissertations and professorials. Again, the JKU Department of Economics boasts a strong record. Several graduates of the Department hold leading positions in government and other policy making institutions, at research institutes, as well as chairs at prestigious universities.

In order to maintain and further develop these lines of excellence, the ceMEP must be able to rely on appropriate resources and funding. Even a quick glance reveals that, relative to other institutions of comparable excellence, the JKU Department of Economics is presently at the lower limit with respect to its research staff. The ceMEP must thus strive for a well-balanced increase of permanent senior and junior faculty, as well as temporary researchers. Additional funding needs to be ensured both through JKU funding and outside money. Some of the ceMEP research will continue to rely on funding by national or international institutions, such as the Austrian Science Fund, Austrian National Bank, the EU, or the World Bank. It may also involve funding from government agencies, as well as industries or companies. In all cases, maintaining high academic standards and a high level of independence of thought are of primary importance.

The research activities of the ceMEP can be categorised in three broad areas:

• Public Economics,
• Labour Economics and Industrial Organisation, and
• International Economics and Finance.

In all areas the JKU Department of Economics has a proven record of internationally acclaimed research, as reflected in the above mentioned international evaluations. The results have been published in high-quality refereed journals, as well as in edited books and monographs with prestigious scientific publishers. Details are found in the ceMEP research strategy. A brief summary is listed below.

1 Public Economics

Past and ongoing research in public sector economics is aimed at providing scientific evidence in order to clarify the role of state institutions in a market economy and to find the best ways of organising public intervention, if necessary. Studies concern basic issues in the public-versus-private debate, but are also touching upon specific issues in various fields of public activities. In particular, research has concentrated on the following six areas:

Social policy: Studies have dealt with adequate ways of reforming the public pension system and with the characteristics of the market for private pension insurance. Further research in this area has addressed the consequences of immigration, the structure and growth of the health sector in Austria as well as issues in family economics.

Environmental Economics: Examples of the topics that have been investigated are the prospects of measures of controlling global warming, the implementation of permissions trading (initiated by the Kyoto treaty), or methodological aspects of cost-benefit analysis.

Privatisation, deregulation and monopoly regulation: In empirical studies, the potential for privatisation in Austria and other OECD countries has been estimated. Existing worldwide regulatory practice has been compared and schemes in order to overcome the information asymmetries between the regulating authority and firms have been proposed.

Theory of taxation: Studies have explored the properties of an optimal tax system that raises a given tax revenue for the financing of public goods and for redistribution at minimum distortions of individual behaviour.

Institutional economics and public choice: Incentive compatibility in public sector institutions has been studied and proposals for a redesign of several institutions, observing the self-interest of politicians, parties, bureaucrats . . . , have been made.

Shadow economy and tax evasion: In empirical studies the size of the shadow economy in 110 countries has been estimated. Moreover, the consequences (e.g., the loss of tax revenues) of the shadow economy for the formal one have been investigated.

Future research in public economics will proceed along the lines described above. Given the dynamics of the technological and societal changes, constantly new challenges for the role of the public sector arise and require scientific analysis. Among various other topics, presently planned projects deal with the relation between public insurance and the labour market, with emissions trading in the EU and the USA, with mechanisms to overcome international free-riding in the global warming problem, with international health-sector comparisons, or with problems for municipalities due to liberalisation of trade in services.

2 Labor Economics and Industrial Organisation

Past and current research in Labor Economics and Industrial Organisation is characterised by policy-oriented research, often in international co-operation with well-respected research institutions. The research focused on the workings of labour markets and the evaluation of policies. The following areas were the key fields of recent research:

Labour market policies: Studies have investigated the implications of special programmes to ease large-scale redundancies, the access to and the returns of formal education, the returns to apprenticeship training, and the association between trade unions and on-the-job-training. Labor market programs and (early) retirement schemes have been evaluated.

Unemployment: Studies have evaluated the welfare implications of unemployment, the distribution of unemployment spells, and the consequences of long-term unemployment.

Migration: Migration. Wage and employment/unemployment effects of increased immigration to Austria, especially in the period after opening the eastern borders, have been studied. Other research concerned regional mobility, the dynamics of firm employment, and comparisons of the speed of job creation and job destruction between Austria and other countries.

Competitiveness: Studies of market structure, profitability of firms and industries, and the application of game-theoretic models on firm strategies and behaviour have been conducted. Social costs of monopolies in specific industries, effects of privatisation, firm strategies in emerging industries, and costs and benefits of flexibility of firms have been researched.

Discrimination: Research investigated the effects of discrimination by sex and gender identity. Other research studied wage and promotion differentials between men and women in Austria. A meta-analysis of international wage dierentials explored the role of anti-discrimination policies internationally.

Future research: Members of ceMEP have been active in international research networks like the Centre for Economic Policy Research in London, have worked in international collaborative projects and have advised the World Bank and the European Commission, amongst others. They have guided the European Commission in its industrial and research policies by shaping the European Competitiveness Report. Members of the ceMEP are active in an international consortium led by the Brookings Institution (Washington, D.C.) and researchers from the European Central Bank to explore issues of wage rigidity. Members are also part of two other international cooperative research networks, which have applied for funding from the EU 6th framework programme. The first will concern the changing environment for education and training in firms which are caused by dierent needs and risks of the information economy. In the second, research eorts will be directed towards a better understanding of incentives for migration, its impact on migrants and the host countries, and the relevance of immigration policies.

3 International Economics and Finance

In the area of international economics and finance, past and ongoing research focuses on various forms of economic integration and globalisation. The studies concern welfare and distributional consequences, as well as industrial restructuring in the process of economic transition and catching up. More specifically, research in this area has focussed on the following issues:

Applied general equilibrium modelling: In international collaboration, the department has constructed dynamic applied general equilibrium models geared towards numerical simulation of international economic integration, especially EU integration, including Austrian accession and eastern EU enlargement.

Theoretical analysis of trade policy: Several studies have dealt with efficiency and distributional consequences of trade policy reforms, such as reductions in tariand non-taribarriers, both on the national level and the multilateral level of the WTO.

Foreign direct investment and outsourcing: There have been important theoretical and applied contributions, particularly in the context of East-West European integration, on the role and importance of foreign direct investment, as well as outsourcing and cross-border fragmentation. Among the questions addressed are how these phenomena relate to trade, domestic income distribution and employment, as well as the efficiency of domestic resource allocation.

Countries in transition: Several studies have concentrated on the catchingup process of Eastern European transition economies. The aim was to empirically identify systematic patterns that can be found in industrial productivity growth and trade integration. Particular emphasis was placed on the question of vertical product differentiation in international trade, and on the role of geographic distance for international trade.

International migration: Recent studies have dealt with the impact of international migration flows, particularly regarding the conditions that need to be satisfied for host-country efficiency gains, which is of obvious importance for the Austrian economy.

Financial markets: The department has recently embarked on research in this area. Among the issues addressed are speculative attacks on currencies, the role of stock market developments as predictors of real sector activity, and efficiency of stock markets.

Future research will expand applied general equilibrium modelling to the area of fiscal policy analysis in the context of internationally integrated commodity and factor markets. It will conduct further theoretical and applied research on welfare and distributional consequences of various forms of economic globalisation, shifting the focus towards a more policy oriented orientation. In addition, the ceMEP will continue research on international patterns of catching-up, particularly in the context of the wider European economic space, with special emphasis on the interrelationship between the various channels of international economic integration on product, labour and capital markets. Finally, it will pursue research on the microeconomic structure of financial markets, on international financial market interrelations, as well as on exchange rates and issues of monetary and fiscal policy coordination. The issues to be tackled are, thus, frontier subjects in academic research, while at the same time addressing topics of acute policy interest.