Gebhard Kirchgässner

Introduction to Modern Time Series Analysis

This book presents modern developments in time series econometrics that are applied to macroeconomic and financial time series. It attempts to bridge the gap between methods and realistic applications. This book contains the most important approaches to analyse time series which may be stationary or nonstationary. Modelling and forecasting univariate time series is the starting point. For multiple stationary time series Granger causality tests and vector autoregressive models are presented. For real applied work the modelling of nonstationary uni- or multivariate time series is most important. Therefore, unit root and cointegration analysis as well as vector error correction models play a central part. Modelling volatilities of financial time series with autoregressive conditional heteroskedastic models is also treated.

Towards a theory of low-cost decisions

Abstract Traditional economic theory assumes that decisions matter: wrong decisions have a nonnegligable impact on the decision-maker. In this paper, we deal with two other types of decisions: (i) decisions where the individual decision is irrelevant for the individual himself/herself and for all other individuals, but the collective decision is relevant for all individuals, like voting decisions, and (ii) decisions where the individual decision is irrelevant for the individual himself/herself, but is highly relevant for other individuals, such as judicial decisions. For such decisions, soft incentives like those provided by moral rules can have a much stronger impact than (economic) hard incentives. As in a liberal and democratic society such low-cost decisions cannot be avoided, it is therefore important for the second type of decisions to select the decision-makers cautiously.

Tax harmonization and tax competition in the European Union: Lessons from Switzerland

Abstract This paper presents empirical evidence on individual income tax competition in Switzerland. Tax competition has some influence on the spread of people with high income over the cantons, and it is partly capitalised in dwelling rents. However, it neither leads to a collapse of public good supply nor makes redistribution by the fiscal authorities impossible. Thus, if tax competition works well in Switzerland there is no reason why it should have disastrous effects in a future European Union.

On the Political Economy of Environmental Policy

In the past there was hardly any use of economic instrumentsin environmental policy, mainly command and control measureswere used. More recently, ecological taxes as well as tradablepermits became more popular and voluntary agreements have beenimplemented. Using the Public Choice approach we ask for thereasons of this wider acceptance of economic instruments. Weconclude that the use of market based instruments inenvironmental policy has not increased very much and theirimpact on the actual situation is still rather low, but thereis hope of a at least some increase in the future.

Direct democracy, political culture, and the outcome of economic policy: a report on the Swiss experience

Political culture in Switzerland is, to a large extent, influenced by its direct democracy. Compared to purely representative systems, direct democracy leads to a different type of communication among citizens and also between citizens and representatives. The opportunity of deciding for themselves on political issues provides citizens with incentives to collect more information. Because citizens are better informed, politicians have less leeway to pursue their personal interests. As a consequence, public expenditure and public debt are lower when citizens enjoy direct democratic rights. Citizens also feel more responsible for their community: tax evasion is lower in direct than in representative democratic systems.

Income Tax Competition at the State and Local Level in Switzerland

Tax competition is supposed to lead to inefficiencies in the provision of public goods and difficulties for decentralized redistribution. A necessary condition for these effects to occur is that residence and location decisions are determined by fiscal considerations. In this paper, the impact of personal income taxes and transfer payments on residence decisions of taxpayers is analyzed using cross sectional data on the distribution of different groups of taxpayers in different income groups among the 26 Swiss cantons and the 137 largest Swiss cities. We find that tax competition with respect to personal income taxes is relatively strong in Switzerland.

The Effect of Direct Democracy on Income Redistribution: Evidence for Switzerland

There is an intensive dispute in political economics about the impact of institutions on income redistribution. While the main focus is on comparison between different forms of representative democracy, the influence of direct democracy on redistribution has attracted much less attention. According to theoretical arguments and previous empirical results, government policies of income redistribution are expected to be more in line with median voter preferences in direct than in representative democracies. In this paper, we find that institutions of direct democracy are associated with lower public spending and revenue, particularly lower welfare spending and broad-based income and property (wealth) tax revenue. Moreover, we estimate a model which explains the determinants of redistribution using panel data provided by the Swiss Federal Tax Office from 1981 to 1997 and a cross section of (representative) individual data from 1992. While our results indicate that less public funds are used to redistribute income and actual redistribution is lower, inequality is not reduced to a lesser extent in direct than in representative democracies for a given initial income distribution. This finding might well indicate the presence of efficiency gains in redistribution policies.

Autoregressive Conditional Heteroscedasticity

All models discussed so far use the conditional expectation to describe the mean development of one or more time series. The optimal forecast, in the sense that the variance of the forecast errors will be minimised, is given by the conditional mean of the underlying model. Here, it is assumed that the residuals are not only uncorrelated but also homoscedastic, i.e. that the unexplained fluctuations have no dependencies in the second moments. However, BENOIT MANDELBROT (1963) already showed that financial market data have more outliers than would be compatible with the (usually assumed) normal distribution and that there are ‘volatility clusters’: small (large) shocks are again followed by small (large) shocks. This may lead to ‘leptokurtic distributions‘, which – as compared to a normal distribution – exhibit more mass at the centre and at the tails of the distribution. This results in ‘excess kurtosis’, i.e. the values of the kurtosis are above three.

Symmetric or asymmetric price adjustments in the oil market: An empirical analysis of the relations between international and domestic prices in the Federal Republic of Germany, 1972–1989

Abstract This paper investigates how German consumer and wholesale prices for gasoline and light heating oil react to changes in the corresponding Rotterdam prices. Monthly data from 1972 to 1989 are employed, and the subperiods of the 1970s (1972 to 1979) and 1980s (1980–1989) are distinguished. Error correction models are estimated to seperate long-run equilibrium relations and short-run adjustment processes. For the 1980s, we find rapid, symmetric and full adjustment of the German prices to the Rotterdam prices, whereas during the 1970s we find some asymmetries, and at least for gasoline the adjustment processes took considerably more time.

The Impact of Corporate and Personal Income Taxes on the Location of Firms and on Employment: Some Panel Evidence for the Swiss Cantons

The impact of corporate income taxes on location decisions of firms is widely debated in the tax competition literature. Tax rate differences across jurisdictions may lead to distortions of firms’ investment decisions. Empirical evidence on tax induced relocation and subsequent economic development in the U.S. and Europe is still inconclusive. Much the same applies to Switzerland. While there is some evidence on personal income tax competition between Swiss cantons, evidence on the impact of intercantonal corporate income tax differences on the location of business within Switzerland is missing. In this paper, we present econometric evidence on the influence of corporate and personal income taxes on the regional distribution of firms in 1981 and 1991 and on cantonal employment using a panel data set of the 26 Swiss cantons from 1985 to 1997. The results show that corporate and personal income taxes deter firms to locate in a canton and subsequently reduce cantonal employment.