Klaus W. Zimmermann

Interest Groups, Referenda, and the Political Process: On the Efficiency of Direct Democracy

We argue that the institutionalization of direct democratic elements in a constitution will tend to enhance the efficiency of an economy. In a model of direct democracy it is shown that—contrary to the political process in a representative democracy—efficient projects will always be politically accepted and the degree of inefficiency of inefficient projects will be reduced. These effects stem from a more intense competition among small interest groups and the pressure to improve the cost-benefit ratio of a project. Furthermore, ‘contestable decision markets,’ that is the co-existence of direct and indirect forms of democracy, will always work in favor of higher efficiency.

Eine Welt voller Clubs

Abstract The economic theory of clubs can offer eminent contributions to an efficient shaping of processes of integration, especially at the level of the European Union. To determine a welfare maximum in a world full of clubs, the distinction between the within-club point of view and the total economy point of view plays a decisive role. The article tackles this conflict in already existing clubs realizing their optimal size in connection with the principle-agent-problem between club members and club managers. Including the indivisibility problem of individuals and clubs in a more realistic perspective leads to a further problem typical for welfare maximization in a world full of full (i.e. optimally sized) clubs: the situation of those who will not be provided with the club goods. Three possible options taking care of those unprovisioned are distinguished, and it is analyzed how these options affect individual and social net benefit. It is shown that the efficiency of these options decisively depends on the within-club or total economy perspective implying specific principal-agent-problems. Some economic policy conclusions are drawn at the end applying the Frey/Eichenberger-Model of Functional Overlapping Competing Jurisdiction to the European Integration Process.

Politische Glaubwürdigkeit und der Euro: Eine verfassungsökonomische Perspektive

Glaubwurdigkeit ist eine knappe Wahrung: Falls Fukuyama (1995) Recht hat, wenn er die Wohlfahrt von Nationen auf ein besonderes Mas an Vertrauen und gegenseitiger Glaubwurdigkeit zuruckfuhrt, dann sollte jede Regierung darum bemuht sein, glaubwurdig gegenuber ihren Wahlern zu sein. Gerade dieses wechselseitige Vertrauen scheint aber weithin zu erodieren, was sich idealtypisch in der Diskussion um die Durchfuhrung eines Volksentscheids in Deutschland zur Einfuhrung der gemeinsamen europaischen Wahrung (Euro) widerzuspiegeln scheint. Alle etablierten Parteien der politischen Mitte lehnten ein Referendum ab, wohl wissend, das die Mehrheit der deutschen Bevolkerung gegen die Einfuhrung des Euro gestimmt hatte. Dies ist deshalb erstaunlich, weil die grosen Volksparteien ungewohnt einstimmig seine gesamtwirtschaftliche Vorteilhaftigkeit proklamierten. Diese Zusicherung war aber offensichtlich in den Augen des Souverans nicht glaubwurdig: Nach dem ZDF-Politbarometer vom 16.1.1998 waren 71% der Deutschen auf dem Hohepunkt der Debatte gegen den Euro.1

It Takes Two to Tango: Lobbies and the Political Business Cycle

With interest groups significantly affecting economic performance (according to Mancur Olson) and a vital interest of governments in economic growth and low unemployment in order to win elections, there should be a link between political business cycles and the evolution of lobbies over time which has totally been ignored in the literature up to now. In modeling this link in a theoretical and empirical way we try to answer two questions: Is it possible to interpret Olson´s Law of Interest Groups not only as a long run phenomenon but also in a short-run perspective, integrating it into the theory of political business cycles? And: is there any empirical evidence that a typical pattern of lobby behavior and macroeconomic status exists which is consistent over a couple of election periods? In order to investigate these issues, we first analyze some literature that is usually ignored in the more technical contributions evaluating Olson´s law, but proves to be highly important as background for answering the above mentioned questions. We then illustrate how a model consisting of Olson´s interest-groups theory and the endeavors of governments to win the majority of votes in elections could look like, before we perform a time-series-analysis based on the lobby-list of the German Bundestag in order to gain some more insights into the relationships between lobbies, governments and voters. As a result we discover a consistent behavior of the lobbies over the cycle that boils down to some kind of non-aggression pact between the lobbies and the governments irrespective of their political alignments.

Adolph Wagner und sein „Gesetz": Einige späte Anmerkungen

Abstract Starting from the secular fact of an increasing government′s share, a retrospective on Adolph Wagner’s writings seems worthwhile. A leading German economist of the Bismarck era, he first formulated the famous law of increasing state activity for industrializing nations. After analyzing his way of making his case, a couple of flaws inherent to the theoretical interpretations and empirical verifications of his law are discussed. Basically, these flaws are attributable to the neglect of three important factors in Wagner’s rationale, namely that his law was destined for industrializing rather than industrialized nations and the growing importance of public enterprises and of the prevention principle instead of repressive actions of the state in case of violation of rules. On the other hand, very modern interpretations of Wagner suggesting that he had the growing excess burden of taxation in mind when discussing the limits of government’s share do not seem justified.

The double dividend: Miracle or fata morgana?

The discussion on an ecological tax reform has as a central element the idea of a double dividend: to get a better environment, a better tax system with less distortions, and therefore more growth and employment with the one and same stroke. Is it a miracle or fata morgana? In Germany, this discussion came to a halt when the countrys comparative disadvantages within the globalization process became painfully apparent and the political emphasis shifted towards (still unsuccessful) attempts to social and structural reforms. The article sheds some light on problems which presumably would have occurred if the strategy of the double dividend had been implemented – or which could occur in the future if the occasion arises. It is shown that technical progress could lead to abrupt losses in tax revenues and provoke counter-strategies in the political sector to secure the economic dividend, which are analyzed from welfare economic and political economic perspectives. The findings are that, due to political self-interest, only low tax solutions (in the inelastic part of the marginal abatement cost curve) would be chosen, which implies that the double dividend strategy does not seem to be a politically feasible route to reach strict environmental goals. It is further shown that these tax rates would be near to the maximum revenue rate, and that this would also be the dominant strategy for all politicians irrespective of their individual value-orientation. The conclusion is that theoretically a double dividend policy will be far from a miracle and that the political approach to it will presumably turn it into a fata morgana.

Fairness and its Price

Abstract We discuss the economic aspects of fairness defined here in the benchmark case as equality of producer and consumer rents. We show that there are significant differences considering private and public goods, especially with regard to a potential self-damaging of the initially disadvantaged, resulting from the implementation of the equality-rule. Furthermore, the potential welfare loss to society will be substantially larger in the field of public rather than of private goods.

Trade unionists in parliament and macroeconomic performance: Evidence from Germany

This article focuses on the role of unionised members of parliament. While unions have a direct effect on the labour market via wage negotiations, they often also take part in political debates. In many countries, significant shares of the members of parliament are also members of a trade union. However, up to now little empirical evidence is available on the extent to which unionised members of parliament try to achieve union-specific goals and thereby influence the macroeconomic conditions of an economy. A recent study for Germany comes to the conclusion that union members in the Bundestag cannot be seen as the parliamentary arm of the trade unions. However, we present contradicting empirical results by showing that, in Germany at least, the degree of unionisation of parliamentary members has a negative impact on economic growth and increases inflation, while unemployment remains unaffected.