The central and eastern European states that joined the EU on 1 May 2004 have corporation taxes that are mostly far below the level of the EU-15 countries. Consequently, Germany and France requested the EU Commission to unify the assessment principle for corporation taxation and to set minimum tax rates for Europe that the individual member states cannot fall below. Ralph Brügelmann, Institute of the German Economy in Cologne, argues against such a harmonisation and proposes that existing tax constraints be eliminated by way of the bilateral negotiations. Prof. Otto H. Jacobs, University of Mannheim, identifies the necessity of corporation tax reform in Germany. And Prof. Alfons J. Weichenrieder, University of Frankfurt am Main, underscores that to enable European co-operation in the taxation of enterprise profits, due respect must be paid to national tax autonomy.
Anita Kaltschütz
The EU eastern enlargement of 1 May 2004 has intensified tax competition considerably because of the lower tax rates of some of the new member states. Under these changed conditions the German tax reform of 2000 will not suffice to preserve the attractiveness of Germany as an investment location in light of the tax-induced capital migration. Major tax reform will be inevitable. This reform should further lower the tax burden on earned income, streamline taxation law, broaden the assessment base by reducing distorting subsidies and limit the tax-induced capital migration to the new EU countries. This article examines various reform proposals on income tax, including the immediate-action program of the CDU and CSU, the reform proposition of Paul Kirchhof, the proposal of Joachim Lang, the second tax reform option of the Council of Economic Experts and the Ifo proposal of Hans-Werner Sinn.
Josef Lachner
After a two-year slump, wholesale trade expanded again in 2003; year-on-year turnover growth was 1.2%. Total turnover, excluding VAT, amounted to €573 billion. Growth in the wholesaling of producer goods increased by 1.8% whereas the growth in the wholesale trade of consumer goods was only 0.5%. For 2004 the Ifo Institute expects an accelerated turnover increase in wholesale trade in producer goods. Already in the first quarter of 2004 the firms had a year-on-year turnover increase of 4% de to increased investment in plant and equipment. Some wholesale sectors reported double-digit growth. In the wholesale trade of consumer goods the picture was completely different. In the first quarter of 2004 turnover declined by 0.2% compared to the first quarter of 2003. Because of the only moderate recovery of private consumption and the on-going structural change in retailing, the Ifo Institute expects stagnating turnover at best in 2004.
Volker Russig and André Scharmanski
Faced with generally lower and falling rates of inflation as well as disappointing growth expectations, a discussion arose last year in Europe about the risks of deflation. In this connection housing prices also became the focus of public interest, with talk of the danger of massive price declines on the German and/or European housing markets and the risk of deflation. Based on calculations of the Ifo Institute, there was no massive decline in housing prices, but price declines differed strongly according to sectors and regions. In some countries there were indeed price declines, but these had no impact on deflation risks in the housing sector.
Gernot Nerb and Anna Stangl
According to the results of the 84th Ifo World Economic Survey, the indicator for the world economy climate stabilised in April 2004 at a high level. Unlike the results in January 2004, this time only the judgements of the current economic situation improved; the appraisals concerning the expectations for the next six months were somewhat less optimistic. Nevertheless, a strong growth of 3.4% is expected for this year worldwide.
Oscar-Erich Kuntze
In 2003 the Netherlands had its first recession in two decades. Real gross domestic product decreased by 0.8%. The situation on the labour market deteriorated clearly, the unemployment rate increased to 3.8% for the year. Inflation stood at 2.2%. In 2004 real GDP will increase by around 1%. The unemployment rate will stand at 5½% for the year, and consumer prices could exceed the previous-year level by 1½%. In 2005 GDP will expand by 1¾%. The unemployment rate will increase to 6%, and inflation will stand at 1½%.
Frank Westermann
Government expenditures and tax revenue do not only have a direct impact, but they also cause a multiplier effect. The increase of earnings leads to an expansion of private consumption, and thus to a further increase in demand and a renewed increase in production, and so forth. For this reason, the effect of fiscal policy exceeds the value 1. For Germany the size of the multiplier effect can be estimated by means of data for the last 40 years of government expenditures and tax revenue. An increase of spending of one euro leads to a positive GDP effect of €1.37. A lowering of tax revenue has an impact after approximately a one year lag and has a positive effect of €1.62.
Hans G. Russ
The business climate in German trade and industry clouded over slightly in May, as the current business conditions were assessed a little more unfavourably after the strong improvement in April. The business expectations stabilised after a three-month upswing. The decline in the climate indicator for eastern and western Germany is basically due to the unfavourable development in the new states, whereas in western Germany slight improvement tendencies were observed..
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