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Authors: Pál Czeglédi, Anna Fedyunina, Zoltán Elekes, Judit Kálmán and Magdolna Sass
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In this work, we assess the existence of an S-Curve pattern in 10 Central and Eastern European countries (CEEC-10) for the relation between the trade balance and the terms of trade. Empirical results support the existence of this curve for Slovenia and Hungary. In the case of Bulgaria, the Czech Republic, and Slovakia the pattern is weaker, but it still prevails, as is the case for an aggregate of the 10 transition countries. We then document this property of business cycles in the dynamic general equilibrium trade model of Backus et al. (1994), calibrated specifically to match the CEEC-10 aggregate economy. Results support the existence of an S-Curve, except when technology shocks are absent and domestic and imported goods are perfect substitutes. Since technological shocks are determinant in explaining the S-Curve pattern and transition countries seem to be experiencing some type of technological shocks, it is not likely that this pattern will fade away in the near future and hence it is important for economic policy to be aware of this phenomenon and its consequences for these countries in terms of real convergence and the timing of euro adoption.

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The kindergarten attendance allowance in Hungary

Evaluation of a conditional cash transfer program

Authors: Gábor Kertesi and Gábor Kézdi

This paper evaluates the kindergarten attendance allowance program in Hungary, a conditional cash transfer (CCT) program introduced in 2009 that aimed to increase kindergarten enrolment of disadvantaged children aged 3 and 4. The administration of the program was decentralised, and we make use of the substantial regional variation in program take-up across municipalities to estimate the program’s effect on enrolment rates. We show modest, but non-negligible effects, despite problems related to the manner of the program’s implementation. We also show that the effects were significantly stronger in areas characterised by an excess supply of kindergarten slots. The results testify to the potential of CCT programs to create demand for child-care services among disadvantaged families; however, the results also highlight the importance of creating an adequate supply of kindergarten facilities where needed.

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This article demonstrates the idiosyncrasies of the Hungarian public educational system (primary, secondary and adult education) through regional and global comparisons. The main sources for comparison are data from the OECD and Eurostat as well as empirical research in Hungary. The research focused on educational attainment and the structure of the educational system, inequalities within the Hungarian educational system, educational attainment and employment, teacher salaries and teacher selection policy issues. The article proved that Hungary’s public education system is the most unequal among the OECD countries, the structures of the secondary programs are biased, employment is relatively low, the rate of adult education is among the lowest, and the quality of teachers is below average because of counter-selection processes. Most of these problems can be traced to the lack of resources and the processes generated by demographic and social changes that have not been followed by adequate policy changes. The study deals with the educational disadvantages for Roma children as well. While this phenomenon affects Europe as a whole, it affects Hungary to a much greater extent.

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This paper explores the relationship between gold prices and the US dollar/Turkish lira exchange rate between 1990–2011 by using cointegration and Granger causality analyses. The empirical findings indicate that there is a threshold cointegration relationship between the two variables. The threshold value obtained from the estimation of threshold vector error correction model equals −3.268. The Granger test indicates that there is evidence of a bi-directional causal relationship between gold prices and the exchange rate, except when the threshold parameter exceeds the threshold value in the exchange rate equation. According to these findings, gold price can be used as a hedge against the exchange rate. However, since this relationship disappears above the threshold value, gold is only a weak hedge against exchange rate fluctuations.

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This study investigates the impact of the selected financial development proxies and foreign direct investment (FDI) on the growth in the case of Turkey, using annual data for the 1960–2011 period. The second-generation econometric procedure has been applied for the first time to the Turkish data with this respect. Unit root tests by Carrion-i-Silvestre et al. (2009) assume that real income, financial development proxies, and FDI are non-stationary at levels, but become stationary at first differences through multiple structural breaks. Cointegration results by Maki (2012) confirm the existence of a long-term equilibrium relationship between real income growth, financial development, and FDI, again through multiple structural breaks. Finally, this paper confirms that financial development and FDI are long-term drivers of real income, which enable it to react to its long-term path significantly.

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Authors: Henrik Gucz and Szabolcs Pásztor
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The crisis of 2008–2009 has ended, stockmarkets skyrocketed in 2012–2013, while growth of the real sector remained sluggish in Europe. This article attempts to explain the latter puzzle. Analyzing long term factors, the costs of short-termism in crisis management become obvious. The limitations of EU as a growth engine are highlighted.

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This paper was originally published as a chapter in the author’s recent book Europe since 1980 (Cambridge University Press, 2010). The book tells the dramatic story of the economic, social, political, and cultural transformation of Europe during the transition from the Cold War to the European Union. The author charts the overwhelming impact of the collapse of communism on every aspect of European life. Europe became safer and more united, and Central and Eastern Europe started on the difficult road to economic modernization. However, the western half of Europe also changed. European integration gained momentum. The single market and the common currency were introduced, and the Union enlarged from nine to twenty-seven countries. This period also saw a revolution in information and communication technology, the increasing impact of globalization and the radical restructuring of the political system. The book explores the impact of all of these changes as well as the new challenges posed by the economic crisis of 2008–9 and asks which way now for Europe?

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One of the most dramatic economic transformations in modern times has been the entry of women into the labor force. The purpose of this study is to address issues related to interactions among gender differences, economic growth and education with endogenous physical and human capital accumulation. Our model is a synthesis of the Solow model (Solow 1956) and the Uzawa-Lucas two-sector growth model (Uzawa 1965; Lucas 1988) with Zhang’s approach to household behavior (Zhang 1993). It adds gender issues to the traditional models. We examine behavior of the economy by simulation. We demonstrate the existence of equilibrium points and plot the motion of the dynamic system. We also examine the effects of changes on the time distributions and human capital of man and woman in the propensity to receive education, the efficiency of learning, the efficiency of education, and the propensity to save upon dynamic paths of the system.

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Authors: Marlena Dzikowska, Marian Gorynia, Barbara Jankowska and Maciej Pietrzykowski

The potential accession to the euro zone is a very current issue for Poland. Its importance is increased by the consequences of the recent economic crisis that can be seen in the global economy and particularly in the economies of European Union member states. The paper finds that the analyzed sample of companies is dominated by euro-enthusiasts, who are aware of the opportunities and risks related to “euro-based” operation. Neutralization of the risks associated with entering the euro zone and companies’ ability to take full advantage of it should be supported by thoughtful economic policy actions. The proposed set of recommendations is very extensive, but some are highlighted in details.

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This paper develops a simple model that helps understand an important fact concerning cross-country pattern of growth and institutions shown by BenYishay and Betancourt (2010). They show that civil freedoms, especially one of their components called Autonomy and Individual Rights, are more important determinants of economic development than constraints on executives, a widely used measure in the literature on institutions and growth. The paper provides an interpretation of this fact through the lense of an argument that puts emphasis on three insights. The first is that civil freedoms can be seen as property rights broadly understood. The second is that with a higher scope of property rights enforced, the government must be able to commit to a lower level of expropriation of income. Third, institutions of freedom are sticky: they must be in line with the culture of the country so that they can be enforced with a reasonable cost. By addressing this specific question of constraints on executives versus civil freedoms the paper joins the literature which emphasizes the importance of culture in economic development.

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Authors: Andreea Amarascu, Alena Pálinská and István Magas
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This essay attempts to understand János Kornai’s works from a political economy perspective. It argues that Kornai has significantly contributed to the formation of a new paradigm of political economy. The main endeavor of Kornai has been the combination of analytical concepts of economics with the empirical description of real economies. After a certain period of theoretical experimentation János Kornai formulated his research program that can be called the shortage economy explanation of the socialist system. The Economics of Shortage and The Socialist System have created a new theoretical paradigm in a framework in which it has become possible to establish a connection between the analytical and empirical, universal and historical aspects of the theory studying the socialist system as a real economic entity. János Kornai has built his analysis of the socialist system on the primary role of politics in the creation of economic institutions. In his present work on capitalism he has extended this thesis to the capitalist system. This seems to be an important contribution of his to a new political economy paradigm that is just in the process of formation.

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Amonetary union is classified by several authors as an extreme form of fixed exchange rate arrangement. Analyzing exits from monetary unions is, however, demanding. This paper studies the impact of inflation and interest rate differentials on the nominal exchange rate after leaving a form of peg arrangement and moving to a floating regime, as it may serve as a parallel for a monetary union break-up. The theoretical framework is provided by the theory of the International Fisher Effect. We find that countries with rigid exchange rate policy, less frequently adjusted central parity and narrow exchange rate bands experienced sharp depreciation after the shift, but the depreciation was only temporary. In this group of countries the exchange rate adjustment is weakly exogenous to inflation and interest rate differentials. We apply Johansen’s approach to cointegration, based on the estimation of the Vector Error Correction Model, and the Johansen constraint test of exogeneity. There is strong evidence that long-term depreciation could not be expected in a former euro area country after its possible break-up and that inflation and interest rate would not be the driving forces of exchange rate behavior. Finally, parallels between the local currency adoption within a euro area member state and the leaving of the peg arrangement are pointed out.

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There are many definitions and concepts of competitiveness in the literature. This article focuses on multilevel concepts of a country’s competitiveness, especially the broad concept of the World Economic Forum (WEF). This concept is explained through the example of Japan. The objective of the article is to discuss various concepts of a country’s international competitiveness, as well as to describe and analyse the competitiveness level of the current Japanese economy. The authors try to identify key competitiveness-related issues in the context of the country’s macroeconomic development in the last decade.

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This paper tests new implications of the asymmetric tax competition model on diesel excise taxes. We extend the standard tax competition model by replacing the unit demand assumption with iso-elastic demand. As a result, not only the level of the equilibrium tax, but also the slope of the tax reaction function depends positively on the size of the country. The new implication is tested on panel data in first differences for 16 countries of Western Europe. The results provide strong evidence for strategic interaction in the setting of diesel excises and confirm the effect of country size on the response to tax changes in neighbouring countries. Strategic interaction between EU countries intensified in the mid-1990s and drove small European countries to set lower diesel tax rates. These results explain why the EU’s minimum tax policy has failed to harmonise diesel tax rates.

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Authors: Yanrui Wu, Atul Kohli and Frank Dikötter
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Authors: Zsuzsanna Zsibók, Zoltán Grünhut and Gábor Uhrin
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This paper analyses the distribution of employee earnings in Slovenia in the period 1991–2009. The analysis is based on large samples from the personal income tax (PIT) files. According to the Gini coefficient, increases in earnings inequality were moderate; however, relatively large increases in the shares accruing to the top 5% and top 1% of employees did occur. Inequality of employees’ after-tax earnings (i.e. net of employee social contributions and PIT) remained fairly stable in this time period, due to the increasing progressivity of PIT, as shown by the Kakwani index of progressivity. Increases in progressivity of the personal income tax came in leaps, following the introduction of new income tax legislation. Institutional settings and the introduction of minimum wage legislation in 1995 also appear to havemoderated inequality increases, which were quite large in the early years of the transition.

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This paper reviews the issue of population size (scale effects) in idea-based growth models. It addresses both weak and strong scale effects and incorporates the related distinctive features of the three strata of idea-based growth models. The paper also comments on third-generation models, emphasising their fragile framework due to the limited range of R&D spillover space they can accommodate. It is argued that because of the shortcomings of the third-generation models, a precise mapping of the relationship between population size and economic growth requires further research.

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We tested the hypothesis of the political basis for economic rights and constructed our own variables of political regimes’ classification for the years 1820–2000. We found significant positive interdependencies between democracy indicators and economic growth. The protection of private property rights requires, first and foremost, due guarantees for personal immunity. Discretionary arrests and property seizures undermine any formal guarantees of private property, low taxation benefits, etc. Personal immunity should be defended even for “unpleasant” persons or for the possible political opponents of the country’s ruler.

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The long-term relationship between population and economic development is an important research topic in development economics. However, after several decades of research, no consensus has been reached as to whether the relationship is positive or negative. This paper chose Indonesia as a case study and employed both a linear cointegration test and a nonlinear cointegration test to examine the relationship between population and income. The tests detected a long-run equilibrium relationship between population and real per capita income in Indonesia. Also, the causality test indicated that there existed a unidirectional causality from Indonesia’s population expansion to the country’s economic growth, but not vice versa. These results indicate a population-driven economic development in Indonesia. In other words, Indonesia could represent a textbook case of population-induced development where a rapid population growth stimulates economic development.

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In this paper, I examine the Hungarian government bond market’s liquidity developments in recent years. First, I explain the importance of market liquidity for central bankers. I identify the most significant economic shocks and their impacts on the market by using various market indicators. The changes in the Hungarian pension system strongly affected the ownership structure of the government bond market, and raised the amount held by non-residents. A simple yield decomposition shows that while during the crisis of 2008–2009, the Hungarian sovereign bond yields were enhanced principally by the increase of the credit and liquidity risk premia, the crisis of 2011–2012 might increase credit risk premium, but increase liquidity risk premium less significantly.

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Health technology assessment (HTA) is a dynamic, rapidly evolving process embracing different types of assessment that inform decisions about the value (i.e., benefits, risks and costs) of new and existing technologies. The role of HTA is to support health policy decision-making and financing in health care. In this paper we describe and analyse the German approach to cost-effectiveness analysis in health care and HTA. Two institutes operate as HTA agencies, namely the German Agency of Health Technology Assessment (DAHTA) and the Institute for Quality and Efficiency in Health Care (IQWiG). The operational principles of IQWiG are somewhat different from the rules governing HTA organizations in other countries. The efficiency frontier approach, applying an indication-specific threshold and neglecting the concept of quality-adjusted life year (QALY) are the most important differences. Previously, health gains were in focus and assessment was based exclusively on such benefits, but in 2010, cost-effectiveness analysis was introduced as an integral part of the HTA process at IQWiG. A brief comparison is also made with the HTA systems in Central-Eastern-European countries, among them concentrating mainly on Hungary.

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The first major global crisis of the 21st century, the increasingly general name of which is the “Great Crisis” (like the descriptive name of Great Depression of 1929), has been an important challenge for practically all the institutions of multilateral cooperation. The crisis has made it clear once again that avoiding the derailment of globalization of trade and finance, and protecting the globe from fragmentation call for enhanced global cooperation and an efficient, flexible and coherent system of global governance.

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Authors: Adrian Fanaca, Joseph Larsen and Andrea Nagy
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Authors: Huseyin Karaoguz and Xuanbo Dong
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Authors: Gergő Merész, Bertalan Németh and Balázs Sinkovits
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This study investigates the determinants of Turkish households’ saving and portfolio choice behaviour for the period of 2002–2006. The dataset includes 59,855 households, of whom only 10,829 report to have saved and invested. Hence, we first estimate a logit model to identify the characteristics of the households that have saved. Next, we estimate a multinomial logit model where the investment alternatives for the households are real estate, gold, foreign exchange, bank accounts, capital market investments, and investing into own business. The factors affecting the portfolio choices are the variables representing various aspects of households’ demographic, socioeconomic and residential location characteristics. The inflation level nearly doubled during the study period in Turkey. Hence, we also analyse the effects of inflation on households’ saving and portfolio choice decisions. The results of our logit model support the view that the inflation can increase the household savings on condition that the other macroeconomic factors are constant. Furthermore, inflation is also found to increase the probability of investing in capital market instruments. Households’ incomes, education levels, occupation, place of residence (rural/urban), car ownership and household size are found to be significant variables in explaining the variation in households’ saving and portfolio choice behaviour.

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Keynesian policy was quite successful in the post-war decades in Western Europe, but by the late 1960s lost its efficiency due to changes in conditions rather than its mistaken logic. The lesson from the first global crisis erupting in early 1970s and also from the subsequent several crises since then is that the increasing crisis propensity of the world economy is rooted in its inherent disequilibria stemming from deep inequalities, asymmetrical interdependencies and disintegrated socio-economic structures. In view of the failure of the prevailing methods of crisis management, particularly those undifferentiated, antisocial austerity measures corresponding to a neo-liberal monetarist concept which neglects this lesson, many economists prefer the Keynesian recipe. However, since global crises need global solution, and the spread of conspicuous consumption modify the demand constraint, its application must be adjusted to reality, and requires some global governance which may pave the way for a global oeco-social market economy.

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Anti-Equilibrium (1971) was well ahead of its time in emphasising that (i) economics should draw from biology, rather than physics, as its methodological underpinning; (ii) evolutionary logic requires a different type of decision-making in simple, routine matters, as opposed to large and important decisions; (iii) the most important production processes are non-linear, with increasing returns to scale being the rule, rather than the exception in modern capitalist economies and — in conclusion — that there is no such thing as general equilibrium. In modern societies, goods and services are either in shortage (Socialism) or in a state of oversupply (Capitalism). It is either a buyers’ market or sellers’ market.

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Co-operative banks are widely seen as sustainable alternatives to profit-driven banking. However, while most banks struggle to meet the stringent capital requirements of regulators, co-operative banks are in particular need of cautious capital-related decisions given their little ability to accommodate profit-driven equity investors. In fact, co-operative banks’ single greatest source of capital is their annual surplus.This paper first highlights that capital protection rules related to Hungarian co-operative banks are more liberal than those of other European co-operatives. This is followed by an analysis of Hungarian co-operative banks’ decisions on the distribution of annual surplus among their members. In doing so, the annual reports of 99 co-operative banks representing 73% of all Hungarian co-operatives are used, complemented with confidential data on the ownership structure of each co-operative.The study shows that a co-operative with a low number of members and a high amount of average subscribed capital per member is likely to distribute high dividends. This phenomenon is explained by the different nature of co-operatives according to the number of members. This result not only sends an alarming message to policy makers in Hungary and possibly elsewhere, but also contributes to the peculiarities of co-operative corporate governance.

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The analysis of household foreign currency (FX) lending begins with a short review of the theoretical and empirical literature. I investigate the factors that have helped or hindered such lending, particularly in Central and Eastern Europe. The study goes on to look at the experiences in Poland, Romania and Hungary. The choice is based on the fact that all three countries operate a flexible exchange rate regime and that household FX lending is prevalent in all of them. The analysis of each country touches upon the factors that have contributed to the local development of FX borrowing. However, the study focuses on the regulatory measures taken to curb such lending. The study concludes with a review and critical assessment of the policies that have been adopted with an eye to solving social and economic difficulties arising from FX indebtedness.

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This essay argues that there are (at least) three paradigms of governance and especially public administration: Chinese, Western, and Islamic — paradigms understood here as potentiality and theory rather than reality and practice as observed today. It then discusses classical Chinese, i.e. Confucian, and Islamic, specifically Ottoman, public administration, from this perspective. The guiding question is whether we arrive more easily at good public administration if we realize that there are different contexts and thus, potentially at least, different ways thither, as well as legitimately different goals.

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The catching-up of the banking sector in South-Eastern Europe

A fragile development model dominated by credit growth

Author: Eszter Kazinczy

The paper reviews the commercial banking sector’s development during the booming years before the current global crisis in Southeast Europe. Based on the analysis of a comprehensive dataset, a common, simplified economic model could be outlined for this period, where GDP growth has been fuelled by rapid credit growth. The latter was boosted both by foreign funding and swift deposit growth volumes. Nevertheless, beside the favourable catch-up process, the level of external imbalances, credit growth and currency mismatches raised sustainability concerns and the risk of overheating.

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The Visegrad Countries (VC)2 joined the European Union in 2004, which has offered several possibilities and challenges for their agriculture. The aim of the paper is to evaluate the status of the sector in the light of latest available data as well as to identify the factors lying behind different country performances. Results suggest that EU accession has had a diverse impact on the Visegrad Countries’ agriculture and member states capitalised their possibilities in a different manner, due to initial conditions and pre- and post-accession policies.

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The role played by the state is one of the most important problems facing economic science. Apart from its role as welfare provider, the state is inevitably confronted by the shared cultural values of its citizens. This paper evaluates the role of culture in explaining the differences in the tax revenues as percentage of GDP on a cross-sectional dataset from 41 countries. The results suggest that the association between shared cultural values, on the one side, and tax revenues as a percentage of GDP, on the other side, proves to be statistically significant. Our results indicate that it is important to take culture into account when designing optimal economic policies and planning the increase of tax revenues.

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Authors: Martina Dupáková, Anna Burger and Ágnes Hidi
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Authors: Ádám Kerényi and Andrea Tönkő
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Authors: Liliana Feleagă, Niculae Feleagă, Voicu Dragomir and Luciana Râbu

The aim of this research is to examine the degree to which different categories of intellectual capital are disclosed in the annual reports of a sample of large European companies. The sample comprises 18 companies included in the STOXX® Europe TMI Software & Computer Services Index, from six countries. Keeping with the previous literature, the present study has analysed the disclosed items of intellectual capital outside the financial reports of these entities; this methodological choice assumes that disclosure outside the requirements of accounting standards shows the true commitment of managers in the creation and development of intellectual capital. Therefore, we have collected the cross-sectional raw data from the management review section of selected annual reports for one fiscal year. We have used relevant methodologies from the earlier literature for the content analysis of intellectual capital disclosures. The elements disclosed in narrative form were coded as binary variables on an index scale, and several frequencies and charts are included in the discussion section. Frequencies found are only poorly comparable with the results of previous studies.

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The advent of service-dominant logic has led to increasing attention being given to value experienced by customers in the marketing literature. Customers’ shopping value is multidimensional and consists of two dimensions, namely utilitarian value and hedonic value. The main objective of this study was to determine whether selected constructs impact on value and whether value impacts on loyalty amongst customers of a firm operating in the South African supermarket industry. The findings indicate that satisfaction has the strongest relationship with utilitarian value, which, in turn, has a strong relationship with customer loyalty. More loyalty will not result from an increase in the hedonic value that a supermarket customer experiences, regardless of an enhanced shopping experience.

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There is a considerable discrepancy between official rhetoric and reality in the Hungarian higher education system. Based on a series of personal interviews conducted with the actors of Hungarian higher education, this article offers an analysis of the positions and strategies of the key players. Using the Matrix of Alliances and Conflicts: Tactics, Objectives and Recommendations (MACTOR) method, the actors of the higher education system are analysed in terms of direct and indirect reciprocal influences, and their positions with regard to a generic set of possible objectives. It is argued that there is an urgent need for concentrating resources and for re-defining the higher education strategy based on the long-term demands of a globalising world.

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We test the Global Engagement (GE) hypothesis according to which the most globally engaged firms, whether multinationals or exporters, are the most innovative. The test is applied to data from 4815 Portuguese firms for the period 2002–2004 based on the 4th Community Innovation Survey for Portugal. We estimated several Knowledge Production Functions, assuming that knowledge outputs result from the combination of certain knowledge inputs with the flow of ideas coming from the existing stock of knowledge. We found that the more internationally engaged firms create more knowledge output than their domestic counterparts; indeed, the more globalised firms apply more inputs and have the opportunity to use a larger stock of knowledge. Nevertheless, the relative perceived advantage of the more internationally exposed firms is also the result of their globalised nature, and is not directly connected with knowledge inputs or information flows.

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In our study we rely on a data mining procedure known as support vector machine (SVM) on the database of the first Hungarian bankruptcy model. The models constructed are then contrasted with the results of earlier bankruptcy models with the use of classification accuracy and the area under the ROC curve. In using the SVM technique, in addition to conventional kernel functions, we also examine the possibilities of applying the ANOVA kernel function and take a detailed look at data preparation tasks recommended in using the SVM method (handling of outliers). The results of the models assembled suggest that a significant improvement of classification accuracy can be achieved on the database of the first Hungarian bankruptcy model when using the SVM method as opposed to neural networks.

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Authors: István Benczes and Bastian Becker
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Doctor Honoris Causa

Professor Niek Klazinga

Author: László Trautmann
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The primary intent of this paper is to statistically test whether Buddhist countries tend to contribute to global warming mitigation in comparison with other religious groups of countries. A sample of 160 countries were classified into seven groups coded as ‘Buddhist’, ‘Hindu’, ‘Muslim’, ‘Catholic’, ‘Protestant’, ‘Christian mixed’ and ‘None of the above’. This study modelled the religious heritage of a nation into the IPAT equation (Environmental Impact = Population × Affluence × Technology), religion being as a cultural proxy of the technology factor. ‘Buddhist’ countries were found likely to emit lower CO2 compared with ‘Protestant’ and ‘Christian mixed’ countries, although likely to emit higher CO2 compared than ‘Hindu’, ‘Muslim’ and ‘Catholic’ countries, all other factors being held equal. The relatively low group effect of ‘Buddhist’ countries on CO2 emissions can be interpreted to support the argument that teaching Buddhist economics and ecology could be a useful ingredient to curb ever-increasing global CO2 emissions. Thus, further study is warranted as to how teachings from Buddhism can translate into lower CO2 emissions.

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This essay attempts to go beyond presenting the bits and pieces of still ongoing crisis management in the EU. Instead it attempts at finding the ‘red thread’ behind a series of politically improvised decisions. Our fundamental research question asks whether basic economic lessons learned in the 1970s are still valid. Namely, that a crises emanating from either structural or regulatory weaknesses cannot and should not be remedied by demand management. Our second research question is the following: Can lacking internal commitment and conviction in any member state be replaced or substituted by external pressure or formalized procedures and sanctions? Under those angles we analyze the project on establishing a fiscal and banking union in the EU, as approved by the Council in December 2012.

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Authors: Natalya Turkina and Jenna Althoff
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In the aftermath of the Lehman Brothers collapse, Germany’s insistence that each country was to defend its banking system on its own rather than by the European Union acting jointly, is what triggered the euro crisis. This made it inevitable that the weakest countries with the least healthy public finances would sooner or later come under attack. It is argued that the root of the crisis is not excessive sovereign debt but the deficient construction of the euro and, more specifically, the absence of a common treasury. The main lessons of the crisis are briefly presented, and a less evident lesson, at least for economists, is discussed at length. This is that national pride and prejudice can influence the unfolding of events in uncertain and dangerous ways that do not make rational sense. In the concluding sections, the present state of the crisis and the future prospects for Europe are examined and, finally, Greece’s future is assessed in the light of this analysis.

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This paper starts with some definitions and concepts to clarify what we have in mind when we talk about economic institutions and the political economy of transition. Much discussion of the area is characterised by ambiguity and confusion, and while there are many partial theories of institutions covering specific cases, we still lack an all encompassing theory. The institutions important for transition are introduced next, this discussion helping to make clear the critical distinction between institutions per se, and the concrete organisational and legal forms through which they are implemented in particular country settings. For those transition economies that have already joined, or wish to join the EU, this includes some remarks on the acquis communautaire. Some empirical evidence on the role of institutions in facilitating transition and fostering post-socialist economic growth is then reviewed, finding support for the rule of law, secure property rights (ownership and business contracts) and liberal trade. As an aside to the main argument, a brief account of possible directions of institutional reform in North Korea is presented. Finally, the concluding section outlines what transition has taught us about the roles of institutions in economic life, and highlights some important unsettled issues, including the problem of embedding new institutions in different cultural settings.

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Authors: Janina Jóźwiak and Sándor Kerekes
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This paper examines the effects of company income taxation. Therefore, a tax system is implemented in a dynamic, stochastic macroeconomic model with endogenous financial structure. In addition to the long-term level effects that are in line with the deterministic public economics literature, cyclical effects are identified. Besides insurance incidences, company income taxation implies amplifying effects. Depending on the model’s frictions, the latter can dominate and lead to more volatile business cycles.

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The Hungarian biodiversity governance setting changed with Hungary’s accession to the EU: an additional supranational level brought new interaction opportunities for ENGOs. Based on the concept of multi-level governance, this paper analyses what kind of interactions Hungarian nature conservation NGOs have with state and non-state actors across different governance levels. The implementation of Natura 2000, as a flagship of EU nature conservation, was chosen to investigate the role of ENGOs in nature conservation policy making. The research reported here applied qualitative research techniques combining semi-structured expert interviews with document analysis. At the national level, Hungarian ENGOs cooperated effectively with each other and state nature conservation bodies. New channels for information flow and knowledge transfer were opened and have been actively used by Hungarian ENGOs via European umbrella organisations and through directly contacting EU institutions. Although ENGOs gained some links to the agricultural policy sector, a constructive cooperation with these actors could not be established. As the national ENGOs focused on international and national level interactions, they relatively neglected exchanges with local ENGOs. So when the authorities of the agricultural sector and local farmers became crucial for a successful implementation of Natura 2000, ENGOs had only few contacts to cooperate with.

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The relationship of managerial bonuses and profit maximization is interesting both from an economic and a managerial viewpoint. Our contribution to this literature is showing that progressive managerial bonuses can increase profits in a spatial Bertrand competition, and furthermore they can help collusion.

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The aim of this paper is to build the stated preference method into the social discount rate methodology. The first part of the paper presents the results of a survey about stated time preferences through pair-choice decision situations for various topics and time horizons. It is assumed that stated time preferences differ from calculated time preferences and that the extent of stated rates depends on the time period, and on how much respondents are financially and emotionally involved in the transactions. A significant question remains: how can the gap between the calculation and the results of surveys be resolved, and how can the real time preferences of individuals be interpreted using a social time preference rate. The second part of the paper estimates the social time preference rate for Hungary using the results of the survey, while paying special attention to the pure time preference component. The results suggest that the current method of calculation of the pure time preference rate does not reflect the real attitudes of individuals towards future generations.

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