CESifo Economic Studies - recent issues

Towards Evidence-based Reform of European Universities

van der Ploeg, F., Veugelers, R. — 2008-06-13

After the Bologna agreement and the Lisbon Agenda, reform of European university systems has been higher on the political agenda. This is necessary, since most European universities have been suffering from stifling blankets of government regulation, having to make do with much less funds than their North-American counterparts and do not appear high on the various rankings of top universities in the world. Furthermore, the booming economies of China and India will nurture and boost world-class universities in the coming decades. Also, universities are essential in their links to business and society to make the European economy more innovative and competitive, especially as European industries approach the world technology frontier. We argue on the basis of the stylized facts that foremost European universities need more autonomy to select students, reward staff, design new programmes, attract more funds and compete better in an increasingly tough environment. Although the general principles of the policy reform agenda are clear, the details are not. The link between governance, funding and performance is not obvious and needs still further data and research. We conclude that reform of European universities should much more be based on the best available empirical analysis. (JEL code: I23)

What are the Factors of Success at University? A Case Study in Belgium

Arias Ortiz, E., Dehon, C. — 2008-06-13

By using a unique data set containing the entire newly enrolled student population at the University of Brussels, this case study aims to be the first complete analysis of the determinants that influence the student's; path at university in Belgium. We analyse the probability of succeeding the first year at university in Brussels taking into account individual characteristics, prior schooling and socioeconomic background. Our results show that the socioeconomic background of the student influence success in a significant way. More specifically, the mother's; level of education and the father's; occupational activity seem to predominate. We observe also a difference in performance between students coming from different high school programs. Indeed, students coming from one of the two high school systems existing in Belgium's; French Community ("traditionnel" and "rénové"), present non-homogenous results at the end of their first year. In addition and in contrast with some of the literature findings, Belgians and foreigners have the same first year performances if we take into account their socioeconomic environment. Moreover, the same results are obtained when we look at European and non-European students. Nevertheless, when we distinguish foreign students with respect to their level of integration, our analysis shows the existence of a "European elite" that comes to Belgium looking for a diploma and that do much better in their first year than Belgian students.

Differential Grading Standards and University Funding: Evidence from Italy

Bagues, M., Labini, M. S., Zinovyeva, N. — 2008-06-13

This article documents that grades vary significantly across Italian public universities and degrees. We provide evidence suggesting that these differences reflect the heterogeneity of grading standards. A straightforward implication of this result is that university funding schemes based on students' academic performance do not necessary favour universities that generate higher value added. We test this for the case of the Italian funds allocation system, which rewards universities according to the number of exams passed by their students. We find that university departments that rank higher according to this indicator actually tend to be significantly worse in terms of their graduates' performance in the labour market. (JEL codes: I2, J31, J64)

Do Institutions Matter for University Cost Efficiency? Evidence from Germany

Kempkes, G., Pohl, C. — 2008-06-13

Efficiency analyses on higher education institutions have so far primarily focussed on the identification of inefficiency and less on the explanation of differences in efficiency performance. In this article, we study the impact of institutional factors on the efficiency of 67 publicly financed German universities for the years 1998–2003. We present some evidence that university costs and outputs are correlated with institutional settings such as the management structure of universities or the universities’ staff body. Furthermore, econometric evidence from a single-stage stochastic frontier model (based on a cost function) suggests that universities which are located in states with a comparatively liberal university legal framework are more efficient than those universities operating under more restrictive state regulation. (JEL codes: l28, L32, H72)

Regulation of Program Supply in Higher Education: Lessons from a Funding System Reform in Flanders

Kelchtermans, S., Verboven, F. — 2008-06-13

It has become well documented that the performance gap between European and US universities is at least partly due to lower spending on higher education in Europe. Rather than raising the public budget or promoting private contributions, many governments have attempted to make public spending more efficient in various ways. This article reports the results from a proposed funding system reform in Flanders (Belgium), which aimed to save costs by reducing the diversity and duplication of study programs. We draw the following lessons. While reducing program diversity may save on fixed costs, this is typically insufficient to compensate for consumer surplus losses due to low student mobility. Furthermore, decentralized financial incentives mechanisms may be ineffective since they may often promote program cuts when this is undesirable, and vice versa. These findings illustrate the difficulties with regulatory reforms that mainly aim to reduce costs. Hence, the question how to raise total spending on higher education (whether through public or private means) cannot be avoided. (JEL codes: I20; I23; C25)

Demand for Higher Education Programs: The Impact of the Bologna Process

Cardoso, A. R., Portela, M., Sa, C., Alexandre, F. — 2008-06-13

While several aspects of the Bologna process deserve wide public support, the reduction of the length of the first cycle of studies to three years in several continental European countries, where it used to last for four or five years, is less consensual. This paper checks the extent of public confidence in the restructuring of higher education currently underway by looking at its impact on the demand for academic programs in Portugal. We concentrate on students revealed first preference when applying to higher education. Results indicate that the programs that restructured to follow the Bologna principles were subject to higher demand than comparable programs that did not restructure; that effect, however, varies across fields of study and with program size. (JEL codes: I28, I21, F15)

The Provision of Higher Education in a Global World--Analysis and Policy Implications

Demange, G., Fenge, R., Uebelmesser, S. — 2008-06-13

Mobile students and graduates react to the institutional framework of higher education and on their turn induce changes in governmental policies. In this article, we are interested in how governmental decisions about the financial regime and the quality level of higher education interact with individual incentives to invest in higher education in closed economies and in economies open to migration. We show that mobility of (part of) the population results in a situation where the optimal instruments of the closed economy are no longer necessarily viable. The aim of the article is to derive policy implications as to the optimal financial regime and quality level of higher education in the presence of migration opportunities. (JEL codes: H77, I22, I28)

Investment in Tertiary Education: Main Determinants and Implications for Policy

Boarini, R., Martins, J. O., Strauss, H., de la Maisonneuve, C., Nicoletti, G. — 2008-06-13

Many OECD countries are aiming to reform their tertiary education (TE) systems. This work explores the determinants of the investment in TE, with a focus on institutional setting of TE systems and private incentives to undertake years of schooling beyond upper-secondary degree level. For this purpose the article first develops estimates of three main drivers of graduation patterns, namely institutional arrangements of TE supply, availability of funding for TE students and private returns to tertiary studies. Second, the article empirically assesses how these three factors affect graduation ratios. Based on this analysis, the article then discusses policy-levers of TE investment and explores possible routes of reform for TE systems in OECD countries. The main findings are as follows: graduation ratios increase with private returns to TE as well with the autonomy and accountability of the supply of education. Lack or insufficient financial help to tertiary students negatively affects graduation ratios. There is a number of policy-levers to stimulate investment in TE. They include policies affecting labour market premia, the degree of flexibility of TE provision and the availability of funding for students. (JEL codes: I21, I22, I28, J24)

Science and the University: Challenges for Future Research

Stephan, P. E. — 2008-06-13

Scientific research has played a critical role in the life of the university for a considerable period of time, both in Europe and in the US. While much remains the same in the relationship between science and the university, considerable change has occurred in recent years. Here we outline three changes in this relationship, focusing both on the consequences for the university and on questions of research interest to those interested in higher education. The three changes are: (i) increased incentives to publish; (ii) changes in the reward system and (iii) increased reliance by governments and communities on universities and institutes as a source of economic growth. (JEL codes: I23)

Partnership Penalties and Bonuses Created by UK Welfare Programs

Anderberg, D., Kondylis, F., Walker, I. — 2008-02-29

This article explores how the UK welfare benefit system subsidise or penalise couples for living together as partners. A couple is said to face a "partnership bonus" ("penalty") if they can receive more (less) benefits when living as partners than when living separately. Using data on existing couples from the Family Resources Survey 1995–2004 we provide a description of the distribution of partnership penalties and bonuses in the population. We also find that, while the 1999 Working Families' Tax Credit reform improved the financial incentives for partnership formation, this effect was largely undone by the subsequent 2003 Working Tax Credit reform. (JEL codes: H31, I38, J12)

Pro-social Motivation and the Delivery of Social Services

Francois, P., Vlassopoulos, M. — 2008-02-29

This article provides an overview highlighting some major themes of the recent literature on the role of pro-social motivation in the provision of social services. We focus on the insights obtained from two alternative ways of modelling pro-social motivation; action-oriented and output-oriented altruism. This literature has implications regarding the design of optimal incentives, the selection of motivated agents and its interaction with monetary rewards, and the optimal organizational form required to exploit such motivations. We also discuss the implications for government provision of social services from the perspective of a parallel literature that emphasizes the non-contractible nature of output, and contrast it with the implications derived from work emphasizing the role of pro-social motivation. (JEL codes: H11, J32, J45, L31, L33)

Grey New World: Europe on the Road to Gerontocracy?

Bovenberg, A. L. — 2008-02-29

Higher life expectancy and feminization of work have changed the life course. These developments require changes in the way society organizes work and accumulates and maintains human capital over the life cycle. This paper describes various reforms aimed at preventing Europe from becoming a gerontocracy. It also discusses the political challenges associated with reforms aimed at lengthening the working life and protecting fertility. (JEL code: J1)

Does a Simpler Income Tax Yield More Equity and Efficiency?

Fuest, C., Peichl, A., Schaefer, T. — 2008-02-29

This article investigates the impact of tax simplification on various indicators of the efficiency of the tax system and on the distribution of income. The analysis is based on a simulation model (FiFoSiM) using German income tax and household survey microdata. We model tax simplification as the abolition of a set of deductions from the income tax base. We find that this form of tax base simplification leads to a reduction in the use of professional tax advice, a more equitable income distribution and an increase in tax revenue. If this is combined with a reduction of income tax rates to preserve revenue neutrality, the effects depend on the type of rate schedule adjustment. The combination with a flat rate tax increases income inequality at the expense of the middle class, but it also leads to efficiency gains because tax distortions of labour supply are reduced. The combination with a rate schedule adjustment, which preserves the directly progressive schedule reduces inequality but increases overall tax distortions. We conclude that the effects of tax base simplification on after tax income inequality and tax distortions mainly depend on the type of tax schedule adjustment. (JEL Codes: D3, H2, J22)

Symposium on New Directions in Fiscal Federalism: An Introduction

Buettner, T., Wildasin, D. E. — 2008-02-08

The Property Tax Incidence Debate and the Mix of State and Local Finance of Local Public Expenditures

Zodrow, G. R. — 2008-02-08

Many states in the US have in recent years changed the mix of state and local revenue sources used to finance local public expenditures, especially primary and secondary education, with local property taxes being replaced by various sources of state tax revenue. This article examines the desirability of such a tax substitution, focusing on the implications of the long-standing debate between the "benefit tax" and "capital tax" views of the incidence of the tax. It also includes a discussion of some recent research that elaborates the capital tax view of the property tax. (JEL codes: H10, H21, H22, H71)

Federalism's Values and the Value of Federalism

Inman, R. P. — 2008-02-08

What is it about federal governance that makes it so attractive to economists, political philosophers and legal scholars and is there any evidence that would suggest all this attention is warranted? Proponents see federalism as a means to more efficient public and private economies, as the foundation for increased political participation and democratic stability and as an important check on governmental abuses of personal rights and liberties. This study provides a working definition of federal governance and classifies a sample of 73 countries as either a constitutionally based federal democracy, an administratively based federal democracy, a unitary democracy, a federal dictatorship or a unitary dictatorship. Governance is then related to 11 measures of economic, democratic, and rights performance. Three conclusions follow. First, decentralized policy-making does have a unique contribution to make to a society's ability to enforce property rights, to protect political and civil rights, and then because of such rights protections, to enhance private sector economic performance. Second, while policy decentralization is the key to federalism's strong rights and economic performance and can be achieved within a unitary government by fiat, constitutionally established provincial (or state) governments provide an extra and important protective barrier for policy decentralization. Federal institutions protect policy decentralization, and policy decentralization provides federalism's valued outcomes. Third, federalism needs democracy; there is no evidence that adding policy decentralization or provinces to a dictatorship significantly improves a dictatorship's economic or rights performance. (JEL codes: H11, H77, H70)

The Dilemmas of Tax Coordination in the Enlarged European Union

Brochner, J., Jensen, J., Svensson, P., Sorensen, P. B. — 2008-02-08

This study evaluates the economic effects of corporate tax coordination in the enlarged European Union (EU) using a computable general equilibrium model. Our main findings are as follows: (i) Corporate tax coordination can yield modest aggregate welfare gains. The 2004 enlargement of the EU has increased the potential gains from tax harmonization, provided corporate tax rates and tax bases are harmonized at their unweighted averages. (ii) All scenarios for coordination leave some EU Member States as winners and others as losers. An agreement on tax coordination is therefore likely to require elaborate compensation mechanisms. (iii) The large and diverse country effects suggest that Enhanced Cooperation for a subset of the Member States may be the most likely route towards tax coordination. (iv) Identifying winners and losers from coordination for the purpose of a compensation mechanism may be problematic, since countries experiencing gains in GDP and welfare tend to lose tax revenues, and vice versa. (JEL codes: H25, H73, H87)

Can Federal Grants Mitigate Social Competition?

Dreze, J. H., Figuieres, C., Hindriks, J. — 2008-02-08

The European economic integration leads to increasing mobility of factors, thereby threatening the stability of social transfer programs. This article investigates the possibility to achieve by means of voluntary matching grants both the optimal allocation of factors and the optimal level of redistribution in the presence of factor mobility. We use a fiscal competition model a la Wildasin (1991) in which states differ in their technologies and preferences for redistribution. We first investigate a simple process in which the federal authority progressively raises the matching grants to the district choosing the lowest transfer and all districts respond optimally to the resulting change in transfers all around. This process is shown to increase efficiency of both production and redistribution. However, it does not guarantee that all districts gain, nor that an efficient level of redistribution is attained. Assuming complete information among districts, we derive the willingness of each district to match the contribution of other districts and we show that the aggregate willingness to pay for matching rates converges to zero when both the efficient level of redistribution and the efficient allocation of factors are achieved. We then describe an adjustment process for the matching rates that will lead districts to the efficient outcome and guarantee that everyone will gain. (JEL Classification: H23, H70)

The Welfare State versus the Common Labor Market: Which to Dismantle?

Wilson, J. D. — 2008-02-08

Migration by low-income workers limits the ability of a country to redistribute income, since more generous income supplements attract additional workers into the country, reducing wages and raising the cost of the program. This article studies the role of immigration controls, which allow the government to raise the real incomes of existing immigrants without causing additional immigration. Paradoxically, immigration controls may lead to higher equilibrium levels of immigration in a common labor market, and those low-income individuals left behind in the source countries may be better off. Simply stated, a host country benefits more from immigrants when they are not impoverished, and immigration controls enable the country to eliminate impoverishment. Thus, the country is willing to increase the number of immigrants that it allows within its borders. After obtaining this insight from the basic model, the article discusses some extensions and qualifications.