Discussionpaper: “Ordoliberalism and the Social Market Economy”

Contrary to its usage in current political discourse, the term neoliberalism originally referred to those schools of economic thought that opposed laissez-faire liberalism and wanted to assign a more active role to the state. Faced with the economic turmoil of the late 19th and early 20th century – including the poverty of the working class, concentrations of power in the hand of large corporations and multiple monetary and economic crises – neoliberals posited that the government should intervene in private markets in order to uphold competition.

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Discussionpaper: “Skimming the Achieved? – Quantifying the Fiscal Incentives of the German Fiscal Equalization Scheme and its Reforms since 1970”

Marginal rates of contribution (MRC),i.e.,the rates at which additional revenuesare skimmed via larger contributions or lower transfer receipts,quantify the incentives of a fiscal equalization scheme. The present paper is the firstto calculate the marginal rates of contribution for the Laender (states) in the German fiscal equalization schemeforeach of the50 yearssince its establishmentin 1970 and over five major reforms, takinginto account all relevant revenues. Ourresults show thatMRChave been at a consistently high level. Until 2019 the scheme in-duced an almost full skimming of additional tax revenues of recipient states. With the system’s latest reform in 2020, MRC did increase further. Recipient states now face an over-skimming of additional tax revenues and thus, massivefiscal disincentives to maintaintheir own tax base. While thesefindings have been widely expected, comprehensive evidence has been missing so far.

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Discussionpaper: “Monetary Incentives and the Contagion of Unethical Behavior”

We analyze both theoretically and empirically how monetary incentives and information about others’ behavior affect dishonesty. We run a laboratory experiment with 560 participants, each of whom observes a number from one to six with there being a payoff associated with each number. They can either truthfully report the number they see or lie about it in order to increase their payoff. We vary both the size of the payoff (Low, High, and Very High) and the amount of information about others’ dishonesty (With and Without Information). We first find that dishonesty falls in the Very High treatment. Second, while social information has on average at most a weak positive effect, there is a strong effect if the accuracy of individuals’ beliefs is accounted for. Third, social information and payoffs do not interact with each other. To the paper…

70th anniversary of Walter Eucken’s death

Today 70 years ago: Walter Eucken died in London on March 20 1950 while visiting London School of Economics where he gave a lecture series at London School of Economics. His lectures were later published under the title “This unsuccessful Age”.

Conference on Tax Compliance

From December 5th–7th, 2019 the Walter Eucken Institut hosts a conference – supported by the Fritz-Thyssen-Stiftung – on “Enforcing Tax Compliance at the Limits of Third Reporting”. More information…

Technology and Tax Compliance

On December 5th Professor James Alm, Second Vice President of the US National Tax Association will talk about the mixed effects of changing technology on tax compliance. More information…

The Difficult Relationship Between Historical Ordoliberalism and Adam Smith


Ever since the global financial crisis of 2008, interpreted by some observers as a foreseeable failure of “unfettered” capitalism, the German intellectual tradition of ordoliberalism has been meeting with increased interest. Its emphasis on good government, appropriate rules and institutions makes it attractive. Welcome as this may be, however, that trend may impact the reception of the works of Adam Smith in a problematic way, since the key historical figures of ordoliberalism reject his theory vigorously, even though, from today’s perspective, their concerns and policy recommendations look very parallel to his. Their common hope is human flourishing. Just like the Scot, the broad scope of their vision encompasses society as a whole, not just the market; they are concerned with ethics, not just economics. But what, then, can solve the puzzle of this implausible rejection, by which the ordoliberals contribute to a deep-rooted prejudice against Smith? In this paper, Karen Horn takes stock of their concrete criticisms, which turn out to be based on a narrow understanding of Smith’s work. She suggests that it is religion that stands at the root of the explanation, though situational elements may also play a role. The essential contentious point seems to be what the ordoliberals take for the Scot’s naïve belief in natural harmony, the sources of which they see in his stoicism and possible deism. The deeper problem for them with Smith is the pagan flavour and the systematic normative relativism of an essentially evolutionary approach to human values.

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“Warning over ‘new eurozone crisis'”

Lars P. Feld says towards BBC that he fears another European financial crisis could be brewing.

Discussionpaper: Natural Field Experiment on Collaborative Tax Evasion

Sales from businesses to consumers provide fertile ground for collaborative tax evasion. However, little is known about the phenomenon. We conduct a natural field experiment with 2,900 businesses in which we take the role of con
sumers and vary if we request an invoice for the delivery of a service. We find that 56% of businesses approach consumers with the intention to evade. The fraction is zero
in the regulated market and 72% in the unregulated market. It increases when consumers signal their willingness to collude. Consumers can save 25% of the legal price on average if they agree to evade. More…

Walter Eucken as German Anti-Keynes? New Discussionpaper

By Lars P. Feld, Ekkehard A. Köhler and Daniel Nientiedt

Germany’s approach to solving the Eurozone crisis is supposedly based on the ideas of Walter Eucken (1891–1950), the founder of ordoliberalism. In this and other contexts, Eucken’s work has been described as being in direct opposition to that of John Maynard Keynes. Our paper aims to clarify and differentiate the relationship between the two scholars by making two main points. First, we show that Eucken supported a proto-Keynesian stimulus programme at the height of the Great Depression, the so-called Lautenbach plan of 1931. Second, we critically examine Eucken’s description of ‘full employment policy’, a strategy with obvious parallels to Keynesian economic policy. Additionally, the paper maintains that when comparing Eucken and Keynes, more emphasis should be given to the fact that the former favours a rule-based rather than discretionary approach to policy-making.

Discussionpaper on James Buchanan, public debt and fiscal rules

By Lars P. Feld

James Buchanan pioneered the political economics of public debt 60 years ago. In this paper, we contrast his thinking of the burden of debt, the public choice mechanisms that lead to excessive debt and the demand for constitutional restraints on public debt with its development, its sustainability, the evidence on the political economy of debt and on the effects of institutions. It turns out that Buchanan farsightedly anticipated the problems that would emerge from excessive indebtedness in the developed world. The introduction of fiscal rules appear as a late triumph of Buchanan’s thinking. However, socialism is dead, but Leviathan lives on. Opposition to sound fiscal policies has increasingly dominated the public debates since the Great Recession.

Discussionpaper about the Swiss debt brake

The Swiss debt brake is widely appreciated as one of the most rationally designed fiscal rules in the world and was thus also discussed as blueprint in the debates about fiscal rules in Germany, the European Union member states and Israel. However, evidence that this rule really contributes to sound federal finances does not exist yet. We investigate the effectiveness of the Swiss debt brake by employing the Synthetic Control Method. We find that the introduction of this fiscal rule improved the budget balance by about 3.6 percentage points on average in a post-intervention period covering five years.

Find here the discussionpaper by Christian Pfeil and Lars P. Feld.

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… and keep up on current debates in academia and politics. (@Lars_Feld)

Discussionpaper on the fiscal sustainability of German States

Modeling Fiscal Sustainability in Dynamic Macro-Panels with Heterogeneous Effects: Evidence From German Federal States. Discussionpaper by Lars P. Feld, Ekkehard A. Köhler and Julia Wolfinger.