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2014 | OriginalPaper | Buchkapitel

5. Two Stylized Models

verfasst von : Henrik Christoffersen, Michelle Beyeler, Reiner Eichenberger, Peter Nannestad, Martin Paldam

Erschienen in: The Good Society

Verlag: Springer Berlin Heidelberg

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Abstract

The message from Chap. 2 is that the two countries are ahead of their neighbors in GDP per capita by 10–20 %, and has been so for a long time. Hence, the two countries must do something differently and better than their neighbors. This chapter looks for differences in the economic system giving an advantage. To this end two economic models are discussed:

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Vorheriges Kapitel Happiness in Denmark and Switzerland

Nächstes Kapitel Political Institutions and Politics

The Liberal Century (1815–1914) was between the Napoleonic Wars and First World War: Public sectors were small and world currencies were based on gold, giving a relatively stable international monetary system.

Today socialism had disappeared from party programs of the two major parties in Left.

This contrasts with Switzerland where the public sector owns some businesses such as the cantonal banks.

The model was developed by the Norwegian Odd Aukrust (reprints 1970), but the Swedish version by Edgren, Faxén and Odhner (1970) is better known, and the EFO-name is from these authors. They were the top economists at the Union for the Public Employees, Swedish Union of Manufacturers and LO respectively. A similar model was developed independently by Courbis (1971). The model assumes labor to be immobile and capital to be mobile. Thus interest rates are homogenized and capital can be disregarded in the model.

Empirically the relative unit labor costs and the real exchange rate are closely correlated. Theoretically they are only the same if a set of proportionality assumptions are fulfilled, so that the second competitive margin can be disregarded.

The discussion on convergence in Chap. 2 suggests that productivity rises are converging to the ‘world’ rate of technological progress, so that the main condition is that domestic wage rises are below foreign wage rises.

The council was headed by three economics professors, known as the three wise men. Gradually the economic council has been given a broader scope for issuing reports on many other issues.

The Danish oil sector in the North Sea covers domestic consumption and a small export. The deposits are estimated to be exhausted in 30–50 years.

The organization of Microstates has Iceland and Malta as the largest members. Europe has about 12 microstates, and as mentioned above no less than 10 are characterized as safe havens. Most are only partly independent, but they are sufficiently independent to pursue their own policy in the relevant area. See Paldam (2013).

Both the OECD and the IMF and various NGOs have had working groups studying offshore finance, which has produced lists of countries that are financial safe havens. The European countries that are found on all lists are 10 microstates and Switzerland. Iceland and Ireland also made it to the list of safe havens, but they are not on the list any more.

Many estimates exist of the size of black funds in the world; see Paldam (2013) for some numbers and references to the sources. The numbers are much smaller than the ones for the gray economy – probably only between 10 % and 15 % of the gray sector. However, they need larger efforts to be well hidden and thus they generate larger profits to the financial sectors in the safe havens.

These data are only for the funds entering the Swiss banks. This is not the whole of the financial sector see the following note. See also Chap. 11, for lower estimates, and the estimates for Denmark in Sect. 5.3.1.

The term ‘banks’ are used as a short term for ‘financial sector’. The sector includes a whole range of investment/trust funds, often associated with law firms.

In the theory of Mancur Olson (most carefully covered in Olson 2000) bandit rulers are ruling for profit. Roving bandits do not expect to rule for long so they go for simple plunder, while stationary bandits expect to rule for long so they run the country as a business for long-run profit. They want their business to prosper. The World Bank/UNODC Stolen Asset Recovery Initiative assesses the annual loot leaving the third world to be between $20 and 30 billion per year.

The Cayman Islands have a population of 56,000 and 75 banks. Many of these banks have branches in Liechtenstein, Luxembourg, Guernsey or Jersey, and, of course, in Switzerland. Also, 168 investment trusts are registered in Liechtenstein.

S is occasionally accused of being a free-rider due to its safe haven policies. This accusation hinges upon the definition of free riding. S does help citizens in W to free ride on the public spending/tax programs in W, but by most definitions S is not itself free riding.

However, there was a serious revaluation crisis in the summer of 2011, which led the Swiss National Bank to impose a ceiling on the Franc. This has caused Swiss foreign reserves to rise dramatically, but till now the ceiling has been maintained.

Chapter 10 discusses the problems of the ‘implicit debt’ of countries such as Italy and Germany with unfavorable population pyramids.

Looking at the international pattern in a set of indicators Schneider and Enste (2002) conclude that the ‘shadow economy’ in Denmark is 18 %, while it is only 8 % in Switzerland. However, the evidence from the largest Danish study, see Mogensen et al. (1995 and later), gives numbers around 4–6 %. The small numbers are consistent with findings that Denmark has very low rates of corruption. It is actually the least corrupt in the compilations from Transparency International of all measures for corruption perceptions.

Aukrust O (1970) PRIM I; a model of the price and income distribution mechanism of an open economy. Artikler fra Statistisk Sentralbyra no. 35, Oslo

Christoffersen H, Paldam M (2006) Privatization in Denmark, 1980–2002. Chap. 4. In: Köthenbürger M, Sinn HW, Whally J (eds) Privatization experiences in the European union. MIT Press, Cambridge, pp 117–140

Courbis R (1971) La determination de l’equilibre general en economic concurrencee. Editions du Centre National de la Recherche Scientifique, Paris

Edgren G, Faxén K-O, Odhner C-E (1968, 1970) Lönebildning och samhälsekonomi. Rabén & Sjögren, Stockholm. English version, 1973. Wage formation and the economy. Allen & Unwin, London

Henry JS (2012) The price of offshore revisited. New estimates for ‘missing’ global private wealth, income, inequality, and lost taxes. Available from Tax Justice Network at http://www.taxjustice.net/cms/front_content.php?idcatart=2&lang=1

Kolstrup S (2011) Fra fattiglov til forsorgslov, Chap 3. Vol II in Petersen et al. (2011)

Lindbeck A (1995) Welfare state disincentives with endogenous habits and norms. Scand J Econ 97:477–94CrossRef

Mogensen GV, Kvist HK, Körmendi E, Pedersen S (1995) The shadow economy in Denmark 1994. Measurement and results. Rockwool Foundation, Copenhagen

Olson M (2000) Power and prosperity: outgrowing communist and capitalist dictatorships. Basic Books, New York

Paldam M (2013) Safe havens in Europe. Switzerland and the 10 dwarfs. Eur J Comp Econ (scheduled for issue 3 2013)

Petersen JH, Petersen K (2011) Alderdomsforsørgelse, Chap 4. Vol III in Petersen et al. (2011)

Petersen JH, Petersen K, Christiansen NF (eds.) (2011) Dansk Velfærdshistorie, Vols II and III. Odense University Press, Odense

Schneider F, Enste DH (2002) The shadow economy. An international survey. Cambridge University Press, Cambridge

Schneider F, Buehn A, Montenegro CE (2010) Shadow economies all over the world: new estimates for 162 countries from 1999 to 2007 (5356). Technical report, The World Bank

Titel: Two Stylized Models
verfasst von: Henrik Christoffersen
Michelle Beyeler
Reiner Eichenberger
Peter Nannestad
Martin Paldam
Verlag: Springer Berlin Heidelberg
Buch: The Good Society
Print ISBN: 978-3-642-37237-7

Electronic ISBN: 978-3-642-37238-4

Copyright-Jahr: 2014
DOI: https://doi.org/10.1007/978-3-642-37238-4_5