IME Conference on "Economics, Capitalism and Happiness in the EU" , November 25th, 2006

Introduction and sponsors

Tax Competition, Dr. Pierre Garello, Director, Institute of Economic Studies-Europe (IES)

Fate of Business and Productivity, Dr.Barbara Kolm-Lamprechter, Secretary General, F. A. v. HAYEK Institut, Vienna

European Market or European Union Market Regulation, Dr. Remigijus Simasius, President, Lithuanian Free Market Institute, (LFMI)

The Concept of Happiness in Economics, Dr. Krassen Stanchev, Executive Director, Institute for Market Economics

Recording of the confrence can be heard here (first part, 2 hours; (second part, 1 hour)

Krassen Stanchev was awarded the Special Prize for "overall contribution to the spirit of liberty" (October 31, 2006)

Run-off presidential elections in Bulgaria last Sunday have had a predictable winner, the incumbent president Georgy Parvanov. Why the predictability, and what this result would mean for the immediate future of the country.

GDP in the Second Quarter of 2006
/September/

The National Statistical Institute (NSI) has released data for the gross domestic product (GDP) for the period from the beginning to the end of June 2006. The real GDP growth for the second quarter relative to the corresponding period of 2005 was 6.6%, which is the highest value of this indicator since 1998 when the growth rate was high due to the recovery of the economic crisis. The real growth rates continued to be above 5% since 2004 and have even accelerated. However, one should consider the preliminary character of the data before making any general conclusions.

First Anniversary of Bulgarian Government
/August/

A little over a year ago, the Institute of Market Economics sent a letter to the newly elected Prime Minister (Stanishev). In this letter, taking into account the specific structure of state government, we suggested principles and actions in the field of economic policy that would enable the government to cope with different tasks in order to increase the well-being of society and to overcome obstacles of contemporary state governance without destroying confidence between the coalition partners. Obviously the government has decided to do the opposite of what we suggested. The positive changes, as far as they exist, are based on a foreign pressure – from European Commission, IMF, companies with violated rights and public opinion.

9 Years Currency Board Arrangement
/July/

9 years have passed since the introduction of the currency board arrangement in the country, which is a good reason for an assessment of this period and the preceding one. Of course, it should be taken into account that the positive development is a result not only from the CBA but also from the rest of the reforms toward higher economic freedom. These are liberalization of internal and external trade, capital account liberalization, privatization and de-monopolization. Interactions between these factors have had a positive impact on the levels of income, production and employment in the country and have been creating more business opportunities for persons.

Will We Overcome the Lawyers This Time?
/July/

Discussions on VAT draft law are the time when certain “privileged groups” are to loose their preferences and who will keep theirs for once more.

VAT draft law foresees that legal services be exclude d from the list of goods and service that are exempted from VAT. Lawyers’ reactions are not unexpected. Nevertheless, we are surprised to hear statements such as “we will sue the state in front of international institutions because of the violated right of defense” (good approach from lawyers) and “we are ready for a strike” (unexplainable action from people who should rely strongly on words and arguments in their favor).

European Subsidies from an Economic Point of View
/June/

In order to understand these peculiarities, one has to compare the European funds to pure aid, which supposedly does not exist in the EU, but technically all transfers from the EU budget to the member states (and to the candidate countries) are just that, to a varying degree. In drawing comparisons, I will use the work of several world-renowned economists and a historian. The views of the scholars in question are rather well-known and in this format I would not discuss them in any detail. These scholars are Milton Friedman, Peter Bauer, Mansur Olson, Simeon Djankov and some of his colleagues at the World Bank, and the historian Tony Judt. Their analysis can easily be found on the web, in libraries or in bookstores, and their inferences can be compared to the ones in this article.

What Does The EU Report Say About Bulgaria and What Is It Silent About ?
/May/

After almost five years of scrutiny on the economic criteria for EU membership of Bulgaria, at the eve of the accession the monitoring report by the European Commission unexpectedly turned its focus on the political criteria.

The objective reasons for that change, that is independent of Bulgaria, its government officials and citizens, are basically as follows:

• Weariness of the enlargement and concern (especially in France) from the fact that the number of beneficiaries of subsidies from Brussels will increase, together with alienation of the European Institutions from the voters and anti-reform attitude of the political leaders from the “old” EU members;
• Inability of EU to improve on a timely basis its mechanisms for political unification, economic lagging of EU behind the USA, intensive competition from new EU members and a global pressure to which the Union fails to oppose in an inadequate manner;
• Activity and clear reform-orientated attitude of the newly elected members of the European Parliament and of Brussels administration that comes from the new EU members;
• The resources that will be left if new enlargement takes place include costs for monitoring of only two, not ten candidate countries.

GDP in 2005
/April/

Preliminary data for the gross domestic product (GDP) in 2005 were released recently as well as revised data for 2004. Real GDP growth in 2005 is 5.5 per cent, which was not a surprise for the independent analysts and for the government agencies’ experts. Some difference from the expected level can be found in the nominal GDP that reached BGN 41 948 million which means that the nominal growth is 9.6 per cent. The growth rate has slowed down relative to 2004 in real and in nominal terms which can be accounted as an unfavorable development for the economy.

The Tax Reform is Working (Analysis of Budget Statistics)
/April/

The Ministry of Finance published data on the execution of the government budget for the first two months of 2006. The data is quite interesting and deserve detailed analysis.

In the first two months of 2006 the revenues in the consolidated government budget exceeded 2.7 billion leva – an increase of 6.6% compared to the same period of the previous year. The budget expenditures increase by almost the same rate – 6.5% and reach 2.56 billion leva. The budget surplus is also greater than last year – till the end of February it is 146.5 million leva, 9% higher than the corresponding level in 2005.

EU Funds, National Budget and Economy
/March 30/

Recently, the European Union funds are a real hit. Every day the information programs of TV and radio stations, the issues of the newspapers and magazines mention at least several times the phrase “European funds”. In principle, there is nothing bad in discussing the spending and control over these funds. The problem is mainly connected to the disproportionate importance attached to these funds, which shows either insincerity, a mere willingness to impress the EU commission, or just a way to escape from the question about the efficiency of the national funds and resources.

How to Accelerate Economic Growth in the Euroarea?
/February 27/

The impetus for this article is a Budget and Finance Committee with the Bulgarian Parliament inquiry to the IME on the question “How to accelerate economic growth in the Euroarea?” because of participation of Bulgarian deputies in an interparliamentary discussion. The scope of the answer is broader as the proposals are relevant not only for the Euroarea (EA) but also for the European Union (EU) as a whole. For that purpose a short SWOT analysis is made without the claim to be comprehensive.

Regulation and Growth. Case of Bulgaria
/January 25/

The last Index of Economic Freedom was published early in January for the 12 th year in a row. In this year's edition there have been ranked 157 countries against a list of 50 independent variables divided into 10 broad indicators. According to the average value of those ten factors each country finds a respective place in the rating, while the higher the score equates to the greater the level of government interference in the economy and logically the less economic freedom enjoy people living there. Numerous studies have demonstrated a clear and sound relationship between welfare of a nation and the extent to which government bodies are involved in carrying out economic activities.

Coalition of the Spending (New Government First Steps)
/November 18/

The constellation after elections

In the previous issue of this bulletin I shared some expectations the proved wrong.

Immediately after elections I expected a tacit coalition led by Socialists (BSP). Now there is an open coalition in place, consisting of BSP, the King's party (National Movement Simeon the Second, NMSS) and the Movement for Rights and Freedoms (MRF) and sealed by a coalition agreement. It took six-seven weeks of tricky talks to reach an agreement to form an executive with MRF mandate after two consecutive failures of BSP and NMSS to recruit sufficient support. The outcome, however, is a legislative majority of 2/3 of the seats, sufficient to amend the constitution if needed.

Plan B – Effects of the Eventual Delay of Bulgaria’s Joining the EU
/November 18/

The European Union as a reform stimulator

Most of the economic reforms in Bulgaria have been made not because of the inner confidence of the people who carried them out, but due to the outer pressure mainly from international financial institutions such as the International Monetary Fund and the World Bank. Their basic medium of forcing the government to carry out reforms was the so crucial to the financial and macroeconomic stability of the country. However, as time has passed, the importance of the funding from international financial institutions began to decrease, and so did the ability of the IMF and the World Bank to provoke reforms in Bulgaria.

Will Bulgaria Fall a Victim of Its Democracy?
/June 29/

Bulgaria held general elections last Saturday, June 16. Two months before she signed EU Accession Treaty to formally join the Union with Romania on January 1, 2007. It still needs to enhance the rule of law, fix the user system for agriculture subsidies and enforce technical and environment standards. The Treaty envisages a delay of one year if conditions aren’t met. The country is closing its 1970-1980’s nuclear reactors. Rushing into the Union, the government failed negotiating grace periods that, according to industries, are mostly needed in the area of environment and the entry costs are higher than for 2004 members. The economy grows steadily at 5% a year. The democracy is e stable; the former king, Simeon Saxe-Coburg-Gotha (69) won elections in 2001 and governs as PM.

Bulgaria: Fiscal Environment and Taxes
/June 29/

In 1997 the corporate tax rate was above 40% and the top marginal individual income tax rate was 40%. In most of the years since 1997 these direct taxes were lowered and this happened under the rule of two different governments. In 2005 the corporate income tax is 15% - one of the lowest in Europe. In 2005 the dividend tax was reduced from 15% to 7%. Therefore, the corporate profit taxation is significantly reduced.

Recent Libertarian Failures in EU “Relationships”
/April 26/

When speaking of failures, I mean first of all my own deficiency and lack of success in disseminating ideas I trust and/or in preventing bad ideas of being realized. Unfortunately, very often I realize that these are not only my failures. Before putting my thoughts black on white my intention was to have a relatively concise list of those failures. But then I realized that I dot have sufficient time and that two instances would be more than enough to describe a regularity.

Thus, I decided to focus on two Libertarian campaigns. One of those – on tax harmonization within the Union – is over, and it seems the Libertarian cause is victorious. The second is the debate on the EU draft Constitutional treaty. It is not over yet, and the Libertarian “camp” looks doomed to loose, irrespectively the speculations on the referendum in France.

Currency Board and Economic Development
/April 26/

Sound money is one of the prerequisites for sustainable economic development. A great number of empirical studies prove that low inflation countries experience faster economic growth than high inflation countries. What is the reason for this? Sound money reduces the uncertainty about the future price development and hence it makes the choice easier. It enables individuals to realize the best allocation of resources and products. Apart from this, it allows correct comparison of prices and helps decision taking.

The Security Burden is the Biggest Issue Before Business and Citizens
/April 26/

Paying social security charges is considered to be the highest issue before business and citizens. This hypothesis has been confirmed and sustained in several research projects of IME and other NGOs ( link ). However for the time being the social security burden has not been recognized as an issue of high priority and therefore no significant reforms have been planned. The state owned ‘National Center for Study of Public Opinion' revealed additional facts regarding the scale and the scope of the problem interviewing 800 working adults. According to this survey only 41% of employed in the private sector fully comply with social security payments, at the same time 22% declare to work without a contract. This actually means that 59% of employed in private sector at least partially conceal their incomes.

In 2004 we witnessed not only negative things in Bulgaria, but some positive developments, as well. They are important because they lead to increased prosperity of Bulgarian citizens.

1. Privatization
Privatization is important in order to achieve faster economic development – the bigger the private sector, the more value added is created because of the strong economic incentives that affect the private sector, but not the state.

The unnecessary "nuclear toy"
/February 10/

Last developments indicate that the government has firmly decided to launch a second nuclear plant project – “Belene”. However all questions concerning economic feasibility remain unanswered as the only backing used insofar are based either on populist grounds (Bulgaria to become center of energy on the Balkans) or on unproved expectations for electricity shortages around 2010-2011. IME team insisted for more than two years that a full regulation impact assessment is absolutely relevant although the government did not presented such analysis to the larger public.