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The breakdown of the financial markets in 2007 and the ensuing debt crisis in the EU has produced enormous mistrust in financial products and the monetary system. The emergence of shadow banking also changed the behavior patterns of management so that its self-interest dominated the interests of shareholders and the other stakeholders. These false incentives led to merger processes in the financial system resulting in market structures in which single institutions became too big or too connected to fail. The empirical developments and the political counter-measures described in this article point to the fact that the macroperspective has been dominant, neglecting individual irresponsibility and failure. La caída de los mercados financieros en 2007 y la subsecuente crisis de la deuda en Estados Unidos produjeron una enorme desconfianza en los productos financieros y en el sistema monetario. El surgimiento del sector bancario en la sombra (shadow banking) también ha cambiado los patrones de conducta de la administración de manera tal que los intereses de esta última dominaron los de los accionistas y otros tenedores de acciones. Estos falsos incentivos llevaron a fusionar procesos en el sistema financiero que tuvieron como resultado el surgimiento de estructuras mercantiles por medio de las cuales cada institución por separado se hizo demasiado grande o demasiado cercana al fracaso. Los desarrollos empíricos y las contramedidas políticas descritos en este artículo apuntan hacia el hecho de que ha dominado la perspectiva macro lo que de algún modo niega la irresponsabilidad y el fracaso individuales.

In the history of economic thoughts the problem of a "just" tax rate structure has played an important role. The paper reconsiders the discussions of the last two centuries and sheds additional light on the concrete tax schedules using the more recent methods of tax theory. Even if the substitution effects which play an important role in the theory of optimal taxation are neglected, the slope in the diminishing marginal utility of income causes tax rate structures reaching from accelerated progression to delayed regression. Interestingly the principle of equal relative sacrifice combined with a Bernoulli utility function yields a delayed progression, which is connected with a negative income tax.

The paper is based on an individual life-cycle model, which describes the purely economic components of human capital. The present value of human capital is determined by all future income flows, which at the same time constitute the individual as well as the total tax base of a nation. Therefore, the income of the productive population determines the total tax revenue, which is spent for public goods (including education) and transfers (for poverty reduction). The efficient design of the education system (by private and public education investments) determines the quality of the human capital stock as well as the future gross income flows. The costs of public goods and the transfer expenditures have to be financed from the total tax revenue, which also affects the individual tax burden via the specific tax bases and tax rates. Especially the redistribution of income is connected with serious disincentives, influencing the preferences for work and leisure as well as for consumption and saving. An efficient tax and transfer system being accompanied by an education system financed in public private partnership, which treats equally labor and capital income, sets positive incentives for the formation of human, financial, and real capital. An important prerequisite for a sustainable growth process is the efficient design of the social security system, being based on the family as well as a collective risk equalization scheme. If that system is diminishing absolute poverty in an appropriate time period by transfers and vocational education measures for the grown-up as well as high quality primary, secondary and tertiary education programs for the children, the transfer expenditure would decrease and the tax bases (income and consumption) increase, lowering the burden on the productive population. For the first time, this micro model presented in this paper pools all the relevant variables for development within a simple life-cycle model, which can also be used for a powerful analysis of the current failures in existing tax and transfer schemes and fruitful empirical investigations. Hence, an efficient tax and transfer scheme strongly contributes to an improved national position in the global competition.

Previous papers in this Special Series, have described in detail the theoretical background and development patterns, along with some empirical results, for the privatisation processes in Bulgaria and Poland. A range of issues have been raised which demand closer empirical investigation. For this purpose, the research group has developed questionnaire studies for Bulgaria and Poland. In Bulgaria, the National Statistical Institute (NSI) carried out the case studies between February and April 1998. The problems of the questionnaire set-up were identified in apre-test study, but unlike the Polish case, they led to only minor differentiation. Since financial limitations prevented a larger sample size, a sample size of 61 mid-sized and large Bulgarian enterprises was selected. Failure to respond was not a serious problem, unlike with the Polish questionnaire; this is because the NSI has maintained good links to the enterprise sector and management were prepared to give detailed answers, even on questions of their firms' financial status. However, as the Polish experience suggests, it has become obvious that the privatisation process is also associated with management's increasing reluctance to answer comparatively 'intimate' questions. Thus, future questionnaire studies must take a much higher rate of refusals into consideration. The pre-selection procedure in Bulgaria was determined by the project target, which sought to analyse the effects of the privatisation process on firm' s behaviour during the transition process, and hence only firms which had already existed before the changes were included. For small and medium-size enterprises (SME's), most of which were founded after the changes, partly due to the legal processes of spontaneous privatisation, some empirical, as weIl as analytical, studies were carried out. Thus, the research group limited the scope of investigation to enterprises with more than 250 employees. The underlying hypothesis is that employment problems are concentrated in larger firms, in particular amongst those still (partly) state owned. Because of the former ownership structures and relatively slower capacity for management change, the assumption is that state-owned enterprises (SOE's) which have only been recently privatised might still have traditional links to government even after privatisation. On the one hand, the SME's are obviously more prone to, and linked with, market processes. As a result, they don't have the financial potential and incentives to follow job-hoarding strategies. On the other hand, there are almost no SME's which are still stateowned. Hence, the prevailing opinion in the literature is that 'larger industrial firms were apt to be least efficient, most often producing inadequate and non-competitive products, with a high degree ofunder-utilisation oflabour and most inflexible to change' (lones & Nikolov 1997, p. 252). Thus, as mentioned above, though there may be some limitations with regard to firm representation, our sample characterises a number of enterprises that offer fertile ground for the analysis of firms' adjustment to the newly established market realities in a transition economy. Our study is unique in the sense that existing empirical studies on privatisation and enterprise restructuring generally cover the time period just before and after the initial stages of transition, e.g. 1988/89 to 1992. In those studies, samples of firms in the Czech Republic, Poland, Hungary and Bulgaria recognise that behavioural adaptations at the enterprise level had taken place just before the actual privatisation process materialised. Therefore, almost all of the firms under examination were still state-owned. The firms were usually divided according to their performance as 'good', 'average' and 'bad' enterprises. The main findings of those early studies have shown that the macroeconomic adaptations (i.e., macro-level changes which induced micro-level adjustment by the firms), as well as emerging market structures, have created enormous pressures which in turn have influenced firms' economic behaviour, reallocation of resources and consequent restructuring. This evidence supports the hypothesis that the SOE's started restructuring and adjusting their behaviour and performance, in response to the harsh realities of more open markets, before privatisation actually started. In this paper, we seek to present some results on these developments in Bulgaria, at the later stages of transition and privatisation (1992-1996). The aim of our questionnaire study is therefore to show the effects of the privatisation process and ownership on the behavioural adaptations of firms which had once been state-owned or continue to be owned by the state. The period under investigation is 1992 to 1996. For 1990 and 1991, the number of missing values is reactively high and, where relevant, we partly exclude these observations from our analysis. The paper contains seven sections. Section 11 outlines the macroeconomic environment in which our sample firms operate, provides some specifics of the Bulgarian privatisation process, and discusses data quality. Section 111 concentrates on the analysis of privatisation, the specific forms of ownership that resulted from it, and firm size. In Section IV, we describe the trends of the main economic variables within firms (such as employment, wages, labour productivity, etc), and a number of proxies of firm viability, while Section V presents some regression results to corroborate the discussion of the previous section. Section VI gives an overview of survey results of the impact of enterprise determined wage policy, trade union activity and membership, government control, and social benefits on enterprise restructuring. Section VII is a summary of our findings.

Like in all countries in transition, the tax as well as the transfer system have been under serious reform pressures. The socialistic systems were not able to fulfill the necessary functions in providing a certain degree of redistribution and social security, which are inevitable for social oriented market economies. Increasing income and wage differentiation is one of the most important prerequisites for a market oriented ability to pay tax system. But in the transformation period, numerous quasi-legal or even illegal property transactions have taken place, thus leading to wealth concentrations on the one hand while as consequence of the bankruptcy of socialism, enormous poverty problems have arisen on the other. For the political acceptance of the transformation process it is of utmost importance that an efficient and fair tax system is implemented and social security is organised by the state on a level which secures at least the physical minimum of subsistence or – if economically possible – even a social-cultural minimum. Whether the state should go further in providing compulsory social insurance systems has been a hotly debated topic for decades even in the welfare and social states of the Western type. Whereas the basic security systems have to be financed by general tax revenue, for a compulsory social insurance system – due to the insurance character – special earmarked social security contribution are held necessary. Both public goods and services as well as at least basic security have to be financed by total tax revenue. For the acceptance and fairness of the whole system the total redistributive effect of both sides of the budget – the tax system as well as the expenditure system – are decisive. In this paper we will concentrate on the revenue side, e.g. on the taxes as well as on the social security contributions. Adam Smith had already formulated some very simple tax norms which have been transformed in modern tax theory. The equivalence as well as the ability-topay principle are basic yardsticks for every tax system in a democratic oriented market system, not to forget tax fairness. In the historical development process equity-oriented measures have often produced an enormous complexity of the single taxes as well as of the whole tax system. Therefore, reconsidering the Smithian principles of simplicity and of minimum compliance costs for the tax payer would even press many Western European tax systems to undergo serious reform processes which often are delayed because of intense interest group influence. Hence, a modern tax system is a simple one which consists only of a few single taxes which are easy to administer. Such a system consists of two main taxes, the income and the value added tax. Consequently in all countries of transition both taxes have been implemented, while the implementation was fostered by the fact that both also constitute the typical components of the EU member states systems. Therefore such a harmonising tax reform is the most important prerequisite to become a membership candidate. Bulgaria also tried to follow this general pattern in reforming the income tax system starting in 1992 and replacing the old socialistic turnover tax and excise duty system by the value added tax (VAT) in 1994. Especially with regard to the income tax system the demand for simplicity has not been met yet. Complex rules to define the tax base as well as a steeply progressive tax schedule have led to behavioral adaptations which are even strengthened by the effects of a high social contribution burden which is predominantly laid on the employers. In the following some concise descriptions of the tax and social contribution system are given; the paper closes with a summary, in which the impacts of the system are evaluated and some political recommendations for further reforms are presented.

Industrial policy measures can be a reasonable supplement to economic and social policy actions during the period of transformation of centrally planned economies. This paper shows the interplay between industrial and social policy. Special attention is given to the timing and sequencing of the transformation process. This approach is closely modeled on the example of New Zealand.

This volume contains the articles and papers which predominately have been published in international journals or edited volumes in the period from 1979 to 2009. The single articles reflect the main research areas of the editor and his co-authors who were engaged at the Kiel Institute of World Economics, the Johannes-Kepler-University Linz/Austria, the Justus- Liebig-University Giessen, the University of Potsdam, and the German Institute for Economic Research (DIW Berlin).

This volume contains the articles and papers which predominately have been published in international journals or edited volumes in the period from 1979 to 2009. The single articles reflect the main research areas of the editor and his co-authors who were engaged at the Kiel Institute of World Economics, the Johannes-Kepler-University Linz/Austria, the Justus- Liebig-University Giessen, the University of Potsdam, and the German Institute for Economic Research (DIW Berlin).

This volume contains the articles and papers which predominately have been published in international journals or edited volumes in the period from 1979 to 2009. The single articles reflect the main research areas of the editor and his co-authors who were engaged at the Kiel Institute of World Economics, the Johannes-Kepler-University Linz/Austria, the Justus- Liebig-University Giessen, the University of Potsdam, and the German Institute for Economic Research (DIW Berlin).

This volume contains the articles and papers which predominately have been published in international journals or edited volumes in the period from 1979 to 2009. The single articles reflect the main research areas of the editor and his co-authors who were engaged at the Kiel Institute of World Economics, the Johannes-Kepler-University Linz/Austria, the Justus- Liebig-University Giessen, the University of Potsdam, and the German Institute for Economic Research (DIW Berlin).

In the history of economic thoughts the problem of a just tax rate structure has played an important role. The paper reconsiders the discussions of the last two centuries and sheds additional light on the concrete tax schedules using the more recent methods of tax theory. Even if the substitution effects which play an important role in the theory of optimal taxation are neglected, the slope in the diminishing marginal utility of income causes tax rate structures reaching from accelerated progression to delayed regression. Interestingly the principle of equal relative sacrifice combined with a Bernoulli utility function yields a delayed progression, which is connected with a negative income tax.

The paper is based on an individual life-cycle model, which describes the purely economic components of human capital. The present value of human capital is determined by all future income flows, which at the same time constitute the individual as well as the total tax base of a nation. Therefore, the income of the productive population determines the total tax revenue, which is spent for public goods (including education) and transfers (for poverty reduction). The efficient design of the education system (by private and public education investments) determines the quality of the human capital stock as well as the future gross income flows. The costs of public goods and the transfer expenditures have to be financed from the total tax revenue, which also affects the individual tax burden via the specific tax bases and tax rates. Especially the redistribution of income is connected with serious disincentives, influencing the preferences for work and leisure as well as for consumption and saving. An efficient tax and transfer system being accompanied by an education system financed in public private partnership, which treats equally labor and capital income, sets positive incentives for the formation of human, financial, and real capital. An important prerequisite for a sustainable growth process is the efficient design of the social security system, being based on the family as well as a collective risk equalization scheme. If that system is diminishing absolute poverty in an appropriate time period by transfers and vocational education measures for the grown-up as well as high quality primary, secondary and tertiary education programs for the children, the transfer expenditure would decrease and the tax bases (income and consumption) increase, lowering the burden on the productive population. For the first time, this micro model presented in this paper pools all the relevant variables for development within a simple life-cycle model, which can also be used for a powerful analysis of the current failures in existing tax and transfer schemes and fruitful empirical investigations. Hence, an efficient tax and transfer scheme strongly contributes to an improved national position in the global competition.

Fragile states are characterized by institutions which do not have the political will or ability to reduce poverty in the interests of their citizen, to establish basic social security, to promote a successful development process, and to guarantee security and human rights. The regional disintegration processes after the period of imperialism and the fall of the iron curtain have created many new states, which still are politically unstable and unable for a sustainable development. In the literature such states are describes as "weak", "failing or failed", "collapsed", "conflict or post-conflict" - dependant on the extent of the particular state failure. Several indicators try to describe such states and partly allow for projections of the future development. Then the role of taxation is discussed in detail before recommendations for the development cooperation are presented. Obviously taxation plays a key role for the democratization process in fragile states.

In the first part of the report of the GTZ expert group an overview on the basics of integration and tax harmonisation within a common market is given. Chapter II. concentrates on the problems of national and international tax law regarding double taxation before the harmonisation process within the EU is described in detail. This process is not a best practice example but at least the experiences made in the course of the last five decades are interesting enough and might contribute important information for regions, which more or less recently have started a similar endeavour. The harmonisation needs are discussed for value added taxation (VAT), excise taxation, and income taxation. The problems of tax administrations, procedures laws, taxpayers’ rights and obligations as well as tax compliance are also taken into consideration. The second part of the study reviews the national tax systems within the EAC member countries. Before the single taxes are described in more detail, the macroeconomic situation is illuminated by some basic figures and the current stand of the inner-community integration analysed. Then the single tax bases and tax rates are confronted to shed some light on the necessities for the development of a common market within the near future. Again the value added tax laws, excise taxes and income taxes are discussed in detail, while regarding the latter the focus is on company taxation. For a better systematic analysis the national tax laws are confronted within an overview. The chapter is closed with a summary of the tax rates applied and a rough estimation of the tax burdens within the Partner States. The third part of this report contains the policy recommendations of the expert group following the same structures as the chapters before and presenting the results for the VAT, the excises and the corporate income tax (CIT). Additionally the requirements for tax procedures and administration as well as problems of transparency and information exchange are discussed in detail before the strategic recommendations are derived in close relation to the experiences made within the EU harmonisation process. The recommendations are based on the following normative arguments: (1) Tax harmonisation is a basic requirement for economic integration. (2) Equality of taxation is an imperative of tax justice and demands the avoidance of double taxation as well as the combat of tax evasion and corruption. (3) The avoidance of harmful tax competition between the Partner States. (4) The strengthening of taxpayers’ rights in tax procedures. Hence, all kinds of income, goods and services should be taxed once and only once.