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Austria: Selected Issues and Statistical Appendix

Author(s):
International Monetary Fund
Published Date:
January 2000
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II. The Austrian Labor Market: Performance and Challenges17

A. Introduction and Summary

29. Austria stands out among industrial countries as having maintained over the past thirty years one of the lowest unemployment rates; low youth and low-skilled unemployment; below average long-term unemployment; and one of the highest employment rates. Moreover, despite massive restructuring, which reduced employment in manufacturing by ¼ since 1980, it has experienced relatively small unemployment increases. On the other hand, job creation has been sluggish. This chapter examines the factors behind Austria’s good labor market performance and the lessons that can be drawn for other countries.

30. Several institutional factors have contributed to this commendable performance: (i) The system of social partnership, which actively involves special interest groups in the formulation and implementation of macroeconomic, incomes, and social policies, has made it possible to internalize policy externalities and promote the longer-term interest of the country as a whole. The social partners have facilitated wage moderation (necessitated by the peg to the DM since 1981); have allowed (unlike in Germany) some wage differentiation across sectors/enterprises in line with specific productivity and demand conditions (thus preserving competitiveness); and have enabled extensive industrial restructuring in an environment of social peace, (ii) The system of apprenticeship training, notwithstanding the need for periodic modernization (as in Germany), smoothes the transition from school to work and obviates pressure from high contractual wages, (iii) While burdening the fiscal position, early retirement incentives (as in most other EU countries) and the expansion of public sector employment (unlike most other EU countries) have played a major role in mitigating the rise in unemployment until the mid-1990s. Finally, (iv) active labor market policies (ALMPs) have risen to prominence since the mid-1990s, with a clear emphasis on employability and entrepreneur ship, and innovative programs like job coaching, training, and contestable unemployment placement services.

31. However, the resilience of unemployment (albeit at a relatively low level) and the rapidly changing economic landscape (domestic and external) have revealed weaknesses in this four-pillar model. In particular, the social partnership system with its need for extensive consultations has, at times, delayed reforms that improve productivity and flexibility (e.g., the introduction of nonstandard employment arrangements) and may have hamstrung potential growth by focusing more on preserving jobs rather than creating new employment opportunities. The educational system has been slow to adapt to the demands of new technologies and the need for continuous retraining of the labor force. Finally, early retirement, by excessively burdening the public finances, has reduced the scope to lower taxes and promote enterpreneurship, and has adversely affected labor supply at a time of declining population growth.

32. The labor market continues to present policy challenges, stemming from a greater need for labor market flexibility with the advent of the EMU, increasing international competition, and demographic and technological changes. For continued good labor market performance in the medium term, it will be crucial to reform the system of social partnership to enable it to respond better and faster to the needs of the labor market; to address problems related to the graying of the labor force (rising long-term unemployment, skills depletion, pressures on the pension system); and to reform the educational system.

33. The remainder of this chapter is organized as follows: after reviewing the stylized facts and the main trends in the Austrian labor market over the past three decades in a cross-country perspective in section B,18section C looks at the anatomy of unemployment to identify unemployment traps and labor market rigidities. Section D evaluates the role of the institutional and policy framework in containing unemployment and its capacity to deliver results in the years ahead, while section E looks at wage flexibility. Section F concludes with policy challenges.

B. Stylized Facts

34. The unemployment rate in Austria has remained one of the lowest among industrial countries over the past thirty years. At 3.7 percent in 1999,19 the standardized unemployment rate (Eurostat definition, labor force survey based) was less than half the EU average and the third lowest in the EU after Luxembourg and the Netherlands (Figure II-1).20 Non-employment, which is a more reliable indicator of labor market performance than unemployment when the incidence of early retirement, invalidity, full-time education, childcare leave, and part-time employment is high, was also relatively low at 32.6 percent (Figure II-2 and Table II-1). Austria, like most other EU countries, has used early retirement extensively to relieve labor market pressures and, as a result, non-employment among older workers (72 percent) is the second highest in the EU; but this is more than offset by the very low non-employment among prime-age adults and younger workers, thereby keeping overall non-employment low. In the 25-54 cohort, which is not affected by peculiarities of the educational system and early retirement, Austria features the lowest non-employment rate.

Figure II-1.Standardized Unemployment Rate, 1999

Percent

Source: OECD, Analytical Database.

Figure II-2.Non-Employment Rate, 1998

Percent of working age population; in full-time equivalents

Source; OECD, Analytical Database.

Table II-1.Non-Employment Rates in Industrial Countries, 1998
TotalBy GenderBy Age 1/
MenWomenYouth (15-24)Adults (25-54)Older workers (55-64)
Austria32.624.141.045.819.672.0
Belgium42.733.052.574.025.677.5
Denmark24.719.829.833.616.649.6
Finland35.231.838.861.221.163.8
France40.633.547.779.123.267.0
Germany35.927.544.455.023.061.2
Greece45.129.060.472.430.961.5
Ireland40.228.651.857.029.158.4
Italy49.234.963.374.634.173.1
Netherlands30.220.140.637.520.766.7
Portugal33.224.241.957.119.749.1
Spain48.833.064.369.436.965.2
Sweden 2/28.526.530.658.418.737.0
United Kingdom 2/28.821.935.839.020.951.7
European Union38.929.048.762.325.762.9
Switzerland20.712.829.036.715.128.7
Canada31.025.336.747.421.754.6
Japan30.518.342.855.420.836.2
United States 2/26.219.532.641.018.942.3
Source: OECD, Employment Outlook, 1999.

Ratio of employment to working age population of each group.

Age group 15-24 refers to 16-24.

Source: OECD, Employment Outlook, 1999.

Ratio of employment to working age population of each group.

Age group 15-24 refers to 16-24.

35. Although unemployment has remained relatively low over the past thirty years, it has risen as in all other EU countries:21 after hovering around 1 percent in the 1960s, the unemployment rate rose marginally in the wake of the first oil shock, doubled at the time of the second oil shock, remained roughly unchanged during most of the 1980s, and crept up again in the 1990s. Overall, however, both the increase and gyrations of unemployment have been much less pronounced than in the rest of the EU (Figures II-3 and II-4). In the past two years, strong GDP growth and active labor market policies helped reverse the upward trend. However, the reduction in unemployment was more moderate than the EU average and much smaller than the spectacular declines in the Netherlands, the U.K. and Denmark (albeit these happened from much higher levels). Although these countries performed better in recent years when measured by the magnitude of improvement, Austria maintained its unemployment at a significantly lower level in practically all thirty years, and, hence, had better overall labor market performance (i.e., lower unemployment-related welfare losses over the longer run).

Figure II-3.Unemployment and Non-Employment

Percent

Source: OECD, Analytical Database.

Figure II-4.Standardized Unemployment Rate

Percent

Source: OECD, Analytical Database.

36. The upward trend in unemployment can be explained by a range of factors related to demand and supply shocks, and the institutional and policy setup. The coming of age of baby boomers and substantial immigration raised labor supply in the early 1980s and early 1990s, respectively, while extensive restructuring (mainly in industry), rising non-wage costs (to finance social security), and capital deepening have curtailed labor demand. Although wage moderation and greater flexibility in work arrangements have tempered the effect of adverse shocks on employment, social consensus was achieved at the cost of extensive early retirement and delays in the opening up of the sheltered economic environment.

37. The following decomposition provides a useful framework for identifying the proximate determinants of the unemployment rate, UNR:

(1 - UNR) = [Q/APL] + [(L/POPT) (POPT/POP)POP]

On the right hand side, the numerator focuses on the proximate determinants of labor demand, namely the level of activity, Q, and the average productivity of labor, APL. The denominator reflects labor supply determinants, namely the participation rate (share of labor force in working age population, L/POPT), the activity rate (share of working age population to total population, POPT/POP), and population (POP). The remainder of this section examines the evolution of these factors, focusing on their effect on unemployment.

Demographic trends

38. Working age population increased only moderately in the past 30 years as low fertility has dampened the rise in the activity rate related to the coming of age of the babyboom generation and immigration inflows.

  • The coming of age of the babyboom generation increased working age population by almost half a million between 1974 and 1984, notwithstanding a virtually stagnant population, and raised the activity rate by 5 percentage points (Figure II-5); the timing and magnitude of this shock is comparable to those in other EU countries (Figure II-6). Correspondingly, the graying of babyboomers will generate a shock of similar magnitude (but opposite sign) around 2010, which will strain the financial position on the pension system.
  • After remaining virtually unchanged in the second half of the 1980s, working-age population increased further in 1989-91 due to an uptick in foreign employment which was driven both by demand factors (to relieve labor shortages during brisk economic activity in the wake of German unification) and supply factors (notably the crisis in the former Yugoslavia and, to a lesser degree, the opening up of the CEECs). Overall, the share of foreign workers in total employment rose from 5 percent in the 1980s to over 9 percent in 1998, and is the highest in the EU alongside Germany.22 As in other EU countries, immigration has been used actively as an instrument of employment policy and is correlated with labor market conditions (Figure II-7). After rising rapidly in the 1960s, the share of foreign in total employment declined by 3 percentage points between the mid-1970s and late 1980s as regulation was tightened in an effort to contain unemployment; after the 1989-91 surge, foreign employment stabilized as immigration controls were tightened further with the weakening of economic activity.23

Figure II-5.Population and Working Age Population

Millions

Source: OECD, Analytical Database.

Figure II-6.Activity Rate

Percent of total population

Source: OECD, Analytical Database.

Figure II-7.Unemployment and Foreign Workers

Percent

Source: OECD, Analytical Database.

Participation rate

39. Extensive use of early retirement as an instrument to relieve labor market pressures has reduced the participation rate and moderated labor force growth (Figure II-8). The rise in early retirement is manifested primarily in declining male participation, which has more than offset the rise in female participation; the latter stems from better education, lower fertility, and the changing perception of the role of women in society. Early retirement surged in the early eighties and in the second half of the 1990s; currently almost 7 percent of the labor force (¼ of the non-employed) benefit from the scheme.24 The structure of early retirement has also changed, with disability pensions becoming less prevalent in the past few years (Figure II-9). Corrected for the effect of early retirement, the participation rate exhibits a rising trend (driven by rising female participation, which is still much lower than in most Nordic countries albeit some 6 percentage points higher than the EU average in recent years) and its cyclical swings are less accentuated (Figure II-8). The average retirement age has declined by four years since the early seventies25 and is currently 57½ years. But it is only 49½ years for disability pensions, whereas for old age pensions it is 61 for men and 58 for women,26 earning Austria a reputation as the country with the oldest students and youngest retirees (Figure II-10). Although well above the EU average, the incidence of early retirement (proxied by non-employment among 55-64-year-old men) is currently lower than in Belgium, Luxembourg and France (Figure II-11) and is also below the peak reached in the Netherlands before the onset of reforms.

Figure II-8.Participation Rate

Percent

Sources: WIFO; and OECD, Analytical Database.

Figure II-9.Early Retirement

Thousands

Source: Hauptverband der Österreichischen Sozialversicherung.

Figure II-10.Average Retirement Age

Source: Bundesministerium für Arbeit.

Figure II-11.Non-Employment Ratio for Men 50-64, 1998

Percent

Source: OECD, Employment Outlook, 1999.

Labor demand factors

40. Notwithstanding robust economic growth, job creation has been sluggish. Although wage increases have been more moderate than in other EU countries and in line with productivity growth (Figures II-12 and II-13), the combination of high labor costs, declining relative cost of equipment, and a tax system favoring capital accumulation,27 has induced rapid capital deepening. This has brought about substantial productivity gains (Box II-1) which have largely offset the employment effect of the robust growth (Figure II-14). Overall, employment increased by 0.4 percent annually since 1970 and accommodated less than half of the increase in working-age population during that period (Figure II-15). Developments have been uneven: increases in employment in the aftermath of the first oil shock (mainly due to expanding public employment and labor hoarding by state-controlled enterprises), during the brisk upswing in 1988-92, and, to a lesser degree, in the upswing of 1996-99 were interspersed with substantial declines related to enterprise restructuring in the first half of the 1980s (oil shock, international competitive pressures in steel and textiles) and the 1990s (increased competition from CEECs, accession to the EU).

Figure II-12.Unit Labor Cost in Manufacturing Sector

1985 = 100

Source: OECD, Analytical Database.

Figure II-13.Real Wages and Productivity in the Business Sector

1970 = 100

Source: OECD, Analytical Database.

Figure II-14.Employment and Productivity Growth

Percent

Source: OECD, Analytical Database.

Figure II-15.Working Age Population and its Components

Change since 1970, in thousands

Sources: OECD, Analytical Database; and WIFO.

Box II-1.Productivity Performance in the Business Sector

Notwithstanding some deceleration, labor productivity growth in the business sector in Austria has been brisker than in the EU. It has also been faster than in the United States during 1970-99, except for the 1995-99 sub-period. However, the impact on employment has been very limited as this relatively good productivity performance has been driven by capital deepening, rather than strong total factor productivity growth.

Capital deepening has been faster than in the EU and accounts for ⅔ of productivity growth over the past thirty years. Its rapid pace reflects a combination of high and rising labor costs (including tax burden) relative to the cost of capital, a tax system that favors capital accumulation (see Appendix II), and the effects of labor shedding, International comparisons, however, are also influenced by the larger weight in Austria of capital intensive industries and the lower frequency of part-time employment in Austria, as well as cross-country differences in the pace of outsourcing.

Box Figure II-1.Productivity

1970 = 100

Source: OECD, Analytical Database.

Box Figure II-2.Capital-Labor Ratio

1980 = 100

Source: OECD, Analytical Database.

Box Figure II-3.Labor Productivity in the Business Sector

Sources: OECD, Analytical Database; and Staff calculation.

The contribution of total factor productivity (as it is influenced by labor hoarding/shedding) has a strong cyclical element that accounts for most of the cyclical fluctuations in productivity. Enterprise adjustment (facilitated by early retirement) in connection with EU accession and greater competition from CEECs underpins the recovery in total factor productivity growth in the second half of the nineties.

Labor Productivity in the Business Sector(Annual Percentage Changes)
1970-991970-731973-901991-981995-99
Austria2.64.82.61.52.0
Capital deepening1.72.31.61.31.3
TotalFactor Productivity0.92.51.00.20.7
Germany2.43.82.32.41.7
France2.54.82.61.71.5
Netherlands2.04.81.91.60.7
Denmark2.13.71.83.31.2
Euro Area2.54.62.42.51.2
United Sates1.32.80.81.42.1
Sources: Analytical Database, OECD; and staff calculations.
Sources: Analytical Database, OECD; and staff calculations.

41. Reflecting the changing structure of the economy, the structure of employment has changed substantially over the years. Whereas employment in the business sector has stagnated due to the gradual contraction of the number of self-employed (primarily agriculture) and the slow growth of dependent employment, manufacturing employment dropped by 25 percent since 1980 due to downsizing and outsourcing—partly to the services sector28—whereas the (non-government) services sector expanded considerably. Until the 1980s, the public sector accounted for a significant part of the increase in employment (Figure II-16) and, as a result, the share of government employment has risen to 16½ percent of total employment. Meanwhile, part-time and other nonstandard forms of employment (fixed-term contracts, leased labor, casual employment, etc.) have grown markedly in line with increasing flexibility in the marketplace. Part-time employment, in particular, has risen from 13 percent in 1985 to 20 percent in 1999 and is particularly frequent among women (75 percent of part-timers); its incidence, however, remains low by international standards.29

Figure II-16.Government Employment

Percent of total employment

Source: OECD, Analytical Database.

42. The picture that emerges by bringing together in Table II-2 the various determinants of unemployment is that sluggish job creation has been the predominant reason for the rise in unemployment in the past two decades. Net job creation was virtually nil in the 1980s and corresponded to only ⅔ of the increase in working age population in the 1990s, notwithstanding robust GDP growth. As in other countries, the labor market response to sluggish job creation has been the expansion of part-time employment: in fact, the entire employment increase during the 1996-99 upswing was part-time. Public employment and early retirement have also been instrumental in containing unemployment, but their significance has been declining.

Austria: Table II-2.Change in the Labor Force(In thousands)
1970-791980-891990-991988-911996-99
Employment2113119717463
Full-time145-85521365
Part-time651161453858
Business sector86-6016114866
Self employed-216-71-49-133
Government124913626-3
Austrians13140756857
Foreigners79-91221056
Unemployment1927326-9
Austrians-2875616-8
Foreigners4617100
Inactive labor force8319449-46-20
Early retirement16413968129
Other-8155-19-58-29
Working age population29531731815435
Austrians2123211793828
Foreigners83-31391166
Sources: WIFO; and OECD, Analytical Database.
Sources: WIFO; and OECD, Analytical Database.

C. The Anatomy of Unemployment

43. The distribution of unemployment has been uneven, resulting in pockets of high unemployment for certain demographic groups, types of workers, and regions.

44. Long-term unemployment (i.e., unemployment of more than one year) has risen from less than 10 percent of registered unemployment in the 1970s to 16 percent in recent years, although this is an underestimate as those who exhaust their benefit eligibility tend to drop out of the unemployment register (Figure II-17, Table II-3). Indeed, survey-based statistics suggest a higher long-term unemployment of 30 percent, which, nonetheless, is one of the lowest in the EU (Figure II-18, Table II-4). More than half of the long-term unemployed come from the tertiary sector and those branches of industry where restructuring is still ongoing. Long-term unemployment is concentrated mostly among low-skilled workers (½ of registered long-term unemployed), those whose skills have been depleted by technological progress, and older workers (41 percent of registered long-term unemployed).

Figure II-17.Registered Unemployment

Percent of labor force

Source: WIFO.

Table II-3.Austria: Structure of Registered Unemployment, 1990-98(Annual averages; in percent of total, unless otherwise noted)
199019911992199319941995199619971998
Unemployed (In thousands)165.8185.0193.1222.3214.9215.7230.5233.3237.8
By gender
Male53.753.555.557.056.155.655.555.154.4
Female46.346.544.543.043.944.444.544.943.6
By duration
Up to 3 months55.852.652.050.650.151.951.050.350.0
3-6 mouths19.119.118.219.218.018.119.519.219.5
6-12 months12.013.112.913.113.412.513.614.314.5
One year or more13.115.217.017.018.517.515.816.215.9
By age
15-2423.021.619.518.717.316.916.916.315.3
25-3942.242.341.541.943.044.645.043.842.9
40-5428.929.932.333.233.732.532.232.633.0
55 and older5.96.26.66.26.16.16.07.48.8
By educational attainment
Compulsory schooling45.345.244.643.742.841.841.440.940.8
Apprenticeships35.235.636.337.237.738.538.638.538.5
BMS6.05.85.75.76.06.16.36.46.5
AHS2.82.82.82.82.62.62.62.72.7
BHS3.23.33.63.93.94.04.1434.4
University education2.72.52.42.42.62.82.92.92.8
Unclassified0.90.90.50.40.30.20.20.20.2
By occupation
Seasonal occupations 1/27.627.025.925.125.125.723.425.125.0
Production30.030.531.332.331.230.130.429.4287
Services42.342.542.742.543.644.144.245.546.3
Unemployed with physical limitations (in thousands)45.452.152.057.059.164.170.772.379.5
Health reasons40.139.342.044.845.044.545.749.348.7
Mobility limitations (e.g. spatial)49.150.548.145.846.045.744.341.042.3
Other10.710.29.99.59.09.810.09.77.9
Unemployment duration (in days)103112114119125124127130127
Male96104105110117116119120119
Female113122127131136136138143138
Long-term unemployed 2/ (in thousands)21.828.232.737.939.737.736.437.837.9
Male53.551.450.353.356.055.354.654.655.8
Female46.548.649.746.744.044.745.445.444.2
18-244.64.74.13.43.12.83.33.53.0
25-5060.758.554.751.952.355.160.359.855.6
50 and older34.536.841.144.544.542.036.336.741.3
Source: Labor Market Service.

Agriculture, forestry, construction, and tourism.

Unemployed for more than twelve months.

Source: Labor Market Service.

Agriculture, forestry, construction, and tourism.

Unemployed for more than twelve months.

Figure II-18.Long-Term Unemployment, 1998

Percent of total unemployment

Source: OECD, Employment Outlook, 1999.

Table II-4.Characteristics of Unemployment in Industrial Countries, 1998
Standardized Unemployment RateUnemployment Rate by GenderUnemployment Rate by AgeUnemployment by Educational AttainmentIncidence of Long-term Unemployment in Percent of Total Unemployment 1/
Both sexesMenWomen15-2425-5455-64Less than upper secondary educationUpper secondary educationTertiary level education6 months and over12 months and over
Austria4.75.55.45.67.55.06.46.03.32.345.330.2
Belgium8.89.47.611.720.48.45.313.47.43.677.562.6
Denmark5.15.13.96.47.24.65.111.87.03.943.728.7
Finland11.411.510.912.122.09.514.021.515.27.142.227.5
France11.711.910.313.925.410.88.714.89.76.764.244.1
Germany9.48.68.58.79.47.712.714.28.95.269.252.2
Greece11.98.117.832.19.63.76.59.28.0
Ireland7.87.98.27.511.57.35.116.97.44.2
Italy12.212.29.516.432.19.64.79.48.27.381.666.7
Netherlands4.04.33.55.58.23.62.37.04.53.583.647.9
Portugal4.94.94.06.09.54.13.46.45.73.264.644.6
Spain18.818.813.726.734.116.510.620.117.414.370.454.1
Sweden 2/8.28.48.88.016.87.66.610.89.64.849.233.5
United Kingdom 26.36.26.95.312.35.05.310.97.13.548.033.1
Switzerland3.73.24.35.83.33.46.53.12.748.934.8
Canada8.38.48.68.215.27.16.913.48.96.723.110.1
Japan4.14.24.34.27.73.45.039.020.3
United States 2/4.54.54.54.710.43.52.610.95.12.414.18.0
Source: OECD, Employment Outlook, 1999.

Based on labor force surveys.

Age group 15-24 refers to 16-24.

Source: OECD, Employment Outlook, 1999.

Based on labor force surveys.

Age group 15-24 refers to 16-24.

45. The incidence of unemployment has been higher among older workers: it was 10½ percent of the labor force in the 50-59 cohort in 1998 (but less then 6 percent in the 60+ cohort owing to early retirement). This reflects a combination of skill depletion; institutional rigidities that discourage older workers from accepting wage cuts or part-time employment rather than entering unemployment; and the high costs associated with the activation of older workers.30 In general, older workers are less likely to lose their job, but those who do lose it face a higher probability of becoming long-term unemployed.

46. Youth unemployment has been low by international standards (Figure II-19). This is attributed to the system of apprenticeship training (which provides formalized company-based training and education) and vocational schools (which supplement apprenticeship in the field of higher technical and engineering education) that smooth the transition from school to work and obviate pressure from high contractual wages.

Figure II-19.Youth Unemployment, 1998

In percent of labor force (15-24)

Source: OECD, Employment Outlook, 1999.

47. The incidence of unemployment declines with higher levels of education. The bulk of the unemployed have no education beyond compulsory schooling or apprenticeship training. Pichelmann and Hofer (1999) estimate that the risk of unemployment for low-skilled workers has been on the rise; within this group, the risk of unemployment for persons with compulsory schooling is double that of persons that have completed an apprenticeship.

48. Unemployment displays persistent differences across regions. Notwithstanding employment, industrial and regional policies, the pattern of regional unemployment has remained practically unchanged—with the exception of the Vienna region, whose relative position has deteriorated markedly—and, in general, regions that have high unemployment tend also to have low wages (Figures II-20 and II-21). These indicate limited labor mobility across regions, which is associated with distortions in the housing market that suppress the market for rental housing. In particular, the majority of rental housing is managed by nonprofit building associations and local authorities; privately owned apartments on pre-WWII contracts with inherited rights to tenancy are rented at only a nominal amount, short-term leases are not envisaged in the legislation; and subletting or exchange of apartments managed by building associations is prohibited. Rigidity is exacerbated by a popular arrangement whereby tenants make an initial downpayment in exchange for a lower life-long rent. The market reaction to housing market rigidities has been increasing commuting (circumstantial evidence indicates that two hours of daily commuting is not infrequent).

Figure II-20.Registered Unemployment, 1970-99

Percent of dependent labor force

Source: Sozialstatistisches Taschenbuch, AK.

Figure II-21.Unemployment Rate

Unemployment

Source: Sozialstatistisches Taschenbuch, AK.

49. Labor turnover increased rapidly in the 1990s as a result of the rapid growth of non-standard employment arrangements. Social security statistics indicate that almost 20 percent of dependent employees in non-seasonal jobs, and one in every two employees in seasonal jobs (i.e., agriculture, construction and tourism) entered unemployment in 1998. Meanwhile, survey-based statistics point to a rise in turnover from 15 percent in the late 1980s to 25 percent in 1995. Turnover is lower in human capital intensive sectors requiring firm-specific skills and higher among low-skilled and foreign workers. About 40 percent of the unemployed return to their previous employer.

50. The rise in unemployment has been accompanied by a rise in the average duration of unemployment spells (Verweildauer) from 56 days in 1981 to 138 days in 1998. Average duration is generally longer for women and increases with age: currently it ranges from 80 days for younger workers to one year for workers 60 years or older

51. Although unemployment has not been a major social problem, it has been an important focus of economic policy because of increasing economic insecurity and rapid changes in the economic environment. The increasing probability of unemployment and the longer duration of unemployment spells in conjunction with the deteriorating quality of employment, intensifying competition, and the erosion of institutions (e.g., the welfare state) that have sheltered the population in the past have increased the perception of economic insecurity. In addition, the relatively high concentration of unemployment among older and low-skilled workers indicates the existence of a skills mismatch that is likely to be exacerbated further by the rapid technological progress. In this environment, there are limits on how far robust growth alone can reduce unemployment.

D. Wage Flexibility and Differentiation

52. The responsiveness of wages to macroeconomic shocks (aggregate wage flexibility) and to the conditions in individual sectors/enterprises (wage differentiation) are key determinants of labor market performance insofar as adjustment in prices reduces the need for adjusting quantities.

53. Aggregate wage flexibility in Austria is high. An earlier cross-country study by Layard et al. (1991), which covers the period 1956-85 and a more recent one by Roeger and Veld (1997), which covers the period 1973-95 and follows a different methodology, indicate that a one percentage point rise in the unemployment rate reduces real wages by 1½ percent in the short term and by 2¾ percent in the longer term. These semi-elasticities are twice as high as their corresponding averages in the EU and among the highest among industrialized countries (Table II-5).

Table II-5.Measures of Aggregate Real Wage Flexibility in Industrial Countries 1/
Aggregate Time Series Measures 2/
Layard et al. (1991)Roeger and Veld (1997)OECD (1997)
Short-termLong-termShort-termLong-termShort-term
Austria1.433.111.602.530.97
Belgium0.654.060.901.180.67
Denmark0.661.740.901.110.57
Finland0.481.550.751.28
France2.224.310.901.270.57
Germany 3/0.551.010.650.890.71
Greece0.551.240.73
Ireland0.801.820.480.710.27
Italy2.0712.940.951.441.34
Netherlands0.662.280.951.420.93
Portugal0.641.452.19
Spain0.171.210.881.860.45
Sweden2.3112.161.101.83
United Kingdom0.980.980.500.740.20
Switzerland1.327.33
Canada0.502.380.58
Japan6.4014.502.503.47
United States0.320.940.500.550.43
Sources: Layard et al. (1991); Nickel (1997); OECD (1997b); Roeger and Veld (1997).

Percentage increase (reduction) in real wages in response to a 1 percentage point fall (increase) in the unemployment rate.

Measures derived from econometric estimations based on aggregate time series. The precise specifications and the estimation periods are detailed in the studies. The results are not perfectly comparable across countries as the specifications vary somewhat across them.

Based on West Germany.

Sources: Layard et al. (1991); Nickel (1997); OECD (1997b); Roeger and Veld (1997).

Percentage increase (reduction) in real wages in response to a 1 percentage point fall (increase) in the unemployment rate.

Measures derived from econometric estimations based on aggregate time series. The precise specifications and the estimation periods are detailed in the studies. The results are not perfectly comparable across countries as the specifications vary somewhat across them.

Based on West Germany.

54. The main reason for the high aggregate wage flexibility has been the system of social partnership which, by imposing cooperative behavior on its members, encourages the various special interest groups to take into account the overall macroeconomic conditions; it reflects also the social partners’ emphasis on employment and growth, as well as the acceptance of wage moderation in return for job security, as part of the social compromise.31 Thus, in setting wages the social partners have tended to restrict increases during upswings and be more generous in recessions.32 The peg of the schilling to the DM since the early 1980s and intensifying international competition have created further pressure for wage discipline.33

55. Aggregate wage behavior can be described by an error correction model in which short-term dynamics are dominated by unemployment and longer-term developments are linked to productivity.34 The empirical relationship mirrors the particular attention that social partners in Austria have traditionally paid to external competitiveness and their readiness to accept wage moderation in return for greater employment stability. The wage equation in Box II-2 captures several important features of wage setting in Austria:

  • The coefficient of labor productivity, which is not significantly different from unity, confirms that real wages rise in line with productivity, which keeps the labor share constant.35
  • Unanticipated inflation, proxied by the acceleration in inflation, reduces temporarily real wages, whereas improvements in external competitiveness tend to raise real wages.
  • Wages seem to respond differently to different types of unemployment. They respond stronger to deviations of unemployment from its trend (proxied by an HP filter) than to changes in trend unemployment. The diagnostics of the equation improve when short-term unemployment (defined as unemployment of up to six months) replaces total unemployment, which is an indication that the long-term unemployed tend to withdraw from active job seeking and thus have a smaller impact on wage determination. Over the long-run, a rise of unemployment by one percentage point leads to a 2.8 percent decline in wages, which is close to the estimates of the earlier studies reported above.

Box II-2.Wage Equation

WtWt1=0.56(0.25)DINF0.74(1.43)(U­UH)+2.81(0.86)DLAY0.37(0.08)[Wt11.08(0.07)PTYt1+2.77(1.59)UHt10.42(0.17)RPXMt1+8.11(1.06)]

R2 = 0.76; S.E. of regression = 1.45; D.W. = 1.89; Akaike information criterion = 3.78; standard errors in parenthesis. Annual data for 1967-1999 from the Analytical Database of OECD. All variables are in logarithms.

W=Wage rate in manufacturing.
DINF=Change in CPI inflation.
U=Registered short-term unemployment rate (up to six months).
UH=Smoothed unemployment rate (HP filter).
DLAY=Dummy variable for 1969-77, as in Layard et al. (1991).
PTY=Productivity in the business sector.
RPXM=Export prices of manufactures relative to competitors’ price.

56. Notwithstanding the high degree of coordination in the wage bargaining process, solidarity is not as overriding a consideration as, for example in the Scandinavian countries. This results in a relatively high wage dispersion in Austria manifested in substantial disparities in the remuneration of men and women as well as groups with different qualifications. The dispersion of earnings and inter-industry wages is also high but, to a large extent, reflects differences in the composition of the labor force. Controlling for skill, age, and other characteristics of the labor force, inter-industry wage dispersion in Austria is comparable to the dispersion in Germany and Norway. Microcensus data indicate that in 1981-93 the returns to schooling (higher education in particular) declined somewhat, which, however, seems to be associated with increased supply of university graduates. The age-earnings profile appears to be steep (compared to Germany) and could contribute to the (non)employability of older workers at a time when technological progress is depleting human capital fast (Pichelmann and Hofer, 1999; Hofer, 1999).

57. Aggregate data indicate that inter-industry wage dispersion has increased since accession to the EU (Table II-6). This is related to enterprise restructuring and the adoption of more flexible wage arrangements during this period. In recent years, enterprises have been shedding non-core business and outsourcing activities; this results in more homogeneous units that can facilitate greater wage flexibility and differentiation than larger units with hierarchical wage structures.36 Wage flexibility is enhanced also by the proliferation of temporary employment and leased labor. More germane to wage flexibility, the social partners have accepted distribution clauses (which allow enterprises to pay smaller across-the-board wage increases in exchange for higher performance-based bonuses) and opening clauses (which allow individual enterprises in difficult financial position to grant smaller wage increases than envisaged in sectoral agreements).

Table II-6.Austria: Variability of Wages and Salaries in Industry
Coefficient of VariationRange (in percent of average)
Hourly earningsSalariesHourly earningsSalaries
199015.515.452.373.8
199115.816.152.774.4
199215.516.751.176.6
199315.416.652.076.8
199415.315.652.075.7
199515.715.554.470.9
199616.015.956.273.3
199716.316.755.174.5
199816.517.756.181.2
199916.917.959.580.7
1990-9515.516.152.075.5
1995-9916.316.856.376.1
Sources: Lohn- und Gehaitstatistik der Industrie, Wirtschaftskammer; and staff calculations.
Sources: Lohn- und Gehaitstatistik der Industrie, Wirtschaftskammer; and staff calculations.

58. In a nutshell, although the high aggregate wage flexibility has been crucial for keeping unemployment low, wage differentiation and, in particular, wage scales appear to have been less flexible, thus contributing to higher unemployment among older workers.

E. Main Challenges

59. Notwithstanding its very good performance, the labor market is likely to continue posing policy challenges in the next few years. Enterprise restructuring and privatization have not been completed; so the long-term unemployment problem is unlikely to be disappearing. Meanwhile, the aging of the labor force, intensifying competition, and the prospects of eastward expansion of the EU are expected to put additional pressure for adjustment. In this environment, the main labor market policy challenges are: adaptation of the social partnership system, coping with the effects of an aging labor force, and educational reform.

60. The system of social partnership has been instrumental in keeping unemployment low and facilitating massive enterprise restructuring in an environment of social peace. Its strength lies in its ability to internalize macroeconomic policy externalities and forge broad consensus.37 However, the system of social partnership has not been without weaknesses.

  • On several occasions, wage moderation, job preservation, and social peace have been achieved at the cost of higher fiscal deficits—e.g., via easier access to early retirement, which puts the burden on future generations (not represented among the social partners)—and delays in enterprise restructuring, liberalization, pension reform etc. Although difficult to quantify, the sentiment is that these costs have not been insignificant. Some of these costs could have been avoided by switching from consensus to a majoritarian approach when dealing with issues like liberalization and pension reform (issues where there is need to lead public opinion) while at the same time exploiting policy complementarities and public dialogue to cultivate broad consensus for the policies.
  • There is also the need to adapt to the rapidly evolving economic environment. The system of social partnership was originally designed for an environment of settled production relations, large state enterprises, and relatively homogeneous labor (mostly unionized) where decisions were taken from above; but in the past few years the enterprises and labor relations have been changing rapidly (smaller and more flexible production units; more differentiated and flexible labor force) and important innovations are likely to emerge from below. Although the social partners are embracing innovation, new (and embryonic) professions and enterprises tend to be under-represented, which could hamper innovation and stifle competition.

61. The aging of the labor force poses several policy challenges. By weakening the finances of the social security system, it necessitates (in the absence of measures) higher social security contributions (already among the highest in the EU, see Appendix III); but by raising the cost of labor, this would encourage further capital deepening, which hampers job creation. Aging also increases the share of the labor force that is more at risk of becoming long-term unemployed; hence, it raises the need for preventive action in the form of more flexible work and wage arrangements and life-long training. Finally, aging is bound to create scarcities for certain types of labor and put pressure for increasing immigration inflows.

62. The rapidly changing economic and technological environment creates the need for education that provides flexibility in subsequent career and for continuing training (probably the most efficient vehicle for preventing long-term unemployment). The apprenticeship system, notwithstanding its success in building a highly skilled and well motivated labor force, needs to be redesigned in these respects as, with increasing specialization, enterprises are unable to provide a broad training experience to their apprentices; small companies and start-ups have limited capabilities of contributing to the scheme (the system is better suited for reproduction rather than innovation); and with increasing labor mobility, the scheme becomes less cost effective for individual enterprises.

Appendix I Competitiveness in Austria During the 1990s38

A. Introduction and Summary

63. After remaining roughly balanced during the 1980s, Austria’s current account deteriorated slightly in the early 1990s and appears to have stabilized at a deficit of around 2 percent of GDP during the second half of the decade (Figure 1). The worsening of the current account is largely attributable to a deteriorating performance in non-factor services trade and, most recently, to the slightly increasing interest burden on net external debt. By contrast, the merchandise trade balance improved in the 1990s.

Figure 1.Components of the Current Account

Source: IMF, World Economic Outlook.

64. Based on indicators of price competitiveness (presented in Section C), Austria’s competitive position did not deteriorate substantially over the last decade. On the contrary, developments in price competitiveness of the Austrian manufacturing sector were more favorable than in other small open European economies (such as Denmark, the Netherlands, and Switzerland), due to the lagged effects of structural adjustment. Trends in the price competitiveness of Austrian services appear to have paralleled developments in Switzerland: relative export prices increased in both countries until the mid-1990s, but the loss in price competitiveness was largely reversed in recent years.

65. Econometric evidence (presented in Section D) indicates that market growth accounted for the bulk of growth in Austria’s real manufacturing exports during the 1990s, while changes in price competitiveness played a relatively minor but still positive role. These results are based on an estimated long-run income elasticity of about 1 and price elasticity slightly above 1 (parameter values broadly similar to those found for the three comparator countries), and are consistent with Austria’s increasing market share in the manufacturing imports of its partner countries. The larger market share can be attributed to stronger price competitiveness, likely brought about by the successful industrial restructuring of the late 1980s and early 1990s. Tourism, the largest services exporting sector of the Austrian economy, also appears to have adjusted to adverse shifts in demand by a combination of structural adjustment and lower relative prices in the late 1990s. These adjustments are expected to contribute to a larger positive balance of the services sector in the years to come.

66. Based on these observations, Austria’s small but persistent current account deficit in the 1990s is not indicative of a weak overall competitive position. However, participation in the European Monetary Union may increase the persistence of small current account deficits, as increasing integration of financial markets is likely to relax financing constraints and lengthen the period for small deficits to dissipate.

B. Background: Recent Trends in the Current Account

67. While the actual current account deficit stood at about 2¾ percent of GDP in 1999, the underlying current account deficit is estimated to have been smaller, at around 1¾ percent of GDP (Table 1).39 The underlying current account takes into consideration adjustments for relative cyclical positions, exchange rate changes already in the pipeline, and special factors such as oil price changes and other shocks. Because the Austrian business cycle is well aligned with the business cycles of trading partners, the cyclical adjustment amounted to only 0.1 percent of GDP in 1999. The recent weakening of the euro, however, is estimated to improve the current account by more than ½ percent of GDP once the effects of the depreciation have fed through fully into exports and imports.40 As average oil prices during 1999 were roughly in line with the medium-term baseline41, the adjustment for this factor is nil. The Asian crisis is taken into account through its impact on the import demand of central and eastern European economies (CEECs), and is (conservatively) estimated to have decreased Austrian exports by about 0.3 percent of GDP.

Table 1.Actual and Underlying Current Account(In percent of GDP)
1990199519991990-95

change
1995-99

change
Current account balance0.62-2.31-2.78-2.92-0.47
Adjustment0.10-0.730.94-0.841.68
Domestic output gap1.30-0.16-1.09-1.45-0.94
Partners’ output gap-1.210.521.181.730.65
Lagged exch. rate changes-0.28-1.000.62-0.711.61
Oil prices0.30-0.10-0.05-0.400.05
Asian crisis0.000.000.300.000.30
Underlying current account0.72-3.04-1.84-3.761.21
Source: WEO; and staff calculations.
Source: WEO; and staff calculations.

68. Although the actual current account deteriorated by nearly 3½ percent of GDP during the 1990s, the change in the underlying current account position is estimated to have been smaller, at around 2½ percent of GDP, mostly owing to exchange rate and special effects. While the actual current account deficit worsened slightly in the second half of the decade, the underlying position is estimated to have improved.

69. In recent years, the evolution of the current account balance appears to have paralleled developments in the nonfactor services balance (see Figure 1): the current account balance deteriorated slightly despite a steady improvement in the goods trade balance. In addition, the balance on net factor income and current transfers declined slightly over the 1990s, partly as a result of EU transfer payments after Austria’s membership in 1995, and partly reflecting the increasing interest burden on the steadily accumulating net external debt.

70. Decomposing the trade balance into terms of trade and volume effects indicates that—taking 1995 as the baseline—terms of trade effects were not important during the 1990s. Volume effects dominated developments throughout most of this period (Figure 2).42 As the decomposition of the goods and services trade balance indicates, the contribution of the terms of trade effect was negative but relatively small for both goods and services in recent years. In 1999, its overall contribution to the total trade balance amounted to about -½ percentage point of GDP.

Figure 2.Decomposition of Goods and Services Balance 1/

Sources: IMF, World Economic Outlook; and staff calculations.

1/ Data up to 1995 are based on ESA 86.

C. Developments in Price Competitiveness

71. To put developments in Austria’s competitiveness into international perspective, three small European economies (Denmark, the Netherlands, and Switzerland) are used as comparators. Although the comparator countries operate under different exchange rate regimes, they display a broadly similar degree of openness and geographical orientation of trade.

72. Of the comparators, the Netherlands, like Austria, belongs to the euro area. Denmark—similarly to Austria—has maintained a fixed exchange rate vis-à-vis the deutsche mark since the early 1980s and vis-à-vis the euro since January 1999. Switzerland’s exchange rate is floating but has remained broadly stable in the 1990s against the same currencies.

73. Austria’s degree of openness, as well as the geographical composition of its trade, is similar to the comparators (Figures 3 and 4). In particular, the European Union accounts for about ⅔ of Austrian exports and imports, as it also does for the other three countries. However, in contrast to the others, its geographical position poises Austria for stronger trade links with the CEECs (Figure 4). In 1999, 13 percent of Austrian merchandise exports was directed to the CEECs, while these countries accounted for 7 percent of Austrian merchandise imports.43 As the CEECs start catching up and become better integrated with Western European economies, the importance of this region for Austria’s trade is likely to increase further.44

Figure 3.Degree of Openness

Source: IMF, World Economic Outlook.

1/ For Germany, data refers only to 1987-1999.

2/ Average of exports to GDP and imports to GDP ratios.

3/ Average real GDP for the 1990s.

Figure 4.Geographical Composition of Trade

Source: IMF, Direction of Trade Statistics.

1/ CEEC region defined as the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia.

2/ Share of region in merchandise exports, 1995-99 average.

3/ Share of region in merchandise imports, 1995-99 average.

74. Developments in price competitiveness in Austria, Denmark, the Netherlands, and Switzerland (as reflected in selected indicators) were broadly similar during the 1990s (Figure 5). However, while the evolution of the CPI-based real exchange rate shows a similar pattern in Austria and all the comparators, Austria’s price competitiveness in both the manufacturing and the services sector reflects some country specific factors.

Figure 5.Indicators of Price Competitiveness

Sources: IMF, International Financial Statistics database; and OECD Analytical Database.

75. As measured by the real effective exchange rate, competitiveness eroded in Austria as well as in all of the comparators in the first half of the 1990s, but this deterioration was reversed in the second half of the decade, mostly due to relatively low CPI inflation in all four countries.

76. Based on developments in the price of manufacturing exports relative to competitors, Austria’s price competitiveness position in manufacturing improved steadily in the 1990s. This contrasts with trends in price competitiveness of the comparators: deteriorating price competitiveness until 1995, improvement thereafter, which largely mirrors the evolution of their respective real exchange rates. Austria’s divergence from the comparators could be attributed to enhanced competitiveness due to the industrial restructuring in the late 1980s and early 1990s.

77. Austrian and Switzerland lost price competitiveness in services exports until the mid-1990s, but largely regained their positions by 1999. In the meantime, price competitiveness of the service sector of the Netherlands and Denmark appears to have improved steadily over the decade. In the case of Austria, the period of worsening price competitiveness coincided with a deteriorating tourism balance as demand declined.45 Austrian tourism appears to have reacted to the shift in demand partly by restructuring and partly by lower prices. As a result, the tourism balance has improved in the late 1990s.

D. Austria’s Manufacturing Exports in International Comparison

78. To help quantify the relative importance of market growth and price competitiveness factors for developments in manufacturing exports, simple export equations were estimated for Austria and the comparator countries (Denmark, the Netherlands, and Switzerland).

79. As unit root tests (Table 2) indicate that real exports, market size, and competitiveness are all difference stationary, an error correction relationship was specified between these three variables and estimated for the four countries for 1975-99 based on OECD data.

Table 2.Austria and Comparator Countries: Augmented Dickey-Fuller Test Statistics 1/2/
LevelsDifferences
Austria
Real manufacturing exports-0.344.45
Market size0.17-3.41
Competitiveness-1.38-3.71
Denmark
Real manufacturing exports-0.89-4.16
Market size0.59-3.59
Competitiveness-1.89-3.78
Netherlands
Real manufacturing exports0.27-4.08
Market size0.07-3.26
Competitiveness-0.55-4.46
Switzerland
Real manufacturing exports-0.47-5.16
Market size0.16-3.44
Competitiveness-1.92-5.53
Source: Staff calculations.

Tests assume an intercept term and no trend in the series.

5 percent critical value is -2.97.

Source: Staff calculations.

Tests assume an intercept term and no trend in the series.

5 percent critical value is -2.97.

80. The estimated equation is specified as follows:

d ln x = β1(ln x-1 + α1 ln yf-1 + α2 ln p-1 + α3) + β2d ln yf + β3d ln p + ε

where x stands for real manufacturing exports; yf captures market size (as weighted average of trading partners’ real manufacturing imports); p denotes competitiveness (manufacturing export prices relative to competitors’ prices for Austria and Denmark; relative unit labor costs in manufacturing for the Netherlands and Switzerland);46 and ε is an error term. The term in parenthesis is the error correction term: the (lagged) deviation of real manufacturing exports from their expected long-run value, while the second and third terms capture the short-run effect of market growth and changes in competitiveness, respectively.47

81. Estimation results reported in Table 3 indicate that the statistical relationship linking real manufacturing exports to market size and competitiveness displays some similarities in Austria and the comparator economies.

Table 3.Austria and Comparator Countries: Estimation Results: Manufacturing Exports 1/2/3/
AustriaDenmark 4/NetherlandsSwitzerland
CoefficientStd. ErrorCoefficientStd. ErrorCoefficientStd. ErrorCoefficientStd. Error
Long- run coefficients
Constant-7.411.10-7.241.97-2.391.33-2.471.10
Market size 5/-1.090.04-0.990.06-0.920.07-0.630.12
Competitiveness 6/1.190.211.190.410.340.230.150.36
Short-run coefficients
Error correction term-0.680.18-0.310.17-0.440.16-0.550.21
Change in market size1.050.140.620.181.040.130.520.27
Change in competitiveness-0.640.14-0.570.17-0.240.13-0.140.14
Adjusted R-squared0.770.450.800.33
S.E. of regression0.030.030.020.04
Sum squared residual0.010.020.010.03
Log likelihood58.6756.9162.2750.26
Durbin-Watson statistic1.911.932.291.49
F-statistic16.944.2520.543.38
Sample1975-19991975-19991975-19991975-1999
Source: Staff calculations.

Dependent variable: log change in real manufacturing experts.

Specification: dx(t) = a(1)* [x(t-1)+a(2)*c+a(3)y(t-1)+a(4)*P(t-1)] + a(5)*dy(t)+ a(6)*dp(t)

OLS estimates based on annual data.

The specification includes a dummy variable (coefficient not reported) for 1999.

Weighted average of partner countries’ real imports of manufactured goods (measured in in logs).

Manufacturing export prices relative to competitors for Austria and Denmark; unit labor costs in manufacturing relative to trading partners for the Netherlands and Switzerland.

Source: Staff calculations.

Dependent variable: log change in real manufacturing experts.

Specification: dx(t) = a(1)* [x(t-1)+a(2)*c+a(3)y(t-1)+a(4)*P(t-1)] + a(5)*dy(t)+ a(6)*dp(t)

OLS estimates based on annual data.

The specification includes a dummy variable (coefficient not reported) for 1999.

Weighted average of partner countries’ real imports of manufactured goods (measured in in logs).

Manufacturing export prices relative to competitors for Austria and Denmark; unit labor costs in manufacturing relative to trading partners for the Netherlands and Switzerland.

82. Over the long run, a 1 percent increase in export market size is estimated to translate into a 1 percent increase in real manufacturing exports, indicating that without changes in competitiveness, all four countries would maintain their market shares. However, there is substantial cross-country variation in the estimated importance of competitiveness factors. In particular, while the results for Austria and Denmark indicate that manufacturing exports of these countries are fairly sensitive to competitiveness (over the long run, a 1 percent loss in price competitiveness is estimated to lead to more than a 1 percent decline in real manufacturing exports), the estimated equations for the Netherlands and Switzerland fail to find a similar relationship. A possible explanation for this finding (besides measurement and data quality problems) is the higher importance of factors unrelated to price or cost competitiveness for Swiss exports (such as brand names and a general reputation of quality); and supply side effects emanating from an expansion in the labor supply in the 1990s for the Netherlands.48

83. Similarly to long-run elasticities, short-run dynamics also appear largely similar across the four economies. The size of the coefficient on the error correction term indicates relatively fast adjustment of manufacturing exports.

84. Based on the estimated long-run coefficients presented in Table 3, the dynamic growth of real manufacturing exports of Austria during the 1990s is largely attributable to market growth, and the importance of changes in price competitiveness is relatively minor. Actual exports grew by about 6.3 percent per annum; of this, market growth is estimated to have accounted for about 5.7 percentage points, and changes in price competitiveness for less than 1 percentage point. These results are consistent with Austria’s slightly increasing market share in the imports of its partner countries over the 1990s (Figure 6). The gain in manufacturing market share can be attributed to stronger price competitiveness, brought about by the successful industrial restructuring of the late 1980s and early 1990s. Restructuring and the resulting increase in the adaptability of industry are also likely to have facilitated Austria’s fast entry into CEEC markets.

Figure 6.Austria’s Market Share, 1980-1999 1/

Sources: IMF, World Economic Outlook; DOTS; and staff calculations.

1/ Ratio (in current prices) of Austria’s goods exports to a weighted average of partner countries’ goods imports, normalized to 1994=100.

APPENDIX II Labor and Capital income Taxation in Austria49

A. Introduction

85. Over the past two decades the tax burden on corporate and capital income in Austria has remained comparatively low, while the growth in the labor tax burden has outpaced that in other EU countries. Taxes and social security contributions in Austria amounted to 44 percent of GDP in 1996, slightly higher than the EU average. This represents a 26.1 percent increase in the tax burden since 1970, somewhat lower than that recorded in other EU member states owing to a slowdown in the rate of increase from the 1980s onwards. The comparatively lower increase in taxation notwithstanding, the shift in the composition of the tax burden towards social security charges has meant that the growth in the labor income tax burden in Austria has been substantially higher than that in other EU countries. Between 1970 and 1996, the increase in social security contributions accounted for 70.3 percent of the growth in the aggregate tax burden in Austria, in contrast to 45 percent in the EU. At the same time, the tax burden on capital and corporate income in Austria has remained comparatively low.

86. The disproportionate increase in the tax burden on labor income and the low capital income tax burden raise efficiency and equity issues. Moreover, while effective tax rates on capital income are low, the differential treatment of different forms of assets and finance under the tax code can impact the direction of investment flows and therefore represent a potential efficiency loss for the economy. However, Austria is not unusual among OECD countries in this respect. Using effective tax rates constructed from national account data as a basis to determine the tax burden by economic function, this appendix examines the tax burden on labor and capital income in Austria. Section A looks at the current labor taxation regime while Section B briefly examines the main factors that contributed to the low capital tax burden. Section C concludes by examining the impact of the capital tax regime on marginal investments and looks at how the personal and capital tax codes interact to affect the efficiency of the tax system.

B. Labor Income Taxation

87. Owing to the high cost associated with the social security system, Austria is ranked as having one of the highest effective tax burdens on labor income (see Figure 1, middle panel). In the late 1990s, social security contributions were a major component of indirect wage costs, accounting for around 45 percent of gross wages and salaries. Both employers and employees made contributions to the social insurance fund. Employers contributed about 22 percent of gross wages for wage earners to the social insurance fund, the housing fund, unemployment insurance, and contributions to the Chamber of Labor. In addition, employers contributed a further 4.5 percent of gross wages to the Family Assistance Fund. Employees on the other hand contributed around 17 percent of their gross wage or salary for social insurance purposes and made no contribution to the Family Assistance Fund.50 However, the self-employed contributed much less than employees to the pension fund in the social security system. The redistribution from employees to self-employed in the pension fund may raise equity concerns.

Figure 1.Austria: Effective Tax Burden on Consumption, Labor Income, and Capital Income, 1984-95

Sources: OECD National Accounts, 1984-95; OECD Revenue Statistics; and staff calculations.

88. Direct wage taxes were levied on individuals according to a progressive five-rate schedule with tax rates ranging from 10 to 50 percent.51 The highest marginal tax rate was applied to taxable income in excess of S 700,000 per annum (about 2½ times the gross average production wage, APW). The overall marginal tax rate for a single earner receiving the APW was about 39.7 percent (including social security contributions) compared to 35.6 percent in France and 52.6 percent in Germany (OECD, 1998). As is the case in many other countries, employee social security contributions were fully deductible from gross taxable income and there were also several other categories of tax deductions.52

89. However, social security and other deductions have led to declining marginal tax rates at high income levels. The full deductibility of social security contributions implies that those in the highest tax bracket received an annual tax relief of half of their social security contributions while individuals in the second bracket received only 22 percent. The OECD (1998) calculated that a single individual earning twice the APW faces a marginal tax rate of 35.7 percent, compared with a marginal rate of 39.7 percent for a similar individual earning the APW. Also, when combined with the upper limit on social security contributions,53 the full deductibility of social insurance contributions has had a regressive impact on the tax system for some categories of wage earners. For example between 1983 and 1991, social security contributions for the medium-income taxpayers increased by 1¼ percentage points but decreased by 0.8 percentage points for the upper decile (OECD, 1998).

90. The progressiveness of the labor tax regime was further reduced by the special treatment accorded to some income forms, such as bonuses and family allowances. Every year employees receive two months’ salary in Christmas and vacation bonuses that is taxed at a flat rate of 6 percent. Overtime and shift-work were also taxed at the special 6 percent flat rate.54 Children allowances and unemployment benefits are not taxed.

91. The interaction of the labor tax regime and the social benefits system can also impact labor supply and job-seeking incentives. Statutory unemployment benefits in Austria are not high by international standards. The average unemployment benefit replacement rate (before tax) was 31 percent in 1991 (OECD, 1994). However, the non-taxation of unemployment benefits and the full withdrawal of benefits result in the average net replacement ratio (after tax and other benefits) rising to 57 percent for single-earner households with no children (OECD 1997). For low-income earners with families and older workers, the net replacement ratio (including social assistance) was as high as 100 percent after five years of unemployment. This compares to an average net replacement rate (including social assistance) of 80 percent after five years of unemployment for the OECD as a whole (OECD 1997).

C. Capital Income Taxation

92. In contrast to the tax burden on labor income, the tax burden on capital income in Austria was comparatively low. In the 1990s, the effective tax burden on capital income in Austria, 23 ercent, was the lowest amongst a sample of EU members (see Figure 1).

93. The below-average tax burden on capital income reflects the statutory tax rates on corporate profits and capital income and the impact of exemptions and allowances that have eroded the capital tax base. The corporate tax rate, at 34 percent, was close to the EU average, but interest and dividend income was taxed at a rate of 25 percent, which is among the lowest rates in the EU. Also, various allowances and exemptions have eroded the capital income tax base. On top of the standard straight-line depreciation allowances, enterprises received a special 9 percent investment allowance (Investitionsfreibetrag). The combination of the two allowances allows enterprises to write off 109 percent of the acquisition price of buildings and machinery. Moreover, personal capital gains on assets held longer than one year,55 imputed rents on owner-occupied housing, and the capital gains realized by non-charitable foundations from the disposal of a participation in a domestic corporation are exempt from tax under the capital income tax code.

94. The sharp decline in the property tax burden from 1970 also contributed to keeping capital income tax burden relatively low. This decline reflected both the outdated real estate valuations used to calculate the property tax due and the abolition of net wealth tax in 1993 (Vermögensteuer).

D. The Impact of the Corporate and Personal Tax Codes on Marginal Investments

95. This section calculates effective tax rates on marginal investments in Austria to demonstrate the size and the direction of the distortions imposed by the corporate tax code. It also evaluates how the corporate tax code interacts with the personal tax code to impact marginal investment decisions.

96. Using the “King and Fullerton” methodology, we assume that without taxation, all assets earn the rate of return that could be achieved by buying a government bond (5 percent).56 However, taxes on corporate and personal income result in investors receiving less than the gross amount paid to them. Thus, for an investor to be indifferent between an investment in a government bond and another asset, the pre-tax rate of return on other assets must rise by a sufficient amount to ensure that the investor receives an after-tax return of at least 5 percent. The difference between the pre-corporate tax rate of return earned by companies and the after-tax receipts of an individual investor is a measure of the total tax distortion.

97. Three rates of return are used to calculate the impact of the Austrian tax system on investment decisions: (i) the real interest rate, r, which is assumed to be equivalent to the return on a government bond before personal taxes are charged (assumed to be 5 percent); (ii) the real pre-corporate tax rate of return to companies (p); and (iii) the real post-personal tax rate of return, s, received by the ultimate investor.

98. Taking the parameters of the Austrian tax system, the pre-corporate tax rate of return, p, necessary to generate r can be found (as can s). The overall tax wedge (the difference between p and s) incorporates the statutory tax rates, the structure of the tax system, and the definition of the corporate and personal tax bases into one measure. In calculating the real rate of return, we also assume the inflation rate to be the actual rate recorded in 1990 and 1998, that is 4.5 percent and 1 percent, respectively.

99. The tax wedge is important for two reasons. First, taxation impacts new investment decisions by raising the pre-tax return necessary to yield a given after-tax rate of return. Second, taxation can influence allocative efficiency by distorting the form of the investment if the tax treatment of different forms of investment is unequal. Comparisons of tax wedges across assets indicate the extent to which the tax system achieves allocative efficiency.

100. Tables 1a. and 1b. summarize the impact of the Austrian tax system on marginal investments in buildings, machinery, and inventories, financed via retained earnings, new equity issues, or by borrowing, in 1998 and 1990, respectively. The average values of the pre-tax rates of return and tax wedges were derived using the following weights for the various asset and financing types: buildings, 28 percent; machinery, 50 percent; and inventories, 22 percent; retained earnings, 55 percent; new equity issues, 10 percent; and borrowing, 35 percent.

Table 1a.Austria: The Impact of Tax Provisions on Marginal Investments, 1998 1/(In percent)
Average for Each Source of FinanceAverage for Each Type of InvestmentOverall Average
Retained earningsNew equityDebtMachineryBuildingsInventories
Only corporate taxes
Pre -tax rate of return6.256.253.614.385.687.015.32
Tax wedge1.251.25-1.39-0.620.682.010.32
Corporate and personal taxes
Pre-tax rate of return4.618.223.613.764.936.184.62
Tax wedge1.114.710.110.261.432.681.12
Source: IMF staff calculations.

Calculated using the 1998 Austrian tax code and the 1998 inflation rate of 1 percent. The real interest rate is assumed to be 5 percent.

Source: IMF staff calculations.

Calculated using the 1998 Austrian tax code and the 1998 inflation rate of 1 percent. The real interest rate is assumed to be 5 percent.

Table 1b.Austria: The Impact of Tax Provisions on Marginal Investments, 1990 1/(In percent)
Average for Each Source of FinanceAverage for Each Type of InvestmentOverall Average
Retained earningsNew equityDebtMachineryBuildingsInventories
Only corporate taxes
Pre-tax rate of return7.397.392.344.255.508.885.62
Tax wedge2.392.39-2.66-0.750.503.880.62
Corporate and personal taxes
Pre-tax rate of return1.313.072.340.791.724.391.84
Tax wedge0.962.721.990.441.384.051.50
Source: IMF staff calculations.

Calculated using the 1990 Austrian tax code and the 1990 inflation rate of 4.5 percent. The real interest rate is assumed to be 5 percent.

Source: IMF staff calculations.

Calculated using the 1990 Austrian tax code and the 1990 inflation rate of 4.5 percent. The real interest rate is assumed to be 5 percent.

101. First setting all personal taxes to zero, Tables 1a. and 1b. show that the average corporate tax wedge was around 0.3 percentage points in 1998. This is significantly below the 1990 corporate tax wedge (0.6 percentage points). The improvement primarily reflects the decline in inflation between 1990 and 1998. In fact, if inflation had remained at its 1990 level, the corporate tax wedge in 1998 would not have changed. This indicates that the various reforms to the corporate tax code between 1990 and 1998 were broadly neutral in their impact on the aggregate corporate tax wedge. The benefits from the abolition of the taxes on trade income (Gewerbesteuer) and net wealth (Vermögensteuer) were broadly offset by the reduction in the investment allowance (from 20 percent to 9 percent) and by the increase in the federal corporate tax rate from 30 percent to 34 percent.

102. In 1998, the corporate tax system still contained biases towards some types of finance and asset. The negative average tax wedge on debt financed investments (-1.39) indicates that taking taxation into account, the government effectively subsidizes debt financed investments: a project that earns less than 5 percent before tax, earns 5 percent after tax. From Table 1a, debt financed projects earn an average return of around 3⅔ percent before tax, but 5 percent after tax. This finding was mainly driven by the special tax depreciation allowance, (Investitionsfreibetrag), which allows enterprises to write-off more than 100 percent of the acquisition price of investments in machinery and building assets. The full deductibility of interest payments also contributed to the negative tax wedge on investments financed by bank borrowing. The tax incentive for debt finance may encourage “thin capitalization”. However, many other OECD members have a similar distortion

103. The corporate tax wedges on investments financed by retained earnings and equity are identical (at 1¼ percent) because there is no imputation system for dividends at the corporate level.57 Thus, equity and working capital are taxed at the same standard corporate rate and the pre-tax rate of return required to yield an after-tax return of 5 percent is 6¼ percent.

104. Although investments in both machinery and buildings benefit from the special investment allowance, both assets have different pre-tax rates of return. This is because depreciation allowances differ from the true economic depreciation rates in an unsystematic way. In the case of Austria, the depreciation rate for buildings (at 4 percent) is relatively less generous than that for machinery (20 percent depending on the life of the item). Inventory investments are not fully insulated from the effects of inflation and inflation generated increases in their value are taxed.

105. Mirroring the development of the corporate tax wedge, the combined corporate and personal tax wedge also declined between 1990 and 1998. Again, this decline reflected the decline in inflation. If the inflation rate had remained at its 1990 level, the total tax wedge would have increased because of the unification and increase in the withholding taxes on interest and dividend payments to 25 percent.

106. The addition of personal taxes increases the tax wedge and the required pre-tax rate of return on marginal investments.58 Personal tax rates on dividends, capital gains and interest also alter the discount rates which companies apply to investment projects compared to those derived by considering the corporate tax system alone. At the personal level, Austria allows only a partial imputation of corporate taxes through a partial shareholder relief scheme that allows taxpayers to opt for taxation of dividends at half their average tax rate. Nonetheless, the combined personal and corporate tax burden on equity investments is still higher than that on other financing instruments. The capital gains tax is only relevant for investments financed by retained earnings because there is potential to increase the value of the company. However, because capital gains on assets held longer than two years are tax exempt in Austria, the personal tax regime actually reduces the overall tax wedge compared to that imposed by the corporate tax regime alone. Finally, personal taxes somewhat reduce the subsidy to debt financed investments compared to that under the corporate tax code.

E. Conclusion

107. The increase in the tax burden on labor income and the low capital income tax burden raises various efficiency and equity issues in Austria. In addition to reducing the overall tax burden, future tax reforms will inevitably have to focus on ways to rebalance the overall tax burden between labor and capital. Owing to the impact of increasing social security contributions on the overall tax burden on labor, a re-examination of the social security system will have to play an integral role in any reform. The corporate and capital income tax system will also need to become more symmetric to enhance efficiency. Dividends and retained earnings will need to be treated on a more equal basis with debt financed investments. As recommended by the OECD (1998) greater equality in the treatment of dividend and interest could be achieved either by allowing a deduction for dividends paid in corporate profits, or by transforming the corporate and personal tax into dual income taxes. Under the latter proposal, capital income would be treated separately for tax purposes from labor income. A third possibility would be to eliminate the deductibility of interest from the tax.

STATISTICAL APPENDIX
Table A1.Austria: Real GDP
19991996199719981999
(In billions of schillings at current prices)(In percent)
Private consumption 1/1,5153.20.11.52.7
Public consumption5311.3-0.42.01.0
Gross fixed investment6542.10.86.82.9
Construction3871.5-1.64.11.0
Machinery and equipment2672.94.610.65.5
Final domestic demand2,6982.40.22.62.8
Inventory accumulation 2/3/-2-0.40.8-0.7-1.0
Total domestic demand2,6982.01.02.21.6
Exports of goods and non-factor services1,2196.010.18.73.5
Imports of goods and non-factor services1,2285.99.46.91.9
Net foreign balance 3/-90.00.20.70.6
GDP2,6892.01.22.92.1
Source: Austrian Institute of Economic Research (WIFO).

Including non-profit organizations.

Including statistical discrepancy.

Contribution to GDP growth.

Source: Austrian Institute of Economic Research (WIFO).

Including non-profit organizations.

Including statistical discrepancy.

Contribution to GDP growth.

Table A2.Austria: Contribution to Real GDP Growth
1996199719981999
Private consumption1.80.10.91.5
Public consumption0.3-0.10.40.2
Gross fixed investment0.50.21.60.7
Construction0.2-0.20.60.1
Machinery and equipment0.30.41.00.6
Final domestic demand2.40.22.82.2
Inventory accumulation-0.40.8-0.7-0.6
Total domestic demand2.01.02.21.6
Exports of goods and non-factor services2.34.03.71.6
Imports of goods and non-factor services2.33.83.00.9
Net foreign balance0.00.20.70.6
GDP2.01.22.92.1
Source: Austrian Institute of Economic Research (WIFO).

Change as a percent of real GDP in the previous year.

Source: Austrian Institute of Economic Research (WIFO).

Change as a percent of real GDP in the previous year.

Table A3.Austria: National Income and its Distribution
199519961997199819991996199719981999
(In billions of schillings)(Percentage changes)
Net national disposable income2,0282,1062,1632,2242,2593.82.72.81.6
Less: Net Current transfers to the rest of the world-7-11-10-16-1761.0-10.754.67.2
Net national income at market prices2,0352,1172,1732,2402,2764.02.63.11.6
Plus: Consumption of fixed capital3133253353483603.63.23.73.6
Less: Net factor income from abroad-27-12-14-23-52-57.222.865.7123.2
Gross domestic product at market prices2,3752,4532,5222,6112,6893.32.83.53.0
Compensation of employees1,2791,2911,3111,3661,4201.01.54.24.0
Gross operating surplus and mixed income8088638839119276.82.33.21.7
Taxes on production minus subsidies2882993293343423.710.01.52.5
Sources: Statistics Austria (ÖSTAT); Austrian Institute of Economic Research (WIFO).
Sources: Statistics Austria (ÖSTAT); Austrian Institute of Economic Research (WIFO).
Table A4.Austria: Real Gross Domestic Product by Sectors
19991996199719981999 1/
In percent of GDP at constant 1995 prices(Percentage changes)
Agriculture and forestry2.45.6-1.72.33.0
Mining and quarrying0.31.9-0.51.8-0.2
Manufacturing18.72.03.83.42.3
Energy and water supply2.73.86.12.1-0.6
Construction7.53.10.04.31.1
Trade12.21.92.12.93.2
Transport and communication7.05.94.84.44.5
Finance and insurance6.80.011.47.3-1.6
Real estate and business services12.91.53.73.33.3
Restaurants, hotels and other accom3.7-0.60.03.23.0
Other market services1.20.3-8.51.51.7
Government services6.52.10.80.10.7
Less: Imputed bank service charges0.6-1.116.38.40.5
Taxes minus subsidies1.00.84.32.71.0
Gross Domestic Product at market prices100.02.01.22.92.1
Source: Austrian Institute of Economic Research (WIFO).

Preliminary estimates.

Change as a percent of real GDP in the previous year.

Source: Austrian Institute of Economic Research (WIFO).

Preliminary estimates.

Change as a percent of real GDP in the previous year.

Table A5.Austria: Labor Market
19921993199419951996199719981999 1/
(In thousands, unless otherwise indicated)
Population7,9147,9928,0308,0478,0598,0728,0788,078
Working age population 2/5,1395,1885,2105,2225,2375,2555,2665,272
Labor force3,6503,6683,6673,6553,6463,6583,6843,718
Dependent employment3,0563,0553,0713,0683,0473,0563,0773,108
Self-employment401391381371368369370374
Unemployment193222215216231233238222
Unemployment rate
In percent of total labor force5.36.15.95.96.36.46.56.0
In percent of dependent labor force6.37.37.07.07.67.67.77.1
Standardized unemployment rate
In percent of total labor force 3/3.44.03.83.94.34.44.53.7
Vacancies4433302519192331
Foreign workers274278291300300299299306
Labor force participation rate 4/71.070.770.470.069.669.670.070.5
Employment rate 4/67.366.466.365.965.265.265.466.1
Foreign workers 5/7.57.67.98.28.28.28.18.2
Sources: Austrian Institute of Economic Research (WIFO); and IMF, World Economic Outlook.

Preliminary estimates.

Population of age 16 to 64.

Based on EU labor force survey.

In percent of working age population.

In percent of total labor force.

Sources: Austrian Institute of Economic Research (WIFO); and IMF, World Economic Outlook.

Preliminary estimates.

Population of age 16 to 64.

Based on EU labor force survey.

In percent of working age population.

In percent of total labor force.

Table A6.Austria: Prices, Wages and Productivity
1996199719981999
(Percentage changes)
GDP deflator1.31.60.60.9
Private consumption deflator2.31.80.70.5
Deflator of exports of goods and services1.20.60.40.5
Deflator of import of goods and services2.01.9-0.11.6
Terms of trade for goods and services-0.7-1.30.60.2
Wholesale price index
annual average0.00.4-0.5-0.8
end-of-period1.30.5-2.31.8
Consumer price index
annual average1.91.30.90.6
end-of-period2.31.40.71.4
Core inflation
annual average1.50.91.20.7
EU-harmonized index
annual average1.81.20.80.5
end-of-period2.31.00.51.7
Gross wage income per employee 1/3.71.31.13.6
Contractual wages2.41.82.22.5
Average hourly earnings in manufacturing3.32.12.52.9
Real GDP per employed person3.92.32.61.3
Unit labor cost
Total economy-1.02.31.31.7
Manufacturing-0.6-4.0-0.7-0.7
Sources: Austrian Institute of Economic Research (WIFO); OeNB; and IMF, World Economic Outlook.

At current prices.

Sources: Austrian Institute of Economic Research (WIFO); OeNB; and IMF, World Economic Outlook.

At current prices.

Table A7.Austria: Federal Budget—Administrative Basis(In billions of schillings)
1995199619971998199919992000
OutturnOutturnOutturnOutturnBudgetOutturnBudget 1/
Revenue646.7665.4765.6711.6697.4719.4726.7
Taxes before revenue sharing521.2585.7623.9670.2681.1669.8682.9
Wage tax150.2160.5183.6193.7198.0203.0194.0
Taxes on other income and profits61.080.786.594.390.084.889.1
Value added tax179.9204.1207.2216.2233.0227.0235.0
Major excise taxes 2/43.748.547.950.750.553.054.3
Other taxes86.491.998.8115.3109.6102.0110.5
Minus tax sharing transfers156.6175.3179.2183.8192.7191.0192.2
Minus transfers to EU budget18.826.931.626.231.529.132.5
Taxes after revenue sharing345.8383.5413.2460.2456.9449.7458.2
Tax transfers to federal funds19.719.519.619.620.519.821.3
Tax-like revenue 3/82.684.185.789.190.594.194.1
Federal enterprises66.225.70.70.80.40.5
Other revenue132.3152.64/246.3141.9129.1155.3153.1
Expenditure764.6754.8832.8777.6767.6787.6781.3
Wages and salaries 5/140.3137.7137.0140.7142.0146.7148.7
Pensions 6/48.842.739.139.643.141.042.3
Current expenditure on goods 7/66.564.562.265.265.764.863.1
Gross investment25.520.810.310.610.99.67.7
Transfer payments343.2352.4361.9377.0378.8382.9375.2
Family allowances67.265.862.658.760.558.559.9
Unemployment benefits32.834.632.933.832.833.433.3
Transfer to the social security system 8/86.992.497.3103.7103.6108.0104.3
Transfers to enterprises 9/45.352.755.454.760.055.357.6
Other transfers 10/111.0106.9113.7126.9121.9127.7120.1
Interest 11/98.4100.1100.0106.8107.5113.9121.9
Other expenditure 12/41.836.64/122.337.719.528.722.4
Net balance-117.9-89.4-67.2-66.0-70.1-68.2-54.6
(In percent of GDP)(5.0)(3.6)(2.7)(2.5)(2.6)(2.5)(2.0)
Memorandum items:
Revenue adjusted 13/621.2634.9653.9687.9675.2695.0701.2
(Percentage change)(3.1)(2.2)(3.0)(5.2)(-1.8)14/(2.9)15/(3.9)
Expenditure adjusted 13/739.1724.3721.1754.4745.3763.2755.9
(Percentage change)(4.5)(-2.0)(-0.4)(4.5)(-1.1)14/(2.4)15/(1.4)
Gross domestic product2,375.22,453.22,522.22,610.916/2,735.417/2,685.917/2,782.5
(Percentage change)(6.1)(3.3)(2.8)(3.5)(4.8)14/(-1.8)15/(1.7)
Financing account 18/
Revenue322.7219.6234.5408.5334.2490.0550.6
Expenditure204.8130.2167.3342.5264.1421.8496.0
Surplus117.989.467.266.070.168.254.6
Gross redemption of debt118.6107.696.1151.3164.9159.1167.5
Military expenditure20.720.921.421.721.822.321.9
Education expenditure67.567.768.272.073.675.176.2
Primary33.233.233.535.135.436.937.6
Secondary25.125.125.526.527.127.828.8
Source: Ministry of Finance.

Draft budget proposal.

Mineral oil and tobacco taxes

Mainly contributions to unemployment insurance and to the fund for family allowances.

Including S 83.0 billion from accrued revenues from the sale of the user fruct of ASFINAG (the highway construction company) and BIG (the property management company).

Including contribution to salaries of teachers employed by the states.

Pensions of federal civil servants and contribution to pensions of teachers employed by the states.

Including investment expenditure on defense.

Mainly to the general pension system.

Including agriculture.

Including transfers to other levels of government and including reserve operations by federal funds.

Including commissions, management fees, provision for interest on zero coupon bonds, and interest on swap transactions.

Including reserve operations except federal funds.

Adjusted for double counting, excluding swap transactions.

Changeover 1998 outturn.

Change over 1999 budget.

GDP for 1999, estimated in March 1998.

GDP estimated by WIFO in December 1999.

Revenue and expenditure in connection with public debt and cash bridging credits.

Source: Ministry of Finance.

Draft budget proposal.

Mineral oil and tobacco taxes

Mainly contributions to unemployment insurance and to the fund for family allowances.

Including S 83.0 billion from accrued revenues from the sale of the user fruct of ASFINAG (the highway construction company) and BIG (the property management company).

Including contribution to salaries of teachers employed by the states.

Pensions of federal civil servants and contribution to pensions of teachers employed by the states.

Including investment expenditure on defense.

Mainly to the general pension system.

Including agriculture.

Including transfers to other levels of government and including reserve operations by federal funds.

Including commissions, management fees, provision for interest on zero coupon bonds, and interest on swap transactions.

Including reserve operations except federal funds.

Adjusted for double counting, excluding swap transactions.

Changeover 1998 outturn.

Change over 1999 budget.

GDP for 1999, estimated in March 1998.

GDP estimated by WIFO in December 1999.

Revenue and expenditure in connection with public debt and cash bridging credits.

Table A8.Austria: Federal Budget—Cash Basis Adjusted 1/(In billions of schillings)
1995199619971998199919992000
OutturnOutturnOutturnOutturnBudgetOutturnBudget 2/
Revenue 1/584.3604.7630.6650.6652.2651.9667.3
(Percentage change)(0.7)(3.5)(4.3)(3.2)(0.2)(0.0)(2.3)
Taxes before revenue sharing521.2585.7623.9670.2681.1669.8682.9
Wage tax150.2160.5183.6193.7198.0203.0194.0
Taxes on other income and profits61.080.786.594.390.084.889.1
Value added tax179.9204.1207.2216.2233.0227.0235.0
Major excise taxes 3/43.748.547.950.750.553.054.3
Other taxes86.491.998.8115.3109.6102.0110.5
Minus tax sharing transfers156.6175.3179.2183.8192.7191.0192.2
Minus transfers to EU budget18.826.931.626.231.529.132.5
Taxes after revenue sharing345.8383.5413.2460.2456.9449.7458.2
Tax transfers to federal funds19.719.519.619.620.519.821.3
Tax-like revenue 4/82.684.185.789.190.594.194.1
Federal enterprises65.125.70.70.80.40.5
Other revenue71.191.9111.380.983.987.893.7
Expenditure 1/710.2696.9695.3705.8726.9718.9729.3
(Percentage change)(4.5)(-1.9)(-0.2)(1.5)5/(3.0)6/(-1.1)6/(0.3)
Wages and salaries 7/140.3137.7137.0140.7142.0146.7148.7
Pensions 8/48.842.739.139.643.141.042.3
Current expenditure on goods 9/66.564.562.265.265.764.863.1
Gross investment25.520.810.310.610.99.67.7
Transfer payments320.7322.4336.3348.0354.3354.7355.4
Family allowances57.556.854.351.054.052.454.6
Unemployment benefits32.834.632.933.832.833.433.3
Transfer to the social security system 10/86.992.497.3103.7103.6108.0104.3
Transfers to enterprises 11/45.352.755.454.760.055.357.6
Other transfers 12/98.286.296.3104.7103.8105.6105.6
Interest 13/84.188.588.786.198.691.498.6
Other expenditure 14/24.420.321.715.712.310.713.5
Net balance-125.9-92.2-64.7-55.2-74.7-67.0-62.0
(In percent of GDP)(5.4)(3.8)(2.6)(2.1)(2.7)(2.5)(2.2)
Memorandum items:
Tax to GDP ratio14.815.816.417.516.716.716.5
Expenditure to GDP ratio30.028.827.627.026.626.826.2
Gross domestic product (nom.)2,375.22,453.22,522.22,610.92,735.42,685.92,782.5
(Percentage change)(6.1)(3.3)(2.8)(3.5)5/(4.8)6/(-1.8)6/(1.7)
Source: Ministry of Finance.

Adjusted for double counting.

Draft budget proposal.

Mineral oil and tobacco taxes.

Mainly contributions to unemployment insurance and to the fluid for family allowances.

Change over 1998 budget.

Change over 1999 budget.

Including contribution to salaries, of teachers employed by the states.

Pensions of federal civil servants and contribution to pensions of teachers employed by the states.

Including investment expenditure on defense.

Mainly to the general pension system (ASVG; schilling 68.1 billion in the 1996 expected outturn).

Including agriculture.

Including transfers to other levels of government, from 1995 also including transfers to the EU.

Including commissions, management fees, provision for interest on zero coupon bonds, and interest on swap transactions.

Taxes after revenue sharing in percent of nominal GDP.

Source: Ministry of Finance.

Adjusted for double counting.

Draft budget proposal.

Mineral oil and tobacco taxes.

Mainly contributions to unemployment insurance and to the fluid for family allowances.

Change over 1998 budget.

Change over 1999 budget.

Including contribution to salaries, of teachers employed by the states.

Pensions of federal civil servants and contribution to pensions of teachers employed by the states.

Including investment expenditure on defense.

Mainly to the general pension system (ASVG; schilling 68.1 billion in the 1996 expected outturn).

Including agriculture.

Including transfers to other levels of government, from 1995 also including transfers to the EU.

Including commissions, management fees, provision for interest on zero coupon bonds, and interest on swap transactions.

Taxes after revenue sharing in percent of nominal GDP.

Table A9.Austria: Financing of the Federal Deficit(In billions of schillings)
19951996199719981999 1/
Net deficit, administrative basis117.989.467.266.068.2
Debt repayment118.6107.696.1151.3159.1
Gross financing236.5197.0163.3217.3227.3
Change in cash balances 2/0.0-23.8-8.3-4.3
Changes in reserves 3/8.02.0-2.4-10.9-10.1
Other1.911.212.323.6
Gross financing requirement246.4186.4164.9225.7217.2
Schilling180.7152.4147.4116.1206.4
Bonds and notes115.1106.4120.8129.3229.3
Bills23.731.227.6-11.5-15.7
Other long-term loans42.014.8-0.9-1.8-7.3
Credit from central bank0.00.00.00.00.0
Foreign currency65.634.017.5109.611.0
Debt repayment-118.6-107.6-96.1-151.3-159.1
Net financing requirement127.878.868.874.458.1
Valuation adjustment on foreign currency debt 4/-5.8-12.09.82.829.6
Increase in gross debt122.066.878.677.287.7
Source: Ministry of Finance.

Expected outturn.

Decrease:-.

Increase:-.

Profit:-.

Source: Ministry of Finance.

Expected outturn.

Decrease:-.

Increase:-.

Profit:-.

Table A10.Austria: Debt and Debt Service of the Federal Government
Total debtDomestic debt 1/Foreign debt 1/Total debtForeign debtDebt ServiceInterest payments 2/3/
Interest 2/RepaymentTotal
(In billions of schillings, at end of year)(In percent of GDP)(In percent of total debt)(In billions of schillings)(In percent of federal tax revenue)
1976133.898.835.018.526.19.010.719.88.8
1977164.6117.247.420.728.810.712.422.79.3
1978199.2139.160.023.630.113.815.829.611.3
1979230.9167.263.725.127.615.718.033.711.7
1980261.2188.572.626.327.817.818.236.012.4
1981295.3200.794.628.032.020.724.245.013.0
1982341.6233.2108.430.131.725.725.250.915.7
1983416.2290.6125.634.630.227.425.552.915.7
1984469.8350.8119.036.725.333.832.866.617.5
1985525.6406.9118.738.922.638.031.769.718.3
1986616.9492.3124.643.420.241.933.675.518.6
1987697.5572.8124.747.117.948.835.183.221.5
1988746.7615.9130.847.717.551.439.390.620.14/
1989800.2674.3125.847.815.754.534.789.220.7
1990861.6726.2135.447.515.760.632.993.521.0
1991937.7789.3148.548.215.868.132.7100.821.4
1992992.0819.9172.148.217.373.642.2115.821.2
19931,109.0896.2212.952.219.275.854.9130.722.2
19941,225.6964.7260.954.721.377.567.1144.521.0
19951,342.41,051.3291.157.521.784.1118.6202.623.7
19961,396.91,100.8296.057.721.288.5107.6196.122.5
19971,475.91,171.0304.958.720.788.796.1184.821.3
19981,535.71,152.2383.558.825.086.1151.3237.419.6
1999 5/1,623.41,392.5230.960.414.291.4159.1250.520.3
2000 6/1,679.41,461.4218.060.413.098.6167.5266.219.8
Source: Ministry of Finance.

Schilling (“domestic debt”) and foreign currency (“foreign debt”) denominated debt The value of foreign debt is adjusted for changes in exchange rates.

On a cash basis.

Tax revenues after revenue sharing.

For 1988 and after, this ratio is not comparable with previous years owing to changes in accounting practise.

Expected outturn.

Budget proposal.

Source: Ministry of Finance.

Schilling (“domestic debt”) and foreign currency (“foreign debt”) denominated debt The value of foreign debt is adjusted for changes in exchange rates.

On a cash basis.

Tax revenues after revenue sharing.

For 1988 and after, this ratio is not comparable with previous years owing to changes in accounting practise.

Expected outturn.

Budget proposal.

Table A11.Austria: Federal Government Assistance to Enterprises and Agriculture(In billions of schillings)
19921993199419951996199719981999 1/Budget Proposal 2000
Assistance to industrial enterprises8.419.5813.069.889.9711.7112.2313.4712.89
Investment2.282.472.411.591.782.061.551.05
Environmental protection0.650.953.460.650.570.490.610.590.69
Research and development0.750.900.911.541.341.651.801.651.64
Implementation of labor market programs4.595.206.196.096.277.417.349.128.82
Calls on guarantees0.140.060.09
Assistance to agriculture10.499.9911.5928.1425.1122.0120.8819.2818.83
Investment3.704.284.2110.0912.2211.2811.4210.9310.55
Price support6.795.717.3818.0512.8910.739.478.368.28
Total18.8919.5624.6438.0235.0833.7233.1132.7531.73
(Percent change)-53,526,054,3-7,7-3,9-1,8-1,1-3.1
Source: Ministry of Finance.

Expected outturn.

Source: Ministry of Finance.

Expected outturn.

Table A12.Austria: Derivation of the Deficit of the Central Government on a National Accounts Basis 1/(In billions of schillings)
19951996199719981999 2/2000 3/
Federal deficit, administrative basis117.989.467.266.068.254.6
Plus: 4/
Reserves (net)8.02.0-2.4-6.2-1.08.3
Securities (net)0.01.90.30.00.00.0
Equities (net)3.01.83.5-1.8-1.6-1.2
ÖIAG (industrial holding company)4.31.90.00.00.00.0
Loans and guarantees (net)-10.91.31.4-0.22.9-4.0
Temporal adjustments-12.10.1-6.614.1-7.0-0.3
OeNB extraordinary dividends0.00.02.86.65.04.5
Other0.00.00.5-1.3-1.60.0
Plus:
Net deficit (-) or borrowing (+) of federal funds and ASFINAG 5/0.20.41.0-0.2-0.20.1
Net deficit of the central government on a national accounts basis110.698.967.877.064.762.0
Sources: Austrian Central Statistical Office; and Ministry of Finance.

European System of Accounts, 1995 version.

Expected outturn.

According to budget.

+: Expenditure greater than receipts.

ASFINAG is a special fund that finances investment in transportation infrastructure. It was taken off budget in 1997.

Sources: Austrian Central Statistical Office; and Ministry of Finance.

European System of Accounts, 1995 version.

Expected outturn.

According to budget.

+: Expenditure greater than receipts.

ASFINAG is a special fund that finances investment in transportation infrastructure. It was taken off budget in 1997.

Table A13.Austria: General Government Assets and Liabilties(In billions of schillings, end of period)
199419951996199719981999 1/
Financial assets
Federal government129.1128.0121.881.368.2
States (without Vienna)233.1244.1272.9273.6286.9
Municipalities (including Vienna)70.971.669.670.869.7
Total financial assets433.1443.8464.3425.7424.7
Bank deposits70.170.154.147.848.9
Securities38.632.166.140.335.9
Loans324.5341.6344.1337.7340.0
Liabilities
Federal government 2/1,329.11,449.61,496.71,471.71,520.21,608.1
States (without Vienna)49.664.264.460.959.357.5
Municipalities (including Vienna)95.7110.2115.279.077.477.0
Total liabilities1,474.41,624.01,676.31,611.61,656.91,742.6
(In percent of GDP)65.968.468.363.963.564.9
Total net financial debt 3/1,041.31,180.21,212.01,185.91,232.2
(In percent of GDP)46.549.749.447.047.2
Federal government1,200.01,321.61,374.91,390.41,452.0
States (without Vienna)-183.5-179.9-208.5-212.7-227.6
Municipalities (including Vienna)24.938.645.68.27.7
Memorandum items:
Federal government guarantees 4/661.6682.3704.9721.1742.1778.1
Extrabudgetary debt 5/219.4235.3249.9255.3264.4
Source: Ministry of Finance.

Preliminary.

Data for federal government include ASFINAG (until 1997) and federal funds.

Total financial liabilities less total financial assets.

Of wich S618.0 billion in export guarantees, in 1999.

Debt of state-owned companies.

Source: Ministry of Finance.

Preliminary.

Data for federal government include ASFINAG (until 1997) and federal funds.

Total financial liabilities less total financial assets.

Of wich S618.0 billion in export guarantees, in 1999.

Debt of state-owned companies.

Table A14.Austria: General Government Finances—National Accounts Basis 1/ Consolidated(In billions of schillings)
19951996199719981999 2/2000 3/
Revenue1,239.81,294.51,313.21,348.51,389.01,420.6
Market output and output for own final use 4/112.0115.480.684.387.287.0
Taxes on production and imports337.7355.2376.6391.4408.1419.9
Property income45.533.530.322.921.922.0
Current taxes on income, wealth, etc.284.3321.2339.5358.2363.4367.9
Social contributions413.1427.6435.9449.5462.6477.2
Other current transfers44.938.945.040.143.844.4
Capital transfers2.42.75.32.12.12.1
Expenditure1,360.61,387.61,361.21,412.81,443.41,466.6
Intermediate consumption235.8245.9260.7276.2289.7294.5
Compensation of employees299.4302.5288.1294.6306.1314.3
Other taxes on production6.56.66.87.16.97.0
Subsidies, payable68.964.664.671.471.271.2
Interest on public debt102.7103.897.498.597.099.3
Social benefits462.3475.5475.4479.8493.7511.7
Other current transfers67.270.371.376.776.774.7
Capital transfers49.749.049.559.754.552.3
Gross capital formation72.469.449.048.547.846.0
Acquisition of non-financial non-prod. assets (net)-4.30.1-1.60.30.0-4.2
Financial balance-120.7-93.1-48.0-64.3-54.4-46.0
(In percent of GDP)-5.1-3.8-1.9-2.5-2.0-1.7
Sources: Statistics Austria; and Ministry of Finance.

Based on the European system of national and regional accounts in the Community (ESA 95).

Preliminary.

Official projections as of early March 2000.

Includes health services produced by government-owned hospitals and imputed rent on owner-occupied real estate.

Sources: Statistics Austria; and Ministry of Finance.

Based on the European system of national and regional accounts in the Community (ESA 95).

Preliminary.

Official projections as of early March 2000.

Includes health services produced by government-owned hospitals and imputed rent on owner-occupied real estate.

Table A15.Austria: Central Government Finances—National Accounts Basis 1/ Not Consolidated(In billions of schillings)
19951996199719981999 2/2000 3/
Revenue656.5675.1683.1702.4725.3734.1
Market output and output for own final use 4/7.48.54.14.03.63.4
Taxes on production and imports236.2245.1269.3281.5293.8301.6
Property income34.523.318.210.810.69.0
Current taxes on income, wealth, etc.191.7220.7237.5251.0256.6258.1
Social contributions82.986.788.791.694.395.5
Other current transfers91.785.859.360.764.064.0
Capital transfers12.15.15.92.72.52.5
Expenditure767.1774.0750.8779.4790.0796.1
Intermediate consumption49.451.549.754.555.753.4
Compensation of employees118.4119.5120.6123.1127.9131.2
Other taxes on production2.42.32.22.42.22.3
Subsidies, payable46.541.338.542.641.440.7
Interest on public debt91.992.889.590.889.491.6
Social benefits157.4158.2154.6148.5148.9154.2
Other current transfers227.9243.2243.7258.6270.1273.1
Capital transfers55.249.540.046.443.444.0
Gross capital formation18.116.312.512.711.99.6
Acquisition of non-financial non-prod, assets (net)-0.1-0.6-0.5-0.1-0.9-4.0
Financial balance-110.6-98.9-67.7-77.0-64.7-62.0
(In percent of GDP)-4.7-4.0-2.7-2.9-2.4-2.2
Sources: Austrian Central Statistical Office; and Ministry of Finance.

Based on the European system of national and regional accounts in the Community (ESA 95).

Preliminary.

Official projections as of early March 2000.

Includes health services produced by government owned hospitals and imputed rent on owner-occupied real estate.

Sources: Austrian Central Statistical Office; and Ministry of Finance.

Based on the European system of national and regional accounts in the Community (ESA 95).

Preliminary.

Official projections as of early March 2000.

Includes health services produced by government owned hospitals and imputed rent on owner-occupied real estate.

Table A16.Austria: Local Government and Social Security Funds Finances—National Accounts Basis 1/ Not Consolidated(In billions of schillings)
19951996199719981999 2/2000 3/
Revenue869.7913.0952.8988.11,020.71,053.9
Market output and output for own final use 4/104.6106.976.580.383.683.6
Taxes on production and imports101.5110.2107.3109.9114.4118.3
Property income11.010.212.112.011.313.0
Current taxes on income, wealth, etc.92.6100.5102.0107.2106.8109.8
Social contributions330.1340.9347.2357.9368.3381.7
Other current transfers203.8216.3283.2295.4309.8321.5
Capital transfers26.028.024.625.526.626.1
Expenditure879.8907.2933.1975.51,010.41,038.0
Intermediate consumption186.4194.4211.0221.7234.0241.1
Compensation of employees181.0182.9167.5171.5178.2183.1
Other taxes on production4.04.34.64.84.74.7
Subsidies, payable22.423.426.128.829.830.5
Interest on public debt10.811.07.97.87.67.7
Social benefits304.9317.2320.8331.3344.8357.5
Other current transfers89.990.3125.1134.0136.5138.4
Capital transfers30.329.834.739.338.138.6
Gross capital formation54.353.136.535.836.036.4
Acquisition of non-financial non-prod. assets (net)-4.20.7-1.10.40.9-0.1
Financial balance-10.2-5.8-19.7-12.7-10.3-15.9
(In percent of GDP)-0.4-0.2-0.8-0.5-0.4-0.6
Sources: Austrian Central Statistical Office; and Ministry of Finance.

Based on the European system of national and regional accounts in the Community (ESA 95).

Preliminary.

Official projections as of early March 2000.

Includes health services produced by government owned hospitals and imputed rent on owner-occupied real estate.

Sources: Austrian Central Statistical Office; and Ministry of Finance.

Based on the European system of national and regional accounts in the Community (ESA 95).

Preliminary.

Official projections as of early March 2000.

Includes health services produced by government owned hospitals and imputed rent on owner-occupied real estate.

Table A17.Austria: Provincial Government Finances (excluding Vienna)—National Accounts Basis 1/ Not Consolidated(In billions of schillings)
19951996199719981999 2/2000 3/
Revenue220.0232.2269.7280.5287.9294.5
Market output and output for own final use 4/25.225.821.222.223.323.3
Taxes on production and imports30.634.230.931.933.334.4
Property income5.55.17.37.16.77.4
Current taxes on income, wealth, etc.46.450.349.152.152.453.7
Social contributions19.219.719.219.519.820.1
Other current transfers78.982.0127.4132.3136.6140.0
Capital transfers14.215.114.615.315.915.6
Expenditure217.2225.0256.0269.5277.1282.6
Intermediate consumption26.027.061.363.465.066.1
Compensation of employees91.191.579.081.184.386.7
Other taxes on production1.41.71.81.81.71.7
Subsidies, payable8.49.712.414.215.015.3
Interest on public debt3.63.63.23.23.03.1
Social benefits21.622.323.023.523.824.1
Other current transfers42.843.749.153.254.856.4
Capital transfers15.215.920.322.222.422.5
Gross capital formation10.19.76.56.46.56.6
Acquisition of non-financial non-prod. assets (net)-3.00.0-0.70.60.60.0
Financial balance2.97.213.710.910.812.0
(In percent of GDP)0.10.30.50.40.40.4
Sources: Austrian Central Statistical Office; and Ministry of Finance.

Based on the European system of national and regional accounts in the Community (ESA 95).

Preliminary.

Official projections as of early March 2000.

Includes health services produced by government owned hospitals and imputed rent on owner-occupied real estate.

Sources: Austrian Central Statistical Office; and Ministry of Finance.

Based on the European system of national and regional accounts in the Community (ESA 95).

Preliminary.

Official projections as of early March 2000.

Includes health services produced by government owned hospitals and imputed rent on owner-occupied real estate.

Table A18.Austria: Municipal Government Finances (including Vienna)—National Accounts Basis 1/ Not Consolidated(In billions of schillings)
19951996199719981999 2/2000 3/
Revenue243.0257.5245.1252.4258.2264.3
Market output and output for own final use 4/70.271.745.948.450.250.2
Taxes on production and imports70.976.076.478.081.183.8
Property income3.23.02.72.92.63.3
Current taxes on income, wealth, etc.46.250.252.955.054.456.1
Social contributions13.714.213.413.813.713.9
Other current transfers27.029.444.044.145.546.5
Capital transfers11.812.910.010.210.710.5
Expenditure254.6260.9239.8251.1257.2261.3
Intermediate consumption62.466.662.965.668.169.3
Compensation of employees74.075.272.073.776.778.8
Other taxes on production1.91.92.12.32.22.2
Subsidies, payable6.66.76.57.37.37.5
Interest on public debt6.36.84.03.93.83.8
Social benefits18.619.018.819.319.820.1
Other current transfers28.228.231.634.934.935.0
Capital transfers15.114.014.517.215.716.0
Gross capital formation42.842.027.927.228.528.7
Acquisition of non-financial non-prod. assets (net)-1.10.6-0.4-0.20.30.0
Financial balance-11.6-3.45.31.21.03.0
(In percent of GDP)-0.5-0.10.20.00.00.1
Sources: Austrian Central Statistical Office; and Ministry of Finance.

Based on the European system of national and regional accounts in the Community (ESA 95).

Preliminary.

Official projections as of early March 2000.

Includes health services produced by government owned hospitals and imputed rent on owner-occupied real estate.

Sources: Austrian Central Statistical Office; and Ministry of Finance.

Based on the European system of national and regional accounts in the Community (ESA 95).

Preliminary.

Official projections as of early March 2000.

Includes health services produced by government owned hospitals and imputed rent on owner-occupied real estate.

Table A19.Austria: Social Security Fund Finances—National Accounts Basis 1/ Not Consolidated(In billions of schillings)
19951996199719981999 2/2000 3/
Revenue406.6423.2437.9455.3474.6495.1
Market output and output for own final use 4/9.29.49.49.710.110.1
Taxes on production and imports0.00.00.00.00.00.0
Property income2.32.12.12.02.02.3
Current taxes on income, wealth, etc.0.00.00.00.00.00.0
Social contributions297.2306.9314.7324.7334.8347.7
Other current transfers97.9104.9111.8118.9127.7135.0
Capital transfers0.00.00.00.00.00.0
Expenditure408.0421.3437.2454.8476.1494.0
Intermediate consumption98.0100.886.892.7100.9105.7
Compensation of employees15.916.316.416.717.217.7
Other taxes on production0.70.70.70.70.80.8
Subsidies, payable7.47.07.27.37.57.7
Interest on public debt0.90.70.70.70.80.8
Social benefits264.7275.9278.9288.5301.2313.3
Other current transfers18.918.444.446.046.847.0
Capital transfers0.00.00.00.00.00.0
Gross capital formation1.51.42.12.11.01.1
Acquisition of non-financial non-prod. assets (net)0.00.10.00.10.0-0.1
Financial balance-1.41.90.70.5-1.51.0
(In percent of GDP)-0.10.10.00.0-0.10.0
Sources: Austrian Central Statistical Office; and Ministry of Finance.

Based on the European system of national and regional accounts in the Community (ESA 95).

Preliminary.

Official projections as of early March 2000.

Includes health services produced by government owned hospitals and imputed rent on owner-occupied real estate.

Sources: Austrian Central Statistical Office; and Ministry of Finance.

Based on the European system of national and regional accounts in the Community (ESA 95).

Preliminary.

Official projections as of early March 2000.

Includes health services produced by government owned hospitals and imputed rent on owner-occupied real estate.

Table A20.Austria: Monetary Aggregates and Lending to Domestic Nonbanks 1/(Percentage change year on year)
Monetary AggregatesLending to Domestic Nonbanks
Monetary base 2/M1 3/M3 3/TotalPublicPrivate
19895.53.46.912.8
19905.95.47.313.8
19916.18.27.711.7
19924.66.248.3
19934.810.93.96.6
19945.16.35.47.112.75.1
19955.415.14.86.25.36.6
19965.35.41.83.4-1.15.8
19972.54.91.24.1-4.97.2
1998-0.79.66.45.2-6.47.3
19998.94.74.9-1.75.2
2000
January11.44.54.4-0.44.2
February9.33.34.4-1.64.6
March9.13.45.81.65.4
April11.55.66.41.75.9
May5.06.16.22.95.8
Sources: Österreichische Nationalbank; and IMF, International Financial Statistics.

From January 1999, euro harmonized data were used.

Period average.

End of period, excluding foreign exchange deposits.

Sources: Österreichische Nationalbank; and IMF, International Financial Statistics.

From January 1999, euro harmonized data were used.

Period average.

End of period, excluding foreign exchange deposits.

Table A21.Austria: Interest Rates(Percentage change year on year)
Call Money Rates 2/3-Month Money Rates 2/3/Government Bond Yields 2/Stock Market Index 1/
European Central Bank 1/ Refinancing Operations (Repo rate)AustriaGermanyDifferentialAustriaGermanyDifferentialAustriaGermanyDifferentialJanuary 1992=100
Austria (ATX)Germany (DAX)
19929.38.90.309.39.4-0.18.27.90.38897
19937.16.80.357.07.2-0.26.86.40.390108
19945.06.1-1.095.15.3-0.27.07.00.0109125
19954.35.0-0.684.64.50.17.27.00.299126
19963.25.0-1.823.43.30.16.36.30.1107154
19973.34.4-1.133.53.30.25.75.60.1129222
19983.44.5-1.133.53.50.04.74.60.1133300
19992.713.02.90.04.64.50.1117320
1999
January3.003.13.1-0.043.13.10.03.93.70.22107306
February3.003.13.10.013.13.10.04.03.80.15117291
March3.002.92.9-0.033.13.10.04.34.00.27119289
April2.502.72.70.022.72.70.04.33.80.51129320
May2.502.62.50.052.62.60.04.03.90.10117300
June2.502.62.60.032.62.60.04.34.6-0.02123319
July2.502.52.5-0.012.72.70.04.74.7-0.04118302
August2.502.42.4-0.032.72.70.05.15.60.10120312
September2.502.42.4-0.022.72.70.05.35.20.12111305
October2.502.52.50.013.43.40.05.55.40.08113327
November3.002.52.9-0.423.53.50.05.25.20.08113349
December3.003.03.0-0.033.53.50.05.35.20.10120412
2000
January3.003.03.0-0.033.33.30.05.75.60.12112405
February3.253.33.30.033.53.50.05.85.60.16109453
March3.503.53.50.003.83.80.05.65.40.17113450
April3.753.73.70.033.93.90.05.55.30.18113439
May3.753.93.90.004.44.40.05.75.50.18113421
June4.254.34.30.024.54.50.05.55.30.24113409
Sources: Osterreichische Nationalbank; Statistisches Monatsheft (various issues); Deutsche Bundesbank, Monatsbericht (various issues); European Central Bank; IMF, IFS; and Bloomberg.

End of period except annual data.

Period average.

Figures for 1999 and 2000 referto EURIBOR.

Sources: Osterreichische Nationalbank; Statistisches Monatsheft (various issues); Deutsche Bundesbank, Monatsbericht (various issues); European Central Bank; IMF, IFS; and Bloomberg.

End of period except annual data.

Period average.

Figures for 1999 and 2000 referto EURIBOR.

Table A22.Austria: Exchange Rate Developments
Schilling/SDRSchilling/U.S. dollarEffective Exchange Indices 1/Schilling/SDR 4/Schilling/U.S. dollar 4/Effective Exchange Rate Indices 1/
Nominal 2/Real 3/Nominal 2/Real 3/
(Period average)(Percentage change from previous period)
199215.511.0101.397.13.26.21.70.5
199316.211.6104.097.84.8-5.52.60.7
199416.311.4103.995.7-0.51.80.0-2.1
199515.310.1106.992.46.913.32.9-3.5
199615.410.6105.288.1-0.5-4.8-1.6-4.6
199716.812.2102.983.5-8.4-13.3-2.2-5.3
199816.812.4103.181.90.0-1.40.2-2.0
199917.712.9102.079.7-5.0-4.2-1.1-2.6
1995
I15.5410.4106.593.32.64.51.8-3.0
II15.389.8107.693.81.16.11.10.5
III15.2710.1106.892.00.7-2.5-0.8-1.9
IV14.9510.0106.990.42.10.50.1-1.8
1996
I15.1310.3106.289.0-1.2-2.9-0.7-1.5
II15.4810.7105.088.3-2.3-3.6-1.1-0.8
III15.3110.5105.288.11.21.60.1-0.2
IV15.5510.8104.587.1-1.6-2.1-0.6-1.2
1997
I16.2311.7103.884.6-4.2-7.8-0.7-2.8
II16.6812.1103.283.8-2.7-3.2-0.6-1.0
III17.3312.7102.082.8-3.8-5.2-1.1-1.1
IV16.8912.4102.682.72.73.00.5-0.1
1998
I17.2212.8102.382.3-1.9-3.5-0.2-0.5
II16.9212.6103.081.71.81.40.6-0.7
III16.6312.4103.581.91.81.80.50.3
IV16.3811.7103.781.51.56.10.2-0.5
1999
I16.955/12.35/102.980.6-3.4-4.6-0.8-1.1
II17.5513.0102.279.7-3.4-5.9-0.7-1.2
III17.8513.1101.879.8-1.7-0.8-0.40.1
IV18.3013.3101.278.8-2.4-1.0-0.6-1.2
2000
I18.8713.9100.677.9-3.0-4.9-0.5-1.1
II19.5714.799.976.9-3.6-5.5-0.8-1.3
Source: IMF, International Financial Statistics.

1990=100

Trade weighted 17 countries.

Relative normalized unit labor costs in manufacturing, adjusted for exchange rate changes.

Percent changes for bilateral rates, based on average exchange rates, and in terms of schilling per unit of foreign currency.

Since 1999, bilateral exchange rates are derived as the product of euro exchange rates and the conversion factor 13.7603.

Source: IMF, International Financial Statistics.

1990=100

Trade weighted 17 countries.

Relative normalized unit labor costs in manufacturing, adjusted for exchange rate changes.

Percent changes for bilateral rates, based on average exchange rates, and in terms of schilling per unit of foreign currency.

Since 1999, bilateral exchange rates are derived as the product of euro exchange rates and the conversion factor 13.7603.

Table A23.Austria: Balance of Payments Summary(In billions of schillings)
19921993199419951996199719981999
Current account balance-8.0-11.7-33.1-54.0-50.8-64.2-59.7-74.6
(Percent of GDP)-0.4-0.5-1.4-2.2-2.0-2.5-2.2-2.6
Goods and services balance 1/18.712.5-6.2-20.6-28.9-39.916.1-14.1
(Percent of GDP)0.90.5-0.3-0.8-1.1-1.5-0.6-0.5
Merchandise trade balance 2/-84.1-75.3-90.2-67.1-77.0-52.0-45.3-45.6
Exports488.8468.4513.8581.4613.9716.1776.3823.0
Imports572.9543.7604.0648.5690.9768.0821.5868.5
Non-factor services balance102.887.884.046.548.212.029.231.5
Of which: Tourism64.358.139.526.518.610.820.724.0
Receipts299.5311.1319.8325.3358.9361.4365.0399.6
Of which: Tourism151.0148.5139.9136.0135.3134.1138.4142.0
Payments196.6223.4235.8278.8310.8349.4335.8368.1
Of which: Tourism86.790.4100.4109.5116.7123.2117.7118.0
Net factor income-15.6-12.5-14.6-16.2-3.1-3.5-19.8-34.9
Net unrequited transfers-11.1-11.7-12.3-17.3-18.8-20.7-23.9-25.6
Net capital transfers-0.5-5.2-1.0-0.60.80.3-2.5-1.8
Financial account 2/-2.120.336.859.543.856.969.091.8
Net foreign direct investment-2.90-0.639.667.8026.388.1324.193.21
Abroad-18.7-13.8-14.4-11.4-20.5-24.2-36.5-34.9
Into Austria15.713.224.019.246.932.460.738.1
Portfolio investment70.370.6-1.995.4-28.911.780.7-16.9
Abroad-29.9-22.0-51.5-28.5-88.0-122.3-139.7-355.5
Into Austria100.292.649.6123.959.1134.1220.4338.6
Other net claims-41.8-22.940.6-28.655.30.610.280.8
Monetary authorities0.00.0-0.2-1.31.50.0-1.932.5
Public sector5.5-5.115.72.7-4.0-12.1-0.24.8
Banks-43.9-24.234.8-49.579.120.034.572.4
Other sectors-1.94.8-12.718.9-31.1-15.2-27.4-26.7
Trade credits-1.51.63.00.69.87.85.2-2.3
Financial derivatives0.2-0.2-1.0-1.32.20.5-6.0-2.3
Change in official reserves-27.8-26.5-10.6-13.8-11.135.9-40.127.0
Source: Österreichische Nationalbank.

For 1995, 1996, and 1997, based on payments data.

Includes transit trade and services closely linked to merchandise trade.

Source: Österreichische Nationalbank.

For 1995, 1996, and 1997, based on payments data.

Includes transit trade and services closely linked to merchandise trade.

Table A24.Austria: Capital Account Overview(In billions of schillings)
19921993199419951996199719981999
Direct investment-2.9-0.69.77.826.48.124.23.2
Credits-18.7-13.8-14.4-11.4-20.5-24.2-36.5-34.9
Debits15.713.224.019.246.932.460.738.1
Portfolio investment70.370.6-1.995.4-28.911.780.7-16.9
Credits-29.9-22.0-51.5-28.5-88.0-122.3-139.7-355.5
Shares-2.0-7.1-10.0-5.5-12.2-29.2-64.8-70.0
Fixed interest-27.7-14.0-39.0-24.5-69.1-97.4-79.5-284.1
Other-0.2-0.9-2.51.5-6.74.34.6-1.4
Debits100.292.649.6123.959.1134.1220.4338.6
Shares1.713.815.012.528.232.012.532.6
Fixed interest65.3106.035.2119.243.286.5203.7257.4
Other33.1-27.3-0.5-7.8-11315.54.248.7
Other investment-41.8-22.940.6-28.655.30.610.280.7
Credits-80.3-59.1-31.8-102.08.9-613-11.3-155.7
Debits38.536.272.473.446.362.921.5236.5
Loans-19.3-9.73.8-5.6-36.0-57.1-52.0-133.7
Credits-36.9-8.3-10.1-22.0-37.6-51.9-52.8-159.3
Official sector-0.51.9-1.51.90.10.10.8-12.7
Banks-28.2-4.53.0-24.0-24.2-41.3-33.8-109.7
Other-8.2-5.6-11.60.1-13.5-10.7-19.8-36.8
Debits17.6-1.413.916.41.6-5.30.825.6
Official sector4.1-4.518.66.7-2.1-1.84.66.8
Banks-2.3-3.41.91.42.91.12.410.5
Other15.86.5-6.68.30.8-4.5-6.28.3
Sight and term deposits-24.5-12.829.9-24.682.279.453.3228.8
Credits-46.7-49.9-17.1-80.928.913.333.124.4
Official sector1.5-0.10.2-2.77.7-5.3-6.1-11.6
Banks-38.0-54.5-20.1-84.935.214.640.634.2
Other-10.24.72.86.8-14.04.0-1.41.7
Debits22.237.147.056.253.266.220.2204.4
Short-term by banks17.948.842.844.758.149.725.1118.1
Trade credit-1.51.63.00.69.87.85.2-2.3
Credits1.02.0-4.03.610.82.98.8-3.6
Debits-2.5-0.47.0-3.0-1.04.9-3.71.3
Other
Credits2.3-2.9-0.6-2.76.8-26.6-0.4-17.2
Official sector2.0-0.8-1.0-2.9-2.9-3.0-3.2-17.2
Banks0.6-0.9-0.9-2.314.5-19.42.62.0
Other-0.3-1.21.32.5-4.7-4.20.1-2.0
Debits1.20.94.43.8-7.5-2.94.25.1
Official sector-1.6-1.6-0.8-1.6-5.3-2.11.90.6
Banks1.82.13.84.2-2.5-1.02.52.4
Other1.00.51.41.30.30.2-0.22.1
Financial derivatives0.2-0.2-1.0-1.32.20.5-6.0-2.3
Credits0.2-0.2-1.0-1.32.2-2.3-4.9-3.6
Debits0.00.00.00.00.02.8-1.11.3
Capital account balance-2.120.336.859.543.856.969.091.8
Credits-128.9-94.9-97.7-141.9-99.5-208.9-187.5-546.1
Debits154.4142.0146.0216.5152.3229.3302.7613.2
Source: Österreichiache Nationalbank.
Source: Österreichiache Nationalbank.
Table A25.Austria: International Investment Position(In billions of schillings; end of period)
199319941995199619971998
Assets1,483.41,513.61,618.21,786.12,099.82,318.6
Direct investment abroad99.1103.2118.3143.1191.3224.3
Portfolio investment209.2250.4278.0367.4555.9689.4
Shares46.855.060.572.9145.9202.3
Bonds159.6188.5209.2283.5405.9480.2
Others2.86.98.311.05.58.3
Other investment912.3899.9959.1982.51,071.91,084.3
Trade credit70.267.464.755.057.849.5
Loans385.3355.0353.6397.7451.3503.6
Public sector 1/23.41.41.41.41.40.0
Credit institutions344.0334.4348.1377.0421.1448.6
Of which: Long term304.1286.2335.8346.8319.2353.6
Other sectors19.317.92.820.628.955.0
Sight- and term deposits425.2444.5496.7483.0483.0447.2
Public sector 1/1.41.40.00.05.511.0
Credit institutions415.6434.8487.1473.4467.9427.9
Of which: Short term385.3408.7434.8423.8434.8397.7
Other sectors8.38.39.69.68.36.9
Other31.633.045.445.479.882.6
Foreign exchange reserves264.2261.4262.8293.1278.0311.0
Liabilities1,622.31,706.31,914.12,090.22,512.62,823.6
Direct investment in Austria139.0145.9177.5217.4249.1322.0
Portfolio investment751.3763.7904.1961.81,226.01,429.7
Shares44.060.571.6100.5198.1183.0
Bonds648.1650.9784.3824.2988.01,195.8
Others60.552.348.237.239.949.5
Other investment732.0796.7833.9910.91,037.51,071.9
Trade credit42.746.844.042.746.842.7
Loans67.497.7106.0114.2110.1117.0
Public sector 1/11.027.535.831.630.334.4
Credit institutions16.520.619.330.326.127.5
Of which: Long term11.011.09.617.919.317.9
Other sectors39.949.550.950.953.753.7
Sight- and term deposits583.4611.0634.3715.5839.4868.3
Public sector 1/0.00.00.00.00.00.0
Credit institutions583.4611.0634.3715.5839.4868.3
Of which: Short term565.5588.9595.8685.3791.2828.4
Other sectors0.00.00.00.00.00.0
Other38.541.350.941.341.344.0
Net investment position-139.0-192.6-297.2-304.1-412.8-506.4
(In percent of GDP)6.4-8.4-12.5-12.4-16.4-19.4
Source: Österreichische Nationalbank, Monthly Report, June 2000.

Including monetary authorities.

Source: Österreichische Nationalbank, Monthly Report, June 2000.

Including monetary authorities.

Table A26.Austria: Official Development Assistance(In millions of schillings, unless otherwise noted)
1994199519961997199819992000 1/
Bilateral ODA6,117.05,643.04,360.03,735.03,608.03,725.03,318.0
(As a percent of total)81.873.074.058.164.055.356.0
Grants 2/4,044.03,800.03,733.03,086.03,389.03,505.03,098.0
Loans2,073.01,843.0627.0649.0219.0220.0220.0
Multilateral ODA1,365.02,087.01,533.02,695.02,032.03,012.02,607.0
(As a percent of total)18.227.026.041.936.044.744.0
European Union849.0995.01,181.0994.01,532.01,127.0
International financial institutions963816.01331,141.0656.01,080.01,080.0
United Nations and others402.0422.0405.0373.0381.0400.0400.0
Total7,482.07,730.05,893.06,430.05,640.06,737.05,925.0
(Percent change)18.33.3-23.89.1-12.319.5-12.1
(As a percent of GNP)0.330.330.240.260.220.250.21
Source: Ministry of Finance.

Provisional.

Includes humanitarian and technical assistance.

Source: Ministry of Finance.

Provisional.

Includes humanitarian and technical assistance.

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17Prepared by Anastassios Gagales.
18Detailed reviews of the Austrian labor market can be found in Biffl and Pollan (1995), EU (1997), Marterbauer and Walterskirchen (1999), Pichelmann and Hofer (1999), OECD (1997a), and SM/98/126.
19Registered unemployment, which is compiled from Labor Market Service statistics and is expressed in percent of dependent employment (i.e., excluding the self-employed), was 6 percent. As is explained in Biffl (1999), the discrepancy between the two rates practically vanishes when account is taken of differences in coverage and definitions.
20International comparisons should be treated with caution due to differences in definitions and measurement. For example, in the Netherlands, people over 57 do not appear in survey-based measures as these persons are not obliged to search actively for a job (a requirement for a person to be classified as unemployed).
21Several econometric studies (e.g., Arestis and Mariscal, 2000) conclude that the unemployment rate in Austria (and several other OECD countries) is non-stationary, even after allowing for trend and structural breaks. This reflects the confluence of relatively short samples, statistical tests with low power, and sluggishness in the labor market. The unit root hypothesis is theoretically untenable and unlikely to be validated in sufficiently large samples.
22The structure of foreign employment has changed noticeably over the past thirty years: the share of foreign workers employed in manufacturing has declined from ¾ in the early 1970s to just over 40 percent in the mid-nineties as foreign women have shifted from manufacturing to services. Currently, the presence of foreign employment is highest in tourism, agriculture, textiles, and construction (Pichelmann and Hofer, 1999).
23Citizens of other EU countries are exempt from restrictions. Their number (some 25,000) has remained small in comparison with labor from non-EU member countries.
24This is almost half the level in the Netherlands, as reported in Broersma et al. (2000).
25The plummeting of the average retirement age of old-age and invalidity pensions since 1994 (Figure 10) is the result of a two-pronged pension reform that (i) tightened the criteria for disability pensions (about ⅔ of applications were rejected in 1997) and (ii) recognized reduced employability (geminderte Arbeitsfähigkeit, Erwerbsunfähigkeit) as a reason for early retirement. In addition, the inclusion of child-bearing periods in the calculation of pension benefits has reduced the average retirement age for women.
26In the public sector, the minimum retirement age is 57 for both genders.
27Appendix II examines the taxation of labor and capital income in Austria.
28The outsourcing of functions to the services sector implies that effective job destruction has been smaller than suggested by employment statistics in manufacturing. Outsourcing also tends to overestimate productivity in manufacturing and underestimate productivity in services.
29Because of distributional effects, the rise in part-time employment is considered to have contributed to the rise in economic insecurity. The expansion of part-time employment has benefited persons (primarily women) who were earlier excluded from the labor market and has reduced dependence on the welfare system, At the same time, it has adversely affected those whose jobs were converted from full- to part-time.
30Placement offices (Arbeitsmarktservice Österreich, AMS) tend to focus on (regaining the unemployed below 50; and rely on employment subsidies for activating older workers.
31Critical analyses of the Austrian system of social partnership can be found in Farnleitner and Schmidt (1982), Katzenstein (1984), Romanis Braun (1986), Tomandl and Fuerboeck (1986), Biffl and Pollan (1995), and Guger (1998).
33Since the pegging of the exchange rate, wage agreements have focused on maintaining the competitiveness of the export sector, and in particular in the wage leader, the metal sector.
35There is also some evidence that increasing economic integration in the EU induces more similar wage developments and strengthens international interdependence in wage formation: a recent study by Andersen et al. (2000) finds that in Austria (and in countries in the periphery of the EU) wages in trading partners exert an increasing, albeit still small, influence on domestic wages and that the effect of productivity on wages has been weakening.
36Outsourcing has also been taking place in the public sector, leading to a reduction in the share of tenured employees (Beamte) and allowing some differentiation in the treatment of sub-groups of public sector employees.
37That was true even at times when solutions were not obtainable at the level of political parties (Farnleitner and Schmidt, 1982).
38Prepared by Kornélia Krajnyák.
39The overall savings-investment norm (based on methodology used in staff real exchange rate assessments) for Austria is estimated to be around +0.5 percent of GDP in 1999 (based on pre-EMU structural characteristics of the economy), and would decline to around zero by 2004 due to a projected deterioration of Austria’s relative structural fiscal position. Thus, the underlying current account position does not differ significantly from the savings-investment norm. In the pre-EMU environment this would have suggested that the exchange rate in real effective terms was roughly in line with fundamentals.
40These calculations are based on MULTIMOD income and price elasticities and CPI-based real effective exchange rates.
41The baseline oil price is calculated as average oil prices over the 1987-2005 period based on WEO assumptions.
42Terms of trade effects are isolated based on the following decomposition of the trade balance: X-M=(x-m) + [(Px/P-I)x -(Pm/P-I)m], where X(M) is the exports (imports) to GDP ratio at current prices; x(m) is the exports (imports) to GDP ratio at constant 1995 prices; and Px, Pm and P are the export, import and GDP deflators, respectively.
43Based on Direction of Trade Statistics data.
44For instance, due to strong economic integration, Belgium accounts for about 17 percent of Dutch merchandise exports and about 12 percent of imports, despite Belgium’s small size.
45A similar phenomenon can be observed in Swiss tourism.
46The choice of variable was constrained by data availability.
47Since the economies considered are small, contemporaneous market growth can plausibly be considered exogeneous. Endogeneity problems are also likely to be minor in the case of price or cost competitiveness, as the nominal exchange rates of these countries were stable during the time period considered, and wage growth was likely to be predetermined due to multi-year central wage agreements.
48Reestimating the equation for the 1975-90 period for the Netherlands yields larger point estimates for both the long-run and short-run price elasticities, while the income elasticities remain close to unity.
49Prepared by Catriona Purfield while working under the Economist Program in the EU1 department.
50The following example illustrates the various tax-related costs paid by employers and employees on gross wages in Austria:
(A)Employees gross wages (Bruttolohn)100,000
24% Employers’ social security contributions for wage earners+24,000
Wage costs of employment (Bruttoentgelt)124,000
Wage dependent taxes
Family Assistance Fund (4.5% of A)+ 4,500
Municipal payroll tax (Lohnsummensteuer) (3% of A)+ 3,000
Total wage costs (Lohnkosten)131,500
Gross wages100,000
Taxes-15,000
Social security contributions-17,000
Other taxes (e.g., residential construction fund)-1,000
Net waees (Nettolohn)67,000
51Income tax was computed on the aggregate net income from all sources (the global income principle) on a progressive scale. 1999 tax rates were: 10 percent on the first S 50,000; 22 percent on the next S 100,000; 32 percent on the next 150,000; 42 percent on the next S 400,000; and 50 percent on income exceeding S 700,000. The income tax scale was modified in the context of the year-2000 tax reform.
521999 tax credits included a general tax credit of S 8,840; a wage earner’s credit of S 1,500; a commuting expense credit of S 4,000; and a sole earner’s credit of S 5,000. A tax credit of S 5,000 was also granted to single parents, and retired persons received a tax credit of S 5,500. A tax credit of S 5,700 was granted for the first child, S 7,800 for the second child and S 9,900 for each additional child. Annual standard deductions from income included S 1,800 for expenses connected with employment, and an additional travel expenses deduction of between S 2,280 and S 28,800 if the commuter’s journey to work exceeded 20 kilometers. Mortgage interest expenses on a taxpayer’s primary residence (apartment) and life insurance premiums (up to S 20,000) for taxpayers under the 50 percent tax bracket were deductible.
53In 1999, contributions to the health, unemployment, pension, and accident insurance schemes are subject to a monthly ceiling of S 42,600. For these schemes, contributions from Christmas and leave bonus payments were subject to an S 85,200 ceiling. Contributions to the labor chamber and to the fund for the promotion of residential buildings (Wohnbauförderungsbeitrag) were only subject to the monthly S 42,600 ceiling.
54In aggregate, the first S 8,500 of bonus income was tax free (but if bonus income did not exceed S 23,000 per year, no tax was deducted) and the special flat rate of 6 percent was limited to one-sixth of current income.
55The 1999 tax reform raised the minimum holding period from one to two years, effective from October 2001.
56This methodology assumes no differences in the risk and transaction costs of investing in different forms of asset.
57Except for dividends received by companies. For the purposes of estimation, dividends are paid to shareholders outside the firm.
58In calculating the impact of the personal tax code on marginal investments the average tax rate of 25 percent was used for equity and debt financed investments. Capital gains are assumed to be taxed at the top personal tax rate (50 percent) and are treated on an accrual basis with a gain of 10 percent being realized and taxed in year one. Thereafter, capital gains are tax exempt.

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