Is the EU detrimental to market economic reforms?
Professor Karsten Staehr’s favourite paper deals with the effect that closeness to the EU has on reforms in a country.
On the notice board of TUT’s Department of Finance and Economics there is a cartoon depicting a classroom, where both the professor and the students are staring at a student, who is lying on the floor, obviously not feeling well. The caption reads: “Professor Staehr reached a life-long goal – to bore a student to death.”
In real life such a scenario does not seem too likely, however, as Karsten Staehr, who is a Danish national, certainly belongs to the livelier and more expressive school of economics professors. And, he is also one of the most cited macroeconomists in Estonia. Staehr himself is a bit dismissive of this honour. “I have some bad papers that are cited, yeah,” he says. “The rule is that the papers I like the most are neither read nor cited, while those I like less are read and cited.”
One of his own favourites is a paper about how a country’s closeness to the EU is tied to democratic and economic freedoms in the country. Staehr found out that when one of the 27 post-communist countries has been getting closer to the EU, the democratic reforms typically advanced, while market economic reforms regressed – perhaps as a result of regulation that had to be harmonised with the EU. “I don’t think it’s read by anybody, at least it’s not cited by anybody,” is Staehr’s bittersweet comment.
This paper belongs to one of three fields that Staehr is mainly researching, namely political economy, where he particular deals with the question why some countries have pursued one kind of economic policy but others have chosen a different path. Another of his focus areas is macroeconomics and monetary economics, where he works on inflation dynamics, why different countries were hit differently by the global financial crisis and why some countries, in particular Baltic States, are very sensitive to economic shocks.
His third interest lies in public finance. At the moment Professor Staehr is finishing an article with Guido Baldi from the DIW in Berlin on the differences in European fiscal policy before and after the global financial crisis. Staehr also has some papers on the Estonian taxation system. With one of his doctoral students he is researching tax evasion and try to estimate the underreporting of income by households with business income in the period of 2002-07. They have found a large extent of underreporting of income but, a bit surprisingly, there is not much difference in the extent of underreporting between the beginning and the end of the period.
Staehr also participates in different research projects when he is invited to do so. This autumn he will be researching the importance of competitiveness. While competitiveness is not easy to define – there are hundreds of definitions for the word and some economists even say no such thing exists – it is very relevant politically at present. “Crisis countries should improve their competitiveness, meaning lowering the salaries of somebody,” Staehr explains the political thinking. So policy measures undertaken in Greece are in large part tied to improving competitiveness. The debate on whether the Baltic countries should have devalued their currencies during the crisis is also based on the assumption that competitiveness matters to some degree.
Staehr knew about the Baltic States already in Soviet times through his grandmother who was interested in the Nordic cause between the two world wars. In 1996-97 he was working in Lithuania. In 2001 he came to teach in Tartu, and shared his time between Estonia, Norway and Denmark. He came to Tallinn in 2006. “When I visit Copenhagen or Oslo, and I return to Estonia, I feel myself at home,” he says – although, he confesses, he still has serious difficulties with the Estonian language.