Electronic Library of Scientific Literature - © Academic Electronic Press


Volume 51 / No. 8 / 2003


The Impact of Insufficiently Competitive Market Structures on Economy Performance


The important part of the competition policy is a problem of the market structure. The concrete structure of the market and the behaviour of its individual subjects, which are determined by the market structure leads to the individual results of the economic performance in the national economy, or its efficiency. That’s why is useful to determine which criteria and consequences (the market results) are needed to be considered in the course of normative appraisal of such a performance, or efficiency.

The paper does not contain, of course, the whole large scale of this problem, but it concentrates only on the parts named in the beginning, that are connected with understanding of the eventual national economic losses in the prosperity and the performance and (or) misuse of the significant market position and power in the meaning of the imperfect competition.

This problem is mainly solved in Anglo-Saxon (the most in American) and German literature, although some aspects are originally included in the tradition of the Scandinavian economic thinking. The prosperity losses, performance losses and distortions of the distribution make the sphere of the economic research that systematically analysed and verified with relevant statistical methods till the end of the 2nd World War.

The distortions in the normative justice of a distribution are one of the most important impacts of a deformation in a competitive environment and using the monopoly market power. The impact of the monopoly profits at the various groups is dependent on the preference in the consumption, its structure and on the asked profit level. The distortion impacts of a huge concentration of the market structure on the distribution justice are proved empirically and math-statistically in every case. The fact is, that the most of them are connected with the institute of ownership of the dominant firms in the excess concentrated monopoly branches and oligopoly branches and the market, where such an “exclusive” ownership implicates more – less regular extensive “rent-seeking” behaviour of its bearers.

The analyses of relations on the monopoly market or the oligopoly market structure and the dynamics of the innovation activity an the technical progress are also very important. It is improved, that the intensity of the innovation activity has stronger influence on the market share growth in the firms in the oligopoly structure. The contribution of the innovations, which is represented by making the start before the competitors and by increase of the profits and market share in the long-term aspects is proved by the disposition change of the technological possibilities in the firm and the level of the adaptation for new produce processes with the lowest costs. These are, of course, very complex relations.

There is also one problem that specifically exceeds the frame of the general uniform analysis of the defects of the economic performance and losses on the prosperity because of the overly concentration and insufficient competition in the market structures. It is a question about the natural monopoly and the production, the prices, the distribution and regulation of the consumption of public utilities. It is a problematic aspect about the state intervention in the economy that is as old as the whole economics.

Globalisation Versus Glocalisation

Ladislav LYSÁK

Globalisation had brought lots of riches, but it had also resulted in many poor countries and people still awaiting promised changes. It had been criticised mostly for capital flows that caused the Asian and another financial crisis, the closure of firms and job losses. The debate is not about globalization, the debate is about the division of the enormous benefits that globalization can give and how fair is that division. Globalisation has gone with a dual phenomenon – strengthening of regionalism in all of the world.

The aim of this piece is to concentrate an intention on the subject of regionalism in relation to globalisation = glocalisation.

The regionalisation process is now spreading across the whole planet. The European Economic Area brings (yet) together 380 million consumers, North America through NAFTA with its 360 million consumers, Japan among ASEAN consist a free-trade area of 320 million consumers.

However intensification of regionalism brings many new questions, among them are political, social and cultural: Isn’t the new regionalism a recomposition of the global system into homogeneous and highly competitive blocs? What would happen to the African continent and the other casualties except of triad of globalisation? Is it acceptable that the strategic oligopolies should themselves enter the regional dimension? How does regionalisation impact on current WTO rules? Are the rich countries of the triad (Europe, the USA and Japan) capable of setting coherent trading balances among themselves? The second series of questions: What political model is to be adopted given the new regional situation, and what should be the attitudes of political parties sharing the same convictions? Western right-wing parties are now unified by a conformist economic liberalism offering the world just one project: economic liberalism. Is there any alternative on the political (organisational) and cultural levels? Will social protection covering working conditions, safety at work, health and material welfare of workers be blocked at national level, or will it find its way into regionalisation? How will cultural identity be treated? Regionalism is effected between countries with very different cultural traditions How do you manage these particularities at a time when globalisation is imposing a single language for finance, science and communication?

Human capital theory and current Slovak economy


The main goal of the paper is to point out to the implications of the human capital theory for current Slovak economy. In the first part of the paper the author specifies conditions, which lead to the development of the human capital theory as a systematic methodological approach, which in a determining manner influenced several applied areas of economics. A rational individual will invest into his/her human capital up to the point where marginal revenue from this investment will equal the opportunity costs of resources needed for this investment. Then, the earning differentials among different individuals can be to a large extend explained by different investments into their human capital. This hypothesis became a staring point of the abundant number of empirical stu-dies. Looking at current earning differentials of individuals with different level of education as well as unemployment rates of labour force with different levels of education in Slovakia shows that the human capital hypothesis is valid also in Slovak conditions, which has a clear-cut implication. Documented private returns of individuals with higher education can be used as an argument in favour of strengthening their cost-share on this investment.

In recent decades the human capital concept has been utilized also in the analysis of the economic growth as a part of endogenous theories of economic growth. The contribution of human capital to the economic growth is generally accepted and considered to be its most important social benefit. In this context human capital is considered an endogenous factor of economic growth. The message of these models, that a country with accumulated large quantities of human capital, investing into its research, creates the predispositions for its dynamic economic growth, is relevant also for the formulation of growth policies in the current Slovak economy.

Human capital theory influenced also models of migration. In their context the distinction is made between the specific human capital, which can be utilised in specific conditions of a given country, or region, and the non-specific human capital, which can be utilised regardless on the geographic location. High share of the specific human capital on the overall stock of capital can weaken the impetus of the labour force to migration. The utilisation of the human capital theory in the analysis of migration draws attention to externalities of migration. Although from the global perspective the migration contributes to the increase of economic efficiency, since the labour force moves into regions, where it is more productive, for an individual country, which looses its qualified and young labour force, as it is currently the case in Slovakia, it represents an important problem.

What Drives Foreign Direct Investments into Baltic Countries? The Case of Lithuania, Latvia and Estonia


Lithuania, Latvia and Estonia as object of economic analysis have been chosen not accidentally. These neighbour Baltic countries started their transition reforms almost at the same time and from quite similar positions.

Despite common aims are obvious, each country has chosen rather different way of transition.

Aim of presented paper is to compare approaches to constructing of tax systems in Lithuania, Latvia and Estonia and to evaluate their efficiency in terms of attracting fo-reign investments into country.

Among some academicians and majority of policy makers an unquestionable belief in special importance of FDI prevails.

Theoretical framework presented in the paper suggests a list of factors, which may be important in attracting FDI, such as economic distance, market size, agglomeration effects, factor costs, fiscal incentives, business environment climate, economic stability, trade barriers.

While these factors are likely to affect all types of FDI, the different strategic objectives of different multinationals are implicit.

Hence, certain factors may affect one multinationals and another factors may more af-fect another and even more, this combined impact could be different in different regions.

The focus on legal environment of Baltic countries has been motivated by aim of paper: to verify if different approaches to tax system could be considered as major determinant of FDI for this specific region.

Methodology of analysis exploits the following approach to considered issue. Tax system is notoriously quite significant tool of regulation of any economy, which affects propensity to invest. Nevertheless, explicit impact of it on investment environment cannot be measured and must, therefore, alas, be traced only indirectly through analysis of major economic indicators.

The probability is that FDI to transition countries can be attracted not only by favourable investment conditions from the point of taxes but also by other factors. Nevertheless, we need to admit that a lot of indexes characterizing Baltic countries fluctuate within narrow limits, hence, in our paper we have focused on investigation of driving factors embracing legal environment conditioned by different tax systems.

The rationale of analysis of FDI in the context of valid tax systems is obvious: more favourable than in other countries conditions should attract international investment capital. In its turn additional capital should induce grow of GDP. Hence, another aim of paper is to verify if actually appropriate relationship between FDI and GDP exists.

The upshot of this comparison should be evaluation of level of actual impact of taxes on investment propensity in Lithuania, Latvia and Estonia. Considering complexity of a task of evaluation of impact of one factor, especially such as tax system, on displayed propensity to invest, we accept following approach: if growth of FDI is followed by growth of GDP that could be treated as situation when FDI attracted by favourable investment conditions induce GDP growth; if increase in FDI weren’t be followed by growth of economy that would mean that FDI for certain reasons don’t contribute properly to the growth, so, tax system wasn’t major factor stipulating FDI.

Presented in the paper investigation has led to the following conclusions. Baltic States countries with more favourable investment conditions, from the point of view of taxes, grow more slowly than ones applying more modest investment stimuli.

Such situation most likely has been stipulated by intensive processes of privatization, which offered opportunity for developed countries of entering new markets, actually, free from strong rivals. Natural process of expanding activity into not occupied yet markets stipulated FDI. On the other hand, favourable conditions for occupation of monopolistic positions were fostered by governments, which, drastically needed money and offered incredible favourable conditions of privatization. Hence, process of privatization, sometimes followed by signs of corruption, stipulated inadequate growth of GDP. This tendency was especially obvious in Lithuania, where role of privatization in attracting FDI was the greatest and level of corruption the highest. Finally, we conclude that role of tax incentives in young transition countries case is diminished by other factors, and strongly investment oriented tax policies on the early stage of development of market can lead to diminishing of budget revenues from profit tax.

Presented comparison of tax systems in Baltic States Lithuania, Latvia and Estonia yields following tax policy implications: tax system, conditioning especially favourable investment conditions in young transition economies doesn’t play the role, which was predetermined to it. So there is no point in introducing special tax incentives in forms of tax concessions on capital invested. As concerns tax rates countries are free to accept any tariff. Authors of paper support progressive profit tax tariffs allowing but that is quite subjective matter. The paper argues for development of favourable business conditions despite origin of capital invested.

Regional Integration of the Slovak Republic: A Strategy of THE European Union Support Utilization


The socio-economic dimensions of disparities, the long duration of regional equalisation processes and its political sensitivity require regional policy to become one of the core policies of the government. The second pillar of its successfulness is active participation of regional and local self-governments.

In this article, we recommend to realise a growth-equalising strategy for the Slovak conditions after the SR accession. The growth-equalising strategy of regional policy should in our conditions:

In order to pursue effective use of national resources and, in particular, resources from the EU structural funds, the assumption that in the first after-accession stage (approximately 10 – 12 years) these funds will be absorbed by those cities and agglo-meration that dispose of decisive localisation advantages even today, is realistic.

Preferring the growth-equalising strategy in its proposed concentrating form in the first stage after EU accession does not mean that the smaller regions out of the reach of the agglomeration development effects shall be excluded from the support.

In terms of competitiveness changes till the year 2010, human resources, foreign direct investments, innovations, small and medium sized enterprises (SMEs) and infrastructure, are analysed.

According to model calculations the consequences of individual policies shall result until 2010, depending on the selected scenario, in changes in the competitiveness of the regions and GDP per capita development following the individual NUTS II and Slovak regions. Slovakia would approach 72.7 per cent of the EU 25 average forecast for 2010 (currently it is around 53 per cent). With the exception of the region of Bratislava (164.7 per cent) and partly the region of Trnava (74.3 per cent), Slovak regions would achieve values under 75 per cent of EU 25 GDP per capita.

The knowledge gained by developed and also cohesion countries, however, shows that mostly the developed scope of regional institutions (including on the one hand insti-tutions necessary for the functioning of the support mechanism and on the other hand in-stitutions supporting transfer of technology and innovation, improving qualification, etc.) can, in particular, affect significantly the sustainability and triggering of regionnal growth. Particularly, the necessity to develop capacities needed for EU membership rises in the pre-accession period. This has resulted from the evaluation of the current situation of the Slovak public administration and ensuring the equalisation of the difference between this situation and the situation required from all EU Member States – existing as well as the new ones. With respect to Slovakia’s interest to achieve EU membership in the year 2004 the building of effective and capable capacities for membership is a strategic priority.



Risk management is a relatively new field of management developing itself since the seventies of the 20th century. Sharp changes of economic conditions were an impulse for the rise. The development of risk management was accelerated by sharpening competition in the eighties and nineties of the 20th century. The importance of risk management in contemporary conditions of globalisation is permanently increasing and it is obvious that firms, willing to advance, have to learn how to adopt risks, not only passively but in such a way that enables them to use opportunities for increasing their prosperity. And that is the main aim of the active enterprise risk management (ERM).

The submitted paper summarizes present theoretical and practical knowledge of the ERM sphere focusing on modern trends connected with applying the active risk management and pointing out the need of their applications under the conditions of the entrepreneurial sphere of the Slovak Republic.

In our contemporary economic conditions firms have basically two possibilities how to react to the continuous rising uncertainty in business: either thoroughly to monitor changes of environment and focus on preventing losses, it means to choose traditional reactive environmental management, or to look for new possibilities of reaching demanding aims – it means – to apply the active ERM.

In developed countries it is characteristic for successful firms to apply the active ERM. The main principles of the active ERM are:

Currently the measurement of risk (or risk assessment) is considered to be the key and most difficult phase of ERM. It demands usage of complicated mathematic models supported by special software and specific expert knowledge of risk managers in the area of economic models, information technologies, theory of probability and statistics. Having in mind the increasing importance of computer support of ERM it is important for firms to pay special attention to the possibilities of using simulation models for assessment of enterprise financial risk as well as to the concrete possibilities of their programme support. There are mainly software systems concerned e. g. @Risk in the framework of integrated software package Decision Tools and @Risk for Project by the Palisade Corporation, Crystal Ball by Decisioneering, Inc. and Decision Professional developed by the company Vanguard Software Corporation, or Financial CAD for MS Excel by Financial CAD.

All of the mentioned models and their computer support enable risk evaluation based on the defined mathematical dependence of evaluation criteria of enterprise strategies on explicitly expressed risk factors. New knowledge points out the reality that an important task while risk modelling is taking into account: new and often not measurable items of enterprise risk.

One of the ways of integration of quantitative and qualitative input variables (risk factors) is the application of programme systems that offer model ability of enterprise risk evaluation together with the possibility of scenario creation that take into account the quantitative components of enterprise risk. The developing attitude of risk management is complemented by a set of measurable risks and a portfolio of less quantified threats that are above the limits of traditional risk assessment.

When we compare the enterprises of developed economies with ours, we can see that in most enterprises there is the absence of ERM, including analyses and assessment of enterprise risk. The fact that Slovak entrepreneurs do not pay attention to the risk management in managing firms, could have some negative influence on survival of a firm in new circumstances of changeable global economy. This contention can be proven by results of contemporary status results in the field of risk management in Slovakia, carried out at the Faculty of Business Economics in Košice under the VEGA No 1/7208/20 project – Quantitatively oriented methods of managerial decision making in corporate ma-nagement. The given results of the research show the fact that some entrepreneurs do not deal at all with the risk in business, most of them just estimate the risk. Having in mind the close date of our entrance to the European Union, Slovak managers have to reconsider their attitudes towards the evaluation of enterprise risk and it will require strong effort inevitable for gaining new knowledge and experience in application of the active principles of ERM.

The analysis of a tax progressivity focused on an individual income tax progressivity in Slovakia in years 1993 – 2002


Slovakia expects liberal reform of tax system next year. Probably the most visible turn represents implementation of “flat tax”, which withal means broad elimination of personal income tax progressivity. What effects brought last decade of “classic” personal income tax with its progressive scale of marginal taxes, tax brackets and tax allowances?

This paper explores tax progressivity, the first part is aimed at theoretical terminations and approaches to a tax progressivity, in the second part authors deals real estimates of income tax progressivity – employees progressivity – in Slovakia in years 1993 – 2002. Tax progressivity is investigated in two variants (with or without social and health insurance payments), because of similar incidence of obligatory insurance with personal income tax. Tax progressivity is analysed for 3 types of taxpayers in regard of a size of tax allowances (taxpayer allowance, child allowance). Recency of this paper can be seen in elected technique of computation for interval progressivity where variable limits of investigated intervals are used.

The theory of taxation discerns between local a global progressivity. Local (in particular interval) progressivity measures changes in effective rate in one point or between two points of an income scale and is closely adherent to an effective taxation. Subject publications detail 3 ways of measuring interval progressivity: average rate progression, liability progression and residual income progression. Average rate of progression mea-sures the ratio of change in effective rate to change in income, liability progression represents the ratio of percentage change in liability to percentage change in income and residual income progression measures the ratio of percentage change in after-tax income to percentage change in before-tax income. For practical requirements of economic policy is attention of economist aim at local progressivity estimation.

The measures of global progressivity are aimed at the Lorenz method of income di-stribution analysis. Among the most popular measures rank the Lorenz curve and the Gini measure, Musgrave-Thin index, Kakwani index, Suits index, Atkinson measure, Robin Hood index and Theil index.

The second part of this paper turn to concrete estimations of interval progressivity taking an example by employee in Slovakia in years 1993 – 2002.

Progressivity was computed for 8 ranks of nominal wages. For better predictability were 3 types of taxpayers with variant social status considered: taxpayer A claiming to basic tax allowance, taxpayer B claiming to basic tax allowance and into the bargain allowance for 1 child, taxpayer C with basic tax allowance and allowance for 2 children.

Enumerations were realized in excel program environment, gain values of progressi-vity were ranged into 8 tables which contain 1740 numerical values. Computed values offers wide range of variant interpretations and particular conclusions: 

The analysis of an individual income tax progressivity in Slovakia 1993 – 2002 detected several facts and there is some possibility to formulate certain recommendations for further analysis of a tax incidence (a theoretical conclusion of the analysis) and to characterize progressivity of an individual income tax in Slovakia (a practical conclusion of the analysis).

The analysis detected broad insensitivity of the ratio of change in effective rate to change in income. Contrariwise the ratio of percentage change in liability to percentage change in income and the ratio of percentage change in after-tax income to percentage change in before-tax income response to on-going changes very sensitively. Both mark analogical process. In consideration of less sensitivity there is no reason to apply the ratio of change in effective rate to change in income. Farther finding was option to brake away from social and health insurance payments. Computations of a tax progressivity in a case of social and health insurance inclusion and for a case without these insurance payments lead toward similar results, for the ratio of change in effective rate to change in income are the results even identical.

Neither changes in magnitudes of tax allowances nor their size had any essential influence on tax progressivity changes. Tax progressivity was affected – mainly in years 1993 – 1999, by average wage development. Later on – since 2000 – tax progressivity was determined chiefly by changes in a tax-legislation (indexing of tax brackets and tax rates in them).

Effective tax rates compared with the ratios of interval progressivity imply that solitary growth of effective tax incidence had no fundamental influence on tax progressivity changes. Empirical computations verified that the index of tax incidence (effective tax rate) is static quantity on the other hand tax progressivity was investigated as a “stream” -quantity. This is one of the reasons why is not possible to replace these quantities. Probably there is no explicit relationship between them.

In elected interval was remarked the most significant growth of tax progressivity for the interval 1 – 3 multiple of average wage, further for all types of tax-payers in income-interval of 5 – 10 multiple of average wage. Tax burden had been rolling not only to high-income groups of tax-payers in these years but to those so-called “middle-class” as well. Values of effective taxation show continuous growth in years 1993 – 1999 which was caused by advance of an average wage. Lately in 2000 less tax incidence was succeeded however labour taxation in 2002 is still higher than in 1993.

Though the changes in progressivity are probably not perceived by tax-payers, those can contribute to destimulation of working effort or to higher rate of substitution between work and leisure. Results of tax progressivity measuring should be counted at every decision-making in an event of tax legislation constitution.

The Model of Demand for Substitute Durable Goods


In the article we constructed a nonlinear system of differential equations, which models demand for substitute durable goods.

The main model (3) forms nonlinear system of n differential equations with constant coefficients (so called autonomous system). The model takes into account the factors as price, quality, advertising and market capacity. The output of the model is a vector function of demand size dependent on time and parameters of that model.

Each solution of the model is either equilibrium or converges as t approaches infinity towards the equilibrium solution. However, it means that the solution will not reach the equilibrium point at the finite time.

We found out that all the equilibriums of the model form a hyperplane where the sum of market size of all the substitute goods is equal to the level of the market satiation. Those equilibrium points represent states of competitive environment where market sizes of competitive goods do not change at time.

The model predicts a certain market share of the goods in terms of the given competitive environment. This market share is completely defined by firm price strategy, volume of advertising and quality level of their goods.

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