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This paper investigates current budgeting practices of Czech companies. The article aims to provide recent empirical evidence on the impact of business complexity on budgeting in the Czech Republic, with the main focus on modern budgeting methods. Despite the plethora of critical voices against traditional budgeting, budgeting remains an essential part of most companies' corporate governance. The empirical investigation is based on a questionnaire survey and its statistical evaluation using tests of goodness of fit and cluster analysis. Fundamental research questions of the paper include the influence of business complexity on Czech companies' budgeting practices, factors that currently play an essential role and their importance, and the approach of Czech companies to modern budgeting practices. The results indicate that Czech firms use various financial management tools, including budgets. Traditional budgeting methods are still dominant in most companies; empirical data evaluation confirmed mild differences between companies financed by domestic and foreign capital; nevertheless, those distinctions were not confirmed by statistical testing. Essential factors in the budgeting practice of the respondents are the connection of budgets to strategic planning and the possibility of using budgets as a tool for business performance evaluation.

Random forest models have recently gained popularity for economic forecasting. Earlier studies demonstrated their potential to provide early warnings of recession and serve as a competitive method to older prediction models. This study offers the first evaluation of the random forest forecast for the Czech economy. The one-step-ahead forecasting results show high accuracy on the Czech data and are proven to outperform forecasts from the Czech Ministry of Finance and the Czech National Bank. The following multi-step random forest forecast, estimated for the next four quarters, shows results similar to those from the central institutions. The main difference stems from the household and industrial confidence variables, which significantly impact on the random forest forecast. The variable-importance analysis further emphasizes the soft variables as valuable determinants for Czech forecasting. Overall, the findings motivate other forecasters to exercise this method.

The paper investigates the relationship of financial leverage and operating performance in a small open economy. A comprehensive sample consists of panel data from 1,821 Czech firms over the period 2006 to 2017. We find that leverage has a negative effect on the operating performance for the entire sample as well as for subsamples structured according to size or sector. We also find evidence that the relationship between leverage and performance in some sectors and segments is weakened during periods of economic downturn, as well as during the recent foreign exchange interventions of the Czech National Bank. Our study, focusing on the banking perspective, contributes to the debate about the impact of differences in leverage across sectors and segments on the capital allocation channels, managed in small open economies predominantly by banks.

The size of the shadow banking sector (SBS) has more than doubled in the Czech Republic over the last decade. This places a potential burden on policy makers. On the one hand, the SBS complements regular banking by expanding access to credit and investments, enabling better risk sharing and maturity transformation, and sup-porting market liquidity. On the other hand, SBS activities can put the stability of the financial system at risk and amplify its procyclicality by exacerbating the build-up of leverage and asset price bubbles. We implement a FAVAR model of the Czech economy to determine the impact of macroeconomic factors on the SBS. We find that the SBS: (i) is sensitive to changes in market interest rates and term spread; (ii) exhibits great procyclicality; (iii) can act as a complement to regular banking and satisfy some additional demand for credit. We also define some potential risks of continued growth of the SBS, linked to our empirical evidence.

This paper provides a general equilibrium theoretical model of alcohol taxation and empirically estimates the model. For this purpose, we use a model determined by both externality corrections and fiscal considerations as the tax increase is assumed to immediately change other governmental policies such as labour taxation or medical expenditures. The results of our analysis show that under most parametric scenarios, the current Czech tax rate on beer and wine is below its optimal level and that the fiscal component has a significant impact on the optimal level of tax.

This study questions the importance of accounting for sectoral heterogeneity in a DSGE model for the Czech Republic. The benchmark DSGE model originally developed by the Czech Ministry of Finance benefits from features such as wage and price stickiness, habit formation in the utility function and capital adjustment costs. The Input-Output DSGE model extended hereby proves to provide more precise estimates for the evolution of aggregate variables and to supply a more detailed structure of the economy. The set of variables the dynamics of which significantly improve consists of inflation rate and nominal interest rate. The disaggregated model also fits data well in terms of sectoral production functions. Finally, the absence of industrial heterogeneity in the model is shown to lead to an underestimation of the impact of the technology shock on the Czech gross domestic product.

We estimate a financial stress index for the Czech Republic and examine its development during the 2002-2014 period. We find a marked increase in financial stress at the beginning of the global financial crisis with a decrease to nearly pre-crisis levels by the end of our study period. Next, we estimate vector autoregression models of the Czech economy and find that financial stress has systematic effects on output, prices and interest rates, with the maximum response occurring approximately one and a half years after the shock. Specifically, an increase in financial stress is associated with higher unemployment, lower prices and lower interest rates, indicating its detrimental effects on the real economy.

The article describes approach proposed for the house price equilibrium assessment in the Czech Republic. It first explains why it is necessary to use multiple models simultaneously to correctly assess house price sustainability. It goes on to describe individual models proposed to estimate house price misalignment in the Czech Republic. Results given by these individual models are consonant in identifying periods of over- and undervaluation of house prices but slightly differ in the amplitude of the gaps. A method for aggregating the estimates produced by those approaches is then presented. It works on the premise that more correlated estimates may be evidence of a strong signal, while less correlated estimates may, on the other hand, bring additional information to the house price assessment. By using two sets of weights, it presents an interval of supposed under- or overvaluation of house prices. This method indicates that Czech house prices were roughly at their equilibrium level in mid-2014 following an extended period of slight undervaluation since the mid-2009. It also proves robust to the length of the sample used.

This article investigates the employment development in Czech-based firms in German ownership in the years around the Great Recession of 2008/2009. The intense involvement of German firms in the economy of the neighbouring country via foreign direct investment (FDI) raises a question whether under the conditions of a historically deep global downturn, the Czech employees in multinational companies were confronted with an increased volatility of their jobs. Using a unique firm-level dataset, we contrast the affiliates of German investors with purely Czech-owned enterprises. Our findings indicate that in the years before the crisis, firms with German capital exhibited a noticeably more positive employment development. The results from the year 2008 onwards give reason to the conclusion that the German-owned firms played a stabilizing role for the Czech labour market during the recession.

Arrangements to cooperate on innovation facilitate access to external sources of knowledge. By using panel data derived from the five waves of Community Innovation Survey in the Czech Republic, we examine whether firms engage in these arrangements persistently or rather revert to other behaviour. Econometric estimates of dynamic random effects and multivariate probit models provide strong support to the thesis of persistence, particularly of linkages with the university sector and suppliers. The results are robust to the initial conditions problem and serial correlation in idiosyncratic errors. Government programmes initiating cooperation on innovation therefore have the potential to induce durable changes in the innovative behaviour of firms.

The paper attempts to assess the added value of women in management in the context of the Czech Republic. The wider purpose is to contribute to the debate for the need of gender-balanced top managerial teams. It additionally contributes new inputs to the discussion as to whether quotas or other special measures are relevant to promote or engage more women in higher management positions within both the Czech public and private sectors. According to the results, Czech respondents view women as added value to management given the different characteristics of their approach over that of their male counterparts. However, the research reveals that women who obtain higher managerial positions demonstrate the same set of characteristics as men. In conclusion, the promotion system is designed for candidates that demonstrate typically male characteristics.

The study analyses expenditures of all municipalities of the Czech Republic over the period 2003-2013. It aims to examine whether changes in municipal spending get affected by the electoral cycle. The analysis has proven that expenditures of municipalities of the Czech Republic are influenced by the political cycle. However, the political business cycle has at the level of municipalities (compared to the macroeconomic level) its peculiarities. These arise mainly from limited options of municipal politicians to use economic instruments to win electoral votes in elections. To receive electoral votes, municipal politicians use mainly public investments and projects that are at the level of municipalities so apparent that they may influence voters in their electoral decision-making. Prior to elections, expenditures on investments significantly increase for all municipal size groups. For municipal size groups of over 50,000 residents, however, they are (per capita) higher compared to smaller municipal size groups. This may be explained by the fact that these municipalities have higher disposable resources (higher per capita own budgetary revenues, higher potential to acquire resources to co-finance municipal projects and broader portfolio of debt financing). Expenditures on transfers do not significantly change prior to municipal elections. We interpret this finding in a way that politicians prefer such investment projects that are ""visible"". Transfers are used to pay for certain current expenses for which municipalities may (in accordance with the established rules) apply through grants.

Health-motivated taxes have spread over the world to reduce increasing obesity and corresponding health care costs. These taxes have not yet been implemented in the Czech Republic, in contrast to some other, mainly European countries. However, the introduction of a fat tax has been discussed frequently in the Czech Republic during the last few years; here, we provide empirical evidence in order for this public debate to be better informed. We use detailed microeconomic data to estimate the impact of potential fat taxes on household expenditure and government revenues in the Czech Republic. We evaluate the impact of three types of fat taxes: ad valorem, specific per kilogram of product and specific per kilogram of fat. We simulate these in such a way that they all raise the same budget revenues as a 10% ad valorem tax on fat-rich products. Accounting for higher food expenditures in the aggregate national accounts than in the detailed microeconomic data results into higher budget revenues, 7.3 and 6.1 billion Czech korunas, respectively. Overall we find, and thus confirm the overwhelming evidence from other countries, that fat taxes are regressive in income.

In this article, we investigate the actual level of monetary policy independence in the Czech Republic. We formulate the research agenda in terms of the Euro Dominance Hypothesis. The situation of the non-euro EU countries with derogation in terms of joining the EMU, like the Czech Republic, is similar to the pre-euro situation of the euro area countries, in which the problem of the stability of the European Mechanism System was predominant. We investigate the co-movement of interest rates between the Czech Republic and the Eurozone to assess the potential costs of monetary integration. Using cointegration and VECM methods we show that the ECB monetary policy influences monetary policy in the Czech Republic and the actual level of monetary independence in the Czech Republic is much lower than it is presumed. Therefore, we argue that for the Czech Republic the cost of the joining the EMU will be lower than expected.

The present paper is focussed on the impact of introducing the common European currency on export performance. Our objective is to explore the impact of introducing the common European currency on the export performance of Slovakia in comparison to the Czech Republic and the old EU member states. Our findings suggest that the export performance and other export-related indicators evolved largely in parallel in both countries. Positive trade effects brought about by the introduction of the euro are rather moderate - up to 5%. The results to some extent do confirm the existence of the so called "Rose effect" - the effect that two countries sharing the same currency trade more than they would otherwise.

A high proportion of nascent entrepreneurs do not make it to an operational venture. Even though entrepreneurial exit decisions occur more frequently than many think, the literature on entrepreneurial discontinuance is not much developed. The paper first examines whether factors influencing early-stage discontinuance differ in the Czech Republic in comparison with Western countries. Second, it contributes to existing theories on nascent entrepreneurial activity of ""modest majority"" low-growth businesses by focusing on the role of expectations in discontinuance decisions. A sample of nascent entrepreneurs was interviewed in 2011 and then in two follow-up waves in 2012 and 2013. Building on hubris theory of entrepreneurship and theory of performance thresholds, the paper discusses subjective decision-making about entrepreneurial launch and exit. The results show that people with higher industry experience are more likely to discontinue from nascent entrepreneurship, a finding contrasting most research in Western countries. The paper also provides added value in relating growth aspirations to solo vs. team entrepreneurship. Solo entrepreneurs with high initial expectations were found more likely to discontinue from their efforts, whereas teams disbanded more often in case of low-ambition plans on new venture.

This paper investigates the transmission from interest rates to household saving behaviour when introducing two main innovations of analysing this relationship. The first one is based on the use of a set of client interest rates instead of one monetary policy rate. This step enables us to distinguish impacts of the substitution and income effects in more detail. The second major innovation lies in the division of households into income categories, which provides us with more observations and thus makes it possible to conduct this analysis even for a single country. Using the generalized method of moments for the dynamic panel data, we analyse Czech household behaviour for the period 2004-2015. The results highlight that when we ignore details of the transmission channel and use only a monetary policy rate, we lose crucial information about contradictory impacts of the substitution and income effects that are primarily reflected in the client interest rates. This fact may clarify most of the interest rate-savings rate puzzle.

The introduction of the CCCTB system in the European Union will have the impact on the redistribution of the group tax bases between the Member States and therefore also on the national budgets. The aim of the paper is to quantify the differences in the division of the MNEs group tax bases between the individual Member States in current situation - i.e. when applying separate entity approach and situation when CCCTB will be introduced - i.e. applying the allocation formula for sharing the tax base. The results show that the Czech Republic could gain in situation when CCCTB would be introduced in all EU Members States - the share in the group tax base would increase by 1.22%. A very slight increase was also indicated in the case of the Slovak Republic, Slovenia and Spain. On the contrary, the share in the group tax base was decreased in the case of Germany (by 1.36%), Estonia, Hungary and Poland. The results also indicate that there might be connection between the size of the country and the impact on the share of the tax base.

The study is a contribution to the theoretical/empirical analysis of the problem of outsourcing of policy advice in the public administration. It provides the typologies of expenses for policy advice in the public administration and examines the relationship between internal and external expenses on an example of the ministries of the Czech Republic for the period from 2001 to 2011. It shows that extreme changes in the form of increases in expenses for outsourcing arise when an amendment to the Act on Public Contracts is prepared. We explain the problem on the basis of changes in the behaviour of the clients as a result of expected changes to the contracting conditions. The study shows that several factors influence the amount of expenses for the outsourcing of policy advice. The ""large"" ministries have relatively fewer expenses for the outsourcing of policy advice than ""small"" ministries. Ministries that have their own workplaces available in their structures (i.e. in the form of their own scientific research workplaces) have lower than average expenses for the outsourcing of policy advice. Ministries with higher average wages are ministries with a relatively large number of managers in relation to the number of analysts, and thus they implement a higher degree of external services (measured as a share of the wage expenses).

This paper provides an up-to-date analysis of the redistributive effects of the Czech tax and benefit system at the household level. We provide several measures of the extent in which the tax and benefit system redistributes from the rich to the poor and from the childless households to the households with children. We find a rather weak combined power of the tax and benefit systems in alleviating income inequalities. The system redistributes primarily towards households with children. While households with children earn 55 per cent of total earnings, they pay 39 per cent of total taxes and receive 68 per cent of total benefits. Even the richest households with children contribute a lower share of total net taxes (8 per cent) than their share in total earnings (10 per cent). About a quarter of households with children in the upper income deciles collect some benefits while only half of the poorest households without children do.

The Czech Republic, Hungary, and Poland are set to join the Economic and Monetary Union (EMU) in the near future. This paper offers a framework for the quantitative evaluation of the economic costs of joining the EMU. Using an open economy dynamic general equilibrium model with sticky prices, we investigate the economic implications of the loss of monetary policy flexibility associated with EMU for each of these economies. The main benefit of this general equilibrium approach is that we can directly evaluate the effects of monetary policy in terms of welfare. Our findings suggest that the Czech Republic and Poland may experience sizable welfare costs as a result of joining the EMU. Results for Hungary are less striking as welfare costs in this country seem to be negligible in the benchmark economy. Nevertheless, costs of joining the EMU are higher if government shocks are important and when the trade share with the EMU is small.

Much has been written on the distinction between vertical and horizontal foreign direct investment. However, most of the empirical literature relies on indirect and aggregated measures only. The aim of this paper is to help fill this gap by examining the differences between German affiliates in the Czech Republic and their mother companies in Germany on the basis of direct evidence on factor requirements. Using a cluster analysis on firm-level data from the unique ReLOC survey, we identify four main groups of firms that partition the sample by broad sectoral lines and by technological, educational and skill intensity of their operations within each of them. More detailed analysis of the clustering reveals that the vertical model dominates in manufacturing, while the horizontal model of investment prevails in the service sector.

Together with mainly economic factors influencing the migration decisions, there is also a migration potential which is unique for every country and that largely pre-determines the outgoing migrations or labour mobility decisions. This paper compares the migration potential and migration decisions for the Czech Republic and Poland using the data for inter-regional and rural-urban migrations. These data that can be used as a proxy for migration potential, are very useful in predicting the propensity to international migration. We come to conclusions that migration potential and the propensity to migrate as a reaction to worsening of the economic conditions at home are highly correlated. The comparative analysis shows that while Poles are quite sensitive to worsening economic conditions at home, Czechs posses lower value of migration potential and therefore are not so inclined to migrations. The results might explain the high volume of migration from Poland after the EU 2004 enlargement.

This paper evaluates the accuracy of real GDP growth forecasts published in the period 1995-2013 by two Czech institutions: the Ministry of Finance (MF) and the Czech National Bank (CNB). A two-stepped approach is adopted: first a battery of forecasting errors (MAE, RMSE, MASE) is calculated, complementary to evaluation papers already available. Then statistical analysis is carried out by comparing both MF and CNB forecasts with OECD, European Commission and consensus benchmarks (Kruskal-Wallis test), assessing the presence of systemic bias (Wilcoxon test) and determining their incremental improvement (Page trend test). The results show that although some error patterns might suggest performance deficiencies (i.e. during the recession periods), the accuracy of forecasts prepared by both the MF and CNB does not differ significantly from the benchmark forecasts; MF and CNB predictions do not contain systemic bias and their accuracy improves as the horizon shortens. The paper also highlights several methodological shortcomings in the internal evaluations conducted by both institutions, indicating a potential for further improvement.

The paper investigates how results obtained with standard CGE models can be improved by incorporating the effects of R&D activity in a recursively-dynamic CGE model built for the economy of the Czech Republic. The main objective of the paper is to quantify the impact of R&D activity on the long-term economic growth of the Czech Republic within the recursively dynamic CGE framework. The effect of R&D investment is modelled via the accumulation of knowledge that is treated as a specific production factor. The main findings show that knowledge accumulation can contribute to higher economic growth, but the impact of the dynamisation in the CGE model is very low. However, in terms of structural changes in the economy, the omission of knowledge capitalization might underestimate the tertiary sector in the longer run. The paper also investigates the efficiency of R&D investment and concludes that in the longer run, investment in capital goods is more efficient in achieving higher economic growth. In the concluding chapter, related factors that may improve the impact of knowledge in the CGE model are discussed.

The aim of the article is to propose a new measure of a relative economic distance between two countries (RED) or among a group of countries (GRED). Both measures enable to evaluate 'proximity' between national economies through time series of selected variables, and are related to the concept of the sigma (beta) convergence introduced by Barro and Sala-i Martin (1995). In the empirical part of the paper, the RED of Poland, Slovakia, Austria, Germany, the USA and Japan with regard to the Czech Republic are estimated, as well as the time evolution of the GRED of the Czech Republic and its neighbours. The main finding is the strong convergence among these countries after the outbreak of the financial crisis which persists to this day.

The paper presents the development of monthly gross wages and wage distributions both by gender groups and for the total sample in the Czech Republic over the years 2002-2009. The first part deals with the development of sample characteristics of the level, differentiation and shape of the wage distribution in the research period, including characteristics of wage level forecasts for 2010 and 2011. Special attention is paid to the different behaviour of the wage distribution between men and women in the Czech Republic and the gender dependence of gross monthly wages. A comparison of the income level development in the Czech Republic with that of the other European Union countries in 2005-2009 is made in the final part of the paper. The comparison is drawn in relation to the income level development both in the original fifteen EU countries and the twelve newly-accepted EU member states.

This article analyses opinions and teleological approach of Czech economist Karel Engliš (1880-1961) and his relation to the Austrian Economics during the first three decades of the 20th century. He grew out from the Austrian subjective psychological school although he later refused its methodological psychological subjectivism and value theory. Engliš formed an original teleological economic school upon Kant's noetics. This paper describes Engliš's relation to the Austrian school: the polemic approach of Karel Engliš to Austrian Economics, followed by Engliš's agreement with certain postulates of the Austrian School. Engliš supported the conclusions of the Austrian School regarding irreplaceability of economic individualism as the basis for a modern economic market system.