Local innovation networks are considered to be important to innovation and technological change and to growth prospects of regions and cities in Germany. When analysing the local (or regional) innovation system, one should consequently not only investigate horizontal and vertical relations among firms but also the contacts with universities and other research institutions. Furthermore, the role of government agencies and interest groups that provide financial support as well as commercial and technical information should also be taken into account. However, the review of relevant theoretical and empirical investigations related to the German experience shows that such innovation and R&D co-operation networks appear to be less significant than expected. In general various regional technology policy measures adopted in German states (the provision of research infrastructure, establishment of technology centres, innovative SME support programmes, etc.) have been more successful in already economically better-off large cities than in the rural areas. Apart from offering a critical review of relevant theoretical and empirical research, this study introduces the present regional technology and R&D promotion policies in German states and examines the local innovation systems, taking Landshut and Bochum as examples.

VAT evasion caused by the growth of carousel fraud has recently led to significant VAT revenue losses in the EU. Carousel fraud works such that intra-EU firms repeatedly carry out cross-border supply and purchase of goods and services, leading to the fraudulent retention of revenue. This study discusses three reform models of the VAT system in Germany, whose implementation would open up further possibilities for tax evasion and lead to a considerable increase in administrative costs.VAT evasion, reform models, carousel fraud, Germany, EU,

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Full movement from the destination principle to the origin principle would lead to changes in VAT revenues in EU countries. Hence a clearing mechanism is necessary to rectify such imbalances. To estimate the relevance of VAT evasion this study quantifies the annual amounts of hypothetical VAT revenues based on national-accounts data. The relation between hypothetical and collected revenues indicates the tax collection performance rate, and this determines the extent of VAT evasion. Macroeconomic clearing is supposed to occur in the EU, based on the national share of hypothetical revenues of the member countries. Yet this system suffers from adverse incentives for individual nations, since those with a higher evasion ratio will gain: For those countries with an above-EU-average evasion rate the sum of apportioned VAT revenues will be larger than the anticipated collected revenues in the case of prevailing current tax practice.

At the end of June 1999 the intra-EU duty free shopping was abolished among the fifteen member nations. The opponents of this resolution argued that such a tax-free sales sector created jobs EU-wide and hardly reduced the value added and excise tax revenue of individual countries. In their opinion, the duty free trade not only contributed to the reduction of the travel fare within the EU but also could be characterised as a supplement to the normal retail trade for some products. Such 'old' ideas are increasingly gaining popularity in some Eastern European EU candidates in the context of the preparation process for the introduction of the Single Market and the EU membership in the near future. This study primarily shows that the arguments mentioned above were neither significant enough nor conclusive to maintain the intra-EU duty free shopping. Furthermore, the abolition of such tax free sales was approved in the EU in order to ensure the allocation efficiency of the VAT and excise tax system within a single market. Several arguments against the intra-EU tax free shopping examined in the study provide some helpful policy orientations for EU membership candidates.