29 January 1997 • Economic Effects of Cross-Border Purchases in Austria • Kurt Kratena, Michael Wüger

Cross-border purchases are an essential feature of market economies, the magnitude of which depends on economic (e.g., price differentials), administrative (such as import quotas) and a variety of other factors (such as geographical constellations). Within the EU the largest cross-border flows of purchasing power occurred between Germany and its neighbors (Denmark in particular), between Luxembourg and its neighbors, and between the Republic of Ireland and Northern Ireland. The completion of the Single Market brought about a short-term intensification of cross-border purchases. In the medium and long term, effects which are likely to cancel each other out will determine the magnitude of cross-border purchases.

In Austria, consumer purchases abroad have risen continuously since 1990, at a rate exceeding the growth rate of income and total consumer expenditures. In 1995 (accession to the EU, devaluation of the Italian lira), the outflow of purchasing power totaled ATS 31 billion. The results were a loss in output by 1 percent, a loss of 10,800 jobs, and a loss in tax revenues of ATS 3.6 billion; but, as the WIFO study points out, cross-border purchases are mainly a problem specific to certain border regions and certain economic sectors.