Current publications

Cover EconPol Opinion blanco 2018

US China trade war and Europe: ‘If two quarrel, the third rejoices’

Daniel Gros

With Trump’s trade policies becoming apparent, China has emerged as enemy number one. Meanwhile, other trading partners – particularly smaller ones - are being pressured to introduce concessions with advantages for the US. A key question for the rest of the world is what economic fallout to expect from this trade war. EconPol researcher Daniel Gros suggests that the US will attempt to put similar pressure on the EU, but it is unlikely that this pressure will succeed.  But with the US expected to pursue its policy of trying to isolate China with other smaller trading partners, the political and systemic costs of the Sino-US trade war could be considerable in the long run.

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Cover EconPol Opinion blanco 2018

Digitalisation should be promoted, not taxed

Clemens Fuest

A 3 percent tax on digital turnover, recently proposed by the European Commission, will stifle digitization in Europe and will only encourage other countries to take countervailing measures, says EconPol expert Clemens Fuest.

The Commission justifies the new tax with the observation that companies like Apple or Google sell their goods and services in Europe but pay almost no profit taxes here. This overlooks that current international tax agreements do not stipulate that companies pay profit taxes in the countries where they sell their goods. Profits should be taxed where these goods are developed and produced. In the case of the global internet giants, this is the US. Whether or not the US exercises its right to tax these profits is not a concern for the EU.

Countries where the goods are sold do collect value added tax. Europe could of course try to change international tax rules. But that would mean it loses the right to tax the profits of its exporters - their profits would be taxed in China or the US.

Instead of introducing new digital taxes Europe should promote digitalisation and focus on creating a European internal market for the digital economy.

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Cover of EconPol Policy Brief 9

Why and How There Should be More Europe in Development Policy

Christoph Harendt, Friedrich Heinemann, Stefanie Weiss

Extreme poverty in certain global regions remains one of our greatest international challenges: between 2014 and 2016, 800 million people suffered from hunger. Despite this, most EU member states spend less than the required 0.7 percent of Gross National Income (GNI) on development aid and there are high associated administrative costs.

In this EconPol Policy Brief, the authors argue that shifting more financing and management of development aid from member states to the EU would help resolve these problems and reduce costs.

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Cover EconPol Opinion blanco 2018

CAP Beyond 2020: Seven More Years of Money for Nothing?

Friedrich Heinemann and Stefani Weiss

The European Commission’s proposals for the post-2020 Common Agricultural Policy (CAP) are under discussion, and these cautious reform ideas have set the parameters for upcoming negotiations. CAP will continue to have a two-pillar structure of direct payments and rural development, with a seven-year budget of €365 billion. As before, almost three-quarters of the budget - €265 billion - is reserved for direct payments to farmers. However, ‘European added value’ must be urgently applied to CAP, say Friedrich Heinemann and Stefani Weiss, who summarise their recommendations to justify direct payments in their latest opinion piece for EconPol. 

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Cover of EconPol Working Paper 17

The EU Budget and Common Agricultural Policy Beyond 2020: Seven More Years of Money for Nothing?

Friedrich Heinemann and Stefani Weiss

The European Commission’s proposals for the post-2020 Common Agricultural Policy (CAP) are under discussion, and these cautious reform ideas have set the parameters for upcoming negotiations. CAP will continue to have a two-pillar structure of direct payments and rural development, with a seven-year budget of €365 billion. As before, almost three-quarters of the budget - €265 billion - is reserved for direct payments to farmers. However, ‘European added value’ must be urgently applied to CAP, say Friedrich Heinemann and Stefani Weiss, who have developed a series of recommendations to justify direct payments in their latest report for EconPol.

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Cover EconPol Opinion blanco 2018

The Third Type of Inter-System Competition: Europe and the Rise of China

Clemens Fuest

China’s economy continues to grow apace, creating a worrying new form of economic and political competition for Europe and the US. While private entrepreneurship and free pricing play a growing role in China, the state continues to control economic developments in many sectors and owns almost all of the banking system. Is Chinese state capitalism about to outperform market economies in science and technology? Will its role in developing and emerging economies reduce the influence of the West?

Clemens Fuest, president of the ifo Institute and director of the Center for Economic Studies at the University of Munich, examines Europe’s ability to compete with this third type of inter-system competition.

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Cover of EconPol Policy Report 9

What a feeling?! How to promote ‘European Identity’

Sarah Ciaglia, Clemens Fuest, Friedrich Heinemann

Authors of a new study conducted jointly by the Centre for European Economic Research (ZEW), Mannheim, and the ifo Institute for the EconPol Europe research network recommend that policymakers should do more to encourage citizens to identify with Europe. The authors suggest that Pan-European political consciousness could be encouraged by having citizens vote for European party lists, rather than national party lists in the European elections. An EU Citizens’ Assembly, say the report’s authors, should serve as a platform to discuss specific political issues and propose potential solutions. Europe could also raise its profile overseas through shared EU embassies and consulates.

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Cover EconPol Policy Report 8 2018

Dissecting the EU’s Recent Anti-Tax Avoidance Measures: Merits and Problems

Richard Collier, Seppo Kari, Olli Ropponen, Martin Simmler and Maximilian Todtenhaupt

Profit-shifting activities by multinational enterprises (MNEs) is widespread. Academics and policymakers agree that such activity should be curbed by diminishing the opportunities that exist within the international tax system The EU has legislated to reduce the scope for such activity, with a central tool being the Anti-Tax Avoidance Package. In this EconPol policy report, the authors argue that while elements of the package are likely to raise the minimum standards of anti-tax avoidance measures in Europe, they still leave scope for tax-planning. At the same time, the measures may lead to double taxation. They will also make the tax code more complex and distort firms’ decisions, generating social costs as a result. The balance between benefits and costs is not satisfactory. The authors discuss the pros and cons of other instruments like withholding taxes and formulary apportionment. While these measures would be of some help, in the long term, a fundamental reform of the international tax system is necessary.

 

 

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Cover EconPol Opinion blanco 2018

Tragedies Like Greece Must Not Be Repeated

Clemens Fuest

The third bail-out programme for Greece ended in August, but the crisis isn’t over. Nine years after the crisis broke, public debt still amounts to 180 percent of gross domestic product, a level incompatible with stable economic development. There have been improvements: the increase in public debt has been brought to a halt, exports of goods and services almost match the level of imports, and unemployment fell below 20 percent in June 2018, the lowest rate since September 2011. But the country can only recover if it implements further reforms, and it must do so independently of further bail-outs. And, if we are to avoid a similar tragedy in Greece or elsewhere, the Eurozone must change too.

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Cover EconPol Policy Brief 8 2018

How to Boost Productivity in the EU

Klaus Weyerstrass

Advances in total factor productivity (TFP) are important for sustaining economic growth in modern economies, in particular in the face of a declining working-age population. In this Policy Brief, we identify investment in research and development, good governance, the capital intensity, a high share of information technology in the total capital stock, and the number of industrial robots per employee as conducive for TFP growth. Based on the empirical results, policies that are beneficial for capital formation in general, investment in computer technology, research and development as well as the use of industrial robots could boost TFP in Europe.

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