Current publications

Cover of EconPol Policy Brief 36

Who Will Pay Amount A?

Michael Devereux and Martin Simmler (Oxford University Centre for Business Taxation)

The latest OECD tax reform will affect only 78 of the world’s 500 largest companies and only about 37 European companies, this EconPol Policy Brief reveals. The number of companies is so low, mainly because the tax applies only to companies with revenues above USD 20 billion which earn a rate of return on revenue above 10%. Reducing the revenue threshold for multinational companies from USD 20 billion to EUR 750 million would increase the number of companies affected by a factor of 13. The relative gain of reducing the threshold below USD 5 billion is small relative to the increase in the number of companies involved, the authors estimate. These are some of the key findings of the study examining the consequences of the OECD’s Pillar 1 reform.

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Cover of EconPol Working Paper 66

The Existential Trilemma of EMU in a Model of Fiscal Target Zone

Pompeo Della Posta (University of Pisa), Roberto Tamborini (University of Trento)

The EMU should create monetary and fiscal mechanisms to safeguard its irreversibility in exceptional situations, according to this EconPol Working Paper. The financial crisis and the coronavirus crisis have shown that the EMU's integrity can only be saved by relaxing either monetary orthodoxy, or fiscal orthodoxy, or both, when exposed to large, systemic shocks. The authors illustrate how such monetary and fiscal mechanisms could be designed by using a fiscal target zone model, where EU member governments are willing to abide with the commitment to debt stability under the no-bailout clause only up to an upper limit of their feasible fiscal effort. The study also shows that EMU completion means providing a monetary and/or fiscal emergency backstop to the irreversibility principle. The alternative to such mechanisms is to include an explicit exit clause in the treaties, the authors conclude.

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Cover of EconPol Working Paper 65

CO2 Emissions and Energy Technologies in Western Europe

J. Barrera-Santana (Universidad de la Laguna and CEDESOG), Gustavo A. Marrero (Universidad de la Laguna and CEDESOG), Luis A. Puch (Universidad Complutense de Madrid and ICAE), Antonia Díaz (Universidad Carlos III de Madrid)

Economic upswing phases are strongly linked to a rise in CO2 emissions. The effect is strongest in countries that depend on energy-intensive sectors, this latest EconPol Working paper finds. The research further shows that an increase in the share of renewable energy in the primary energy supply during an upswing has the greatest impact on reducing CO2 emissions. According to the authors, the study’s results lead to an important conclusion: European environmental policy should be adjusted over the economic cycle, e.g. by introducing procyclical green taxation.  

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Cover of EconPol Working Paper 64

Calamities, Common Interests, Shared Identity: What Shapes Altruism and Reciprocity?

Cevat Giray Aksoy (European Bank for Reconstruction and Development, King's College London and IZA), Antonio Cabrales (Universidad Carlos III de Madrid), Mathias Dolls (ifo Institute, CESifo, IZA and ZEW), Ruben Durante (ICREA, UPF, IPEG, Barcelona School of Economics, and CEPR), Lisa Windsteiger (Max Planck Institute for Tax Law and Public Finance

Information on the Covid-19 pandemic increases altruistic behavior and reciprocity towards compatriots, citizens of other EU countries, and non-EU citizens. This is one key result of a large-scale survey experiment conducted in August 2020 by EconPol Europe network members in nine European countries. The study also finds that priming common European values boosts altruism and reciprocity, but only towards compatriots and fellow Europeans. In contrast, priming common economic interests (EU trade) has no tangible impact on behaviour. The survey experiment provides novel evidence on how trust, reciprocity, and altruism are affected by a major health crisis (Covid-19), common economic interests (EU trade) and shared values (EU ideals).

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Cover of EconPol Policy Brief 35

Taxing the Residual Profit of Multinational Enterprises: A Critique of Formulaic Apportionment and a Proposal

Wolfram F. Richter (TU Dortmund University, CESifo Munich, IWH Halle, IZA Bonn)

In the context of a changed digital economy, the OECD has put forward a proposal that requires large multinational companies to pay some of their income taxes where revenue is generated; i.e. in countries where the consumers or users are located. It is suggested that taxing rights should be allocated using a revenue-based formula. This policy brief argues against the use of such a rule that requires the multilateral assessment of MNEs’ worldwide profit. The need to define a common consolidated tax base would disproportionately complicate the search for political agreement within the Inclusive Framework. Instead, the OECD should apply more practical rules that rely on unilateral profit splitting and do not require uniform international rules on ac-counting. Countries could be granted the right to impose a withholding tax on outbound pay-ments, such as payments for digital services. To the extent that there are allocable costs, as for example with pharmaceuticals and vaccines, these should be tax-deductible on the condition that the country receiving the payments adopt the new tax regime.  

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Cover of EconPol Policy Report 31

Is There a Need for Reverse Mortgages in Germany? Empirical Evidence and Policy Implications

Florian Bartsch (Paris School of Economics), Florian Buhlmann (ZEW Mannheim), Karolin Kirschenmann (ZEW Mannheim), Carolin Schmidt (University of Cambridge)

In the face of shifting demographics capital-funded old-age provision is increasingly becoming important in many European countries. Generating sufficient capital for old-age provision, however, poses a challenge to private households. Homeowners can resort to illiquid housing wealth by using home reversion plans or reverse mort-gages. While reverse mortgages are common in the USA and the UK, a German market is quasi non-existent. This Policy Report provides evidence on the demand- and supply-side reasons for the absence of a reverse mortgage market in Germany. It finds that there is potential for the market to grow in the medium term and could benefit cash-poor but house-rich households, hence decreasing old-age poverty. While the analysis focuses on Germany, its implications are equally relevant for other European countries, in particular for those with higher homeownership rates and less generous public pension schemes.

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Cover of EconPol Policy Brief 34

How Fast Must Vaccination Campaigns Proceed in Order to Beat Rising Covid-19 Infection Numbers?

Claudius Gros (Goethe University Frankfurt), Daniel Gros (EconPol Europe, CEPS)

Facing a third Covid-19 outbreak in the spring of 2021 a central question for European policymakers is at what point a vaccination campaign has acquired sufficient speed to overcome the increase in infections, so as to justify lifting NPIs at least partially. The authors of this study derive an expression for a critical threshold that is shaped by three factors: First, the mortality risk from a Covid-19 infection increases exponentially with age. Second, the sizes of age cohorts decrease linearly at the top of the population pyramid. And third, vaccination proceeds at an increasing speed. The study finds that it is easier for countries with a comparatively young population and fast vaccination programs to reach this critical threshold than for countries with an older population and slower vaccination programs. An important conclusion of the research is, that slow vaccination hurts twice: The number of vaccinated people increases only at a slow rate. But it also means that vaccination programs’ ability to control aggressive new Covid-19 strains is strongly reduced. 

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Cover of EconPol Working Paper 63

What Are the Priorities of Bureaucrats?

Evidence from Conjoint Experiments with Procurement Officials

Janne Tukiainen (University of Turku and VATT), Sebastian Blesse (ZEW Mannheim), Albrecht Bohne (ZEW Mannheim), Leonardo M. Giuffrida (ZEW Mannheim, MaCCI), Jan Jääskeläinen (Aalto University), Ari Luukinen (FCCA), Antti Sieppi (FCCA)

The functioning of public bureaucracies is considered a principal driver of government effectiveness and state capacity. Surveying more than 900 real-life procurement officials in Finland and Germany on the basis of hypothetical choice experiments the authors of this study find that bureaucratic decision-making is based to a large extent on intrinsic motivation. While bureaucrats lack important career or pay incentives, they have substantial discretion at work. Contracting officers value a certain degree of competition and consider (too) rigid regulation as the biggest threat to the procurement process. This supports previous research finding that in countries with high public sector capacity more rules are detrimental to procurement outcomes. Another important conclusion that can be drawn from the survey is that procurement bureaucrats aim to avoid negative risks concerning prices and supplier reputation as well as awarding public contracts to bidders with prior bad performance.

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Cover of EconPol opinion

30 Years of Mercosur – Status Quo and Future Integration Steps

Andreas Baur, Lisandra Flach and Feodora Teti (ifo Institute and LMU Munich)

Thirty years after its foundation, Mercosur’s member countries have little reason to celebrate. On the one hand, trade liberalization within Mercosur in the first years after its foundation have led to an intensification of intra-Mercosur trade and can be regarded as an early success. On the other hand, the transition from a trade agreement to a customs union has failed and deeper integration steps hardly seem feasible. In the past 10 years, China has overtaken the EU as Mercosur’s most important trading partner, resulting in trade flows shifting away from Europe to the Chinese market. What’s more, integration into global supply chains has been successful only in places. In light of this, the EU-Mercosur trade agreement could play an important role – argue Andreas Baur, Lisandra Flach and Feodora Teti.

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Cover of EconPol Working Paper 62

Do Financial Markets Reward Government Spending Efficiency?

António Afonso (EconPol Europe; ISEG; REM/UECE), João Tovar Jalles (EconPol Europe; ISEG; REM/UECE; Economics for Policy and Centre for Globalization and Governance; IPAG Business School), Ana Venâncio (ISEG; ADVANCE/CSG)

To mitigate the economic impact of the corona crisis many governments have heavily engaged in counter-cyclical policies contributing to record high deficit and debt levels. Therefore, the more efficient use of public resources will be given special attention by financial markets’ participants. For a sample of 34 OECD countries over the period 2007-2018, this study finds that increased public spending efficiency is indeed rewarded by the three main rating agencies Standard & Poors, Moody´s and Fitch through higher sovereign credit rating notations. And these in turn naturally imply lower funding costs for governments in capital markets - an important policy implication to consider in times of Covid-induced scarce budgetary resources.

 

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