Overview publications

In this study of the determinants of international transmission of interest rates with a special emphasis on the role of international reserves and government debt, authors confirm that the trilemma still holds. They find significant spillovers from the U.S. interest rates to other countries, mostly for Advanced Economies; a dampening effect of the share of external liabilities in the domestic currency; a negative effect of international reserves on interest rates; higher reserves decrease risk premia for long-term interest rates; the significance of spillovers fades once the sovereign debt reaches 100% of GDP in developed countries.

Even in times of the corona pandemic, environmental and climate protection are among the dominant topics in the economic policy debate. This is justified. Global warming is one of the greatest challenges of our time. Tackling it requires a transformation of the economy. CO2 emissions must to be reduced, and we need to adapt to the climate change that has already occurred or will occur despite all efforts. European policymakers have set out to drive this transformation under the banner of the Green New Deal. The objectives of the Green New Deal are shared by a large majority of the population. But it is controversial how and with which instruments these goals should be pursued.

Voter attitudes towards the welfare state, its specific programs, or specific people who are supposed to “benefit” from the implied social transfers have always been of vital interest for discussions in the public and political spheres. In this working paper, Peter Grand and Guido Tiemann (EconPol Europe, IHS Vienna) examine public sentiments concerning the conditionality of unemployment benefits and find that opinion is influenced by the supposed level of 'deservedness', along with economic, social, and institutional context.

Sacrificing lives does not save the economy, according to this latest policy report from Panu Poutvaara and Madhinee Valeyatheepillay: countries that fail to suppress the pandemic risk a disastrous overburdening of their health care system and patients who could have been otherwise saved die. Short of an effective vaccine, no single measure is enough to stop the pandemic. Instead, societies need a combination of effective social distancing measures, careful hygiene, use of masks in indoor public spaces and contact tracing.

While tax administrations have made considerable progress in fighting tax evasion, it remains a seemingly inextricable part of our world. Exploiting unique datasets covering over 28,000 tax evaders in the Netherlands, Wouter Leenders, Arjan Lejour, Simon Rabaté and Maarten van’t Riet investigate the distribution of tax evasion and its implications for the measurement of wealth inequality. They show that the distributional pattern of tax evasion depends on the type of tax evasion, e.g. it depends on the offshore country of choice. They explore a number of explanations to account for the differences in results and caution against projecting distributional patterns of detected tax evasion onto still undetected evasion. 
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In this policy report, Hernán D. Seoane (EconPol Europe, Universidad Carlos III de Madrid) analyzes one aspect of the sovereign-bank nexus: the feedback effects between banks and sovereigns derived from the holdings of sovereign debt in domestic banks. He examines how this relationship evolved during the European debt crisis and how it responded to the implementation of ECB monetary policy based on Open Market Operations and Marginal Lending Facilities. He finds evidence of carry trade behavior by banks, with some evidence that this channel may have been boosted by the liquidity provision policies.

This working paper, from António Afonso, João Tovar Jalles and Ana Venâncio, evaluates the effects of structural tax reforms on government spending efficiency in a sample of OECD economies over the period 2007-2016. Increases in tax rates result in falling public efficiency, with the negative effect found to be more significant for increases in personal income tax and value added tax. In times of economic expansion, increasing the corporate income tax base and reducing personal income tax rates were found to have a positive impact on public sector efficiency. In recessions, efficiency improves when the personal income tax and value added tax bases increase and the corporate income tax rate increases. 

António Afonso, João Tovar Jalles, Ana Venâncio have conducted a review of the literature dealing with overall public sector performance and efficiency, defining a methodology to assess public sector efficiency and create a novel and large cross-sectional panel dataset of government indicators and public sector efficiency scores. The focus is on a balanced sample covering all 36 OECD countries over the time period between 2006 and 2017. The authors have defined a set of economic and sociodemographic metrics necessary to construct performance composite indicators and calculated and reported a full set of (input and output oriented) efficiency scores based on the performance indicators previously computed.

Is green consumerism beneficial to the environment and the economy? To shed light on this question, Stefan Ambec and Philippe De Donder study the political economy of environmental regulations in a model with neutral and green consumers where the latter derive some warm glow from buying a good of higher environmental quality produced by a profit-maximizing monopoly, while the good bought by neutral consumers is provided by a competitive fringe.

The border adjustment mechanism proposed by the European Commission is designed to reduce imported CO2 emissions. An attractive initiative on paper but whose implementation is a real headache as it conflicts with the trade negotiations conducted by the same Commission. Stefan Ambec and Claude Crampes (EconPol Europe and Toulouse School of Economics) examine the plans and consider the solutions.