Overview publications

Import tariffs introduced by the United States and China in September will see Chinese exporters bear approximately 75% of the costs, with the US extracting a net welfare gain of USD 18.4 billion, according to new research from EconPol Europe. The tariffs affect around 50% of Chinese products imported to the US, with a value exceeding USD 250 billion. The tariffs introduced by China affect around USD 60 billion worth of goods. The research shows these new tariffs, introduced on 24 September, will increase US consumer prices on affected Chinese products by an average of 4.5%, while the producer price of Chinese firms declines by 20.5%.

The lack of cross-border risk sharing in the banking sector is one of the biggest barriers to better integrated financial markets in Europe. In this EconPol policy brief, the authors emphasize the potential of the securitization market for bank-based financial integration. To effectively increase cross-border risk sharing through securitization in the EU, they suggest further improving the existing regulatory framework in order to reduce barriers to a thriving securitization market.  A further recommendation is to introduce explicit incentives for risk sharing, and securitization in Europe entering EU regulation and EU programs.

The European Commission’s Allowance for Growth and Investment (AGI) has proposed investment incentives in its two-step approach towards the Common Consolidated Corporate Tax Base (CCCTB). In this latest EconPol working paper, the authors demonstrate that the AGI strengthens investment incentives in high-tax countries and decreases the CCCTB-induced investment push towards low-tax countries. They also demonstrate that the AGI decreases tax competition and that a sufficiently generous AGI reduces tax competition between countries when introduced with the CCCTB.

The agenda to fix the euro is hampered by conflicting national interests. Creditor countries demand fiscal house cleaning and debtor countries ask for risk sharing. There is currently a political deadlock about how the adjustment burden should be distributed, perpetuating a state of vulnerability that is not in the collective interest of euro area members. This column, part of the Vox debate on euro area reform, argues that overcoming this coordination failure requires reforming the political governance of the EU, rather than just its economic governance.

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.

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.

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.

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.

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. 

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.