The End of the Race to the Bottom?

What Is the Substance-Based Carve-Out under Pillar 2? And How Will It Affect Tax Competition? | Read My Lips? Taxes and Elections | Fiscal Policies during the Covid-19 Crisis in Austria - A Macroeconomic Assessment | Fiscal and Current Account Imbalances: The Cases of Germany and Portugal
A Note on the Future of EconPol Europe
What Is the Substance-Based Carve-Out under Pillar 2? And How Will It Affect Tax Competition?
After years of negotiations, OECD/G20 countries have agreed that large multinational companies must pay a global minimum tax rate of 15 percent so as to make it harder for them to avoid taxation. But will this much acclaimed tax reform really end the race to the bottom on corporate taxation? Possibly not, according to this recent EconPol Policy Brief by Oxford University’s Martin Simmler, Michael Devereux, John Vella and Heydon Wardell-Burrus. It all depends on the design of a seemingly arcane technicality within the Two Pillar Agreement: so-called substance-based carve-outs.
Read My Lips? Taxes and Elections
Politicians in industrialized countries often postpone tax increases to the year after elections. Governments tend to hold back on tax increases immediately before elections, but do not reduce taxes significantly either. This is a main finding of an EconPol Working Paper by Clemens Fuest, Klaus Gründler, Niklas Potrafke, and Fabian Ruthardt. The study analyzes how election-motivated politicians influence taxation policy across a sample of 23 countries over the period 1960 to 2014, introducing a new “Tax Reform Index” (TRI). The TRI is based on qualitative information of about 900 Economic Surveys from the OECD and 37,000 tax-related news items from the IBFD archives.
Fiscal Policies during the Covid-19 Crisis in Austria – A Macroeconomic Assessment
Austria has been responding to souring Covid-19 infection numbers with a fourth full national lockdown that ended last Sunday. Even though national lockdown measures have been lifted, restrictions continue to be in place for the unvaccinated. What’s more, many local provinces are keeping tighter restrictions and will only open up more cautiously. As a result, the viability of Austrian businesses and jobs is put to yet another test. In his recent EconPol Policy Report Klaus Weyerstrass assesses the macroeconomic impact of fiscal measures introduced by the Austrian government during the previous lockdowns in 2020 and early 2021. The analysis finds that fiscal measures saved at least 200,000 jobs. One measure has proven to be most successful: Out of the 200,000 persons who remained in employment in 2020, 191,000 can be attributed to short-time work schemes alone.
Fiscal and Current Account Imbalances: The Cases of Germany and Portugal
Are Germany and Portugal so different after all? In their new EconPol Working Paper António Afonso and José Carlos Coelho investigate similarities and differences in the development of Portugal’s and Germany’s fiscal and current account imbalances. The analysis spans from the adoption of the Euro in each country (1999 and 2002, respectively) to the end of 2020. One of the most important results is that the response of the budget balance to the current account balance is higher in Germany than in Portugal. In addition, public debt as a percentage of GDP positively affects the current account balance in Portugal, but not in Germany. According to the authors, this can be linked to the fact that the debt-to-GDP ratio is higher in Portugal.
A Note on the Future of EconPol Europe
Since its establishment in 2017, EconPol Europe has been recognized as a brand for scientific research on European policy issues. From 2022, EconPol's activities will be integrated into the CESifo network. CESifo is an association of over 1500 economists worldwide. In the future, EconPol will be the voice in this network that contributes research results that help shape the European Union. All initiatives of CESifo aimed at political protagonists in Europe will be grouped in the EconPol brand. Policy Briefs and Policy Papers on topics relevant to European policy will continue to be published on a regular basis. In addition, there will be event formats where academics and policymakers can discuss current developments and recent research findings. The EconPol Annual Conference will continue to be the network meeting of the year, for which high-ranking guests will be invited to Brussels.

In this new set-up, communications activities for the network will be taken over by Eberhard Beck ( If you wish to publish a paper or launch an event with EconPol, please don’t hesitate to contact him. In the meantime, you can keep up to date with all our events, research and other activities on our website and on Twitter.

Last but not least, we thank you for all your support throughout the year.
We wish you a festive holiday season and all the best for 2022.
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Published: ifo Institute for Economic Research at the University of Munich,
Editor: Susanne Richter.

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