EconPol Policy Briefs

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The Recovery and Resilience Facility: A Springboard for a Renaissance of Public Investments in Europe?

Francesco Corti, Daniel Gros, Tomas Ruiz, Alessandro Liscai, Tamas Kiss-Galfalvi (EconPol Europe, CEPS) David Gstrein, Elena Herold, Mathias Dolls (EconPol Europe, ifo Institute)

The funds provided by the Recovery and Resilience Facility under the National Recovery Resilience Plans are supposed to finance new projects to supplement, not to supplant national efforts. This is also called additionality which has long been a key principle of the EU cohesion policy. According to this principle EU financial intervention should not substitute for national funding that would have been used in the absence of EU intervention. The purpose of this short contribution is to shed light on the additionality of public investments under the Recovery and Resilience Facility. To this end, the authors propose to look at additionality both from a macro and micro perspective. They apply the micro approach to four national recovery and resilience plans: Italy, Germany, Belgium and Austria.

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What Is the Substance‐Based Carve‐Out under Pillar 2? And How Will It Affect Tax Competition?

Michael P. Devereux, Martin Simmler, John Vella and Heydon Wardell‐Burrus

On 8 October 2021 Secretary of the Treasury Janet L. Yellen claimed that: “As of this morning, virtually the entire global economy has decided to end the race to the bot-tom on corporate taxation.” Tax competition threatens the long‐term viability of the existing international corporate tax system and bringing it to an end would thus be a veritable game‐changer. But is Secretary Yellen correct? Will the OECD/G20 Inclu-sive Framework’s “Two Pillar Solution” that has now been agreed by 137 jurisdic-tions, in particular the global minimum tax found in Pillar 2, bring competition in corporate taxation to an end? This note examines one of the factors that will deter-mine the impact of Pillar 2 on tax competition: the design of the substance‐based carve‐out.

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High Public Debt in an Uncertain World: Post-Covid-19 Dangers for Public Finance

Daniel Gros (EconPol Europe, CEPS)

In this EconPol Policy Brief Daniel Gros cautions countries with high debt ratios not to simply rely on low interest rates to make their (Covid-19) debt sustainable. Now that the health emergency is subsiding, governments have to chart a new course for public finance. The starting point is a higher level of public debt. However, high debt ratios represent a danger, even when interest rates are low. The key reason is increased uncertainty of growth prospects in a post-Covid-19 economy, coupled with an uncertainty regarding the probability of future large shocks. A prudent policy would therefore be to start reducing debt levels to pre-crisis levels as soon as the economy normalizes, according to the author.

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All for One and One for Green Energy: Community Renewable Investments in Europe

Valeriya Azarova (ifo Institute), Jed Cohen (Salt River Project Integrated System Planning and Support), Andrea Kollmann (Johannes Kepler University), Johannes Reichl (Johannes Kepler University)

Community renewable energy (CRE) projects are gaining momentum in Europe and could play a significant role in reaching the EU’s accelerated decarbonisation goals. This is a key message that can be derived from this EconPol Policy Brief. Based on a survey across 31 European countries the authors find a high interest in community renewable investments, especially in countries where this model is not yet very common. However, the design of the project matters. The study finds that certain attributes lead to higher incentives for citizen investment. One decisive attribute is the form of the administrative entity. Most respondents prefer CREs to be run by a local cooperative rather than by a utility company. Another important finding of the survey is that the belief in economic benefits of renewable energy projects is a more important driver for citizen investment than the belief in general environmental benefits. Hence, if project developers and policymakers tailor CRE projects and campaigns according to local interests, this could lead to a significant increase in the uptake of CRE schemes throughout Europe.

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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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