EconPol Policy Reports

This paper develops a decomposition framework to study the importance of different stabilization channels of an unemployment re-insurance scheme for the euro area. The paper provides insights on the potential added value of a re-insurance scheme which crucially hinges on its ability to provide interregional smoothing. Running counterfactual simulations based on household micro data for the period 2000-16, the paper finds that on average 15-25 per cent of the income losses originating from rising unemployment in deep recessions would have been absorbed through interregional smoothing effects. The results suggest that the interregional smoothing channel of the re-insurance scheme is economically as important as the intertemporal smoothing effect of an average domestic unemployment insurance scheme in the euro area. The latter would have led to a cushioning effect of 16-27 per cent of large unemployment shocks. The simulated re-insurance scheme would have been evenue-neutral at EA-19, but not at the member-state level. Average annual net contributions would have amounted to -0.1-0.1 per cent of GDP. No member state would have turned out as a permanent net contributor/recipient.

Authors of a new study conducted jointly by the Centre for European Economic Research (ZEW), Mannheim, and the ifo Institute for the EconPol Europe research network recommend that policymakers should do more to encourage citizens to identify with Europe. The authors suggest that Pan-European political consciousness could be encouraged by having citizens vote for European party lists, rather than national party lists in the European elections. An EU Citizens’ Assembly, say the report’s authors, should serve as a platform to discuss specific political issues and propose potential solutions. Europe could also raise its profile overseas through shared EU embassies and consulates.

Profit-shifting activities by multinational enterprises (MNEs) is widespread. Academics and policymakers agree that such activity should be curbed by diminishing the opportunities that exist within the international tax system The EU has legislated to reduce the scope for such activity, with a central tool being the Anti-Tax Avoidance Package. In this EconPol policy report, the authors argue that while elements of the package are likely to raise the minimum standards of anti-tax avoidance measures in Europe, they still leave scope for tax-planning. At the same time, the measures may lead to double taxation. They will also make the tax code more complex and distort firms’ decisions, generating social costs as a result. The balance between benefits and costs is not satisfactory. The authors discuss the pros and cons of other instruments like withholding taxes and formulary apportionment. While these measures would be of some help, in the long term, a fundamental reform of the international tax system is necessary.

The first part of this short report uses the newest available data from the Bureau of Economic Analysis (BEA), an agency of the US Department of Commerce, to analyse economic relations between the US and the EU. The data is used to decompose the components of the US current account balance, and to analyse the bilateral balance of payments with the European Union, the Euro Zone and Germany. In the second part, we use data provided by Eurostat to mirror US figures. We find  enormous discrepancies between what the EU and the US report, particularly with respect to primary income.

The European Commission has proposed to inaugurate a European Minister of Economy and Finance with the broad purpose of streamlining the complex and fragmented decision-making processes within the European Monetary Union. This policy report discusses the potential role the Minister could play in the development of the European Fiscal Union. The report lays out the main challenges along the current institutional solutions facing several dimensions of the Fiscal Union, in particular related to fiscal sustainability, macroeconomic shocks, incentives of structural reforms, and the optimum provision of European public goods. The report then discusses whether and to what degree the new European Minister of Economy and Finance can provide appropriate solutions to these challenges for the Fiscal Union.