Institute for Research in Economic and Fiscal issues
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January’15 Financial & Fiscal Features Newsletter

ECB QE? Will banks avoid Russia?

Only two countries remain opposed to QE, although even they realise that measures about to be implemented are QE in all aspects but the name. Meanwhile, ground is being prepared for ECB to shift blame if “unconventional stimulus” ends up not working.
— -
Russian sanctions work. Or so we are led to believe. However, it would be a mistake to underestimate the preparedness of EU banks (and bankers) to sidestep official sanctions and participate on the market. After all, Russia’s collateral may (...)

Latest publications

Economic freedom down in Eurozone, up in non-Euro countries

9 EU countries have not adopted the Euro, 19 have. Both groups include similar proportions of countries with high, medium and low levels of economic freedom. However, IREF’s investigation of what has been happening to economic freedom in the two groups reveals significant differences. While non-Euro countres moved towards more fiscally related freedom, in Eurozone it stagnated or (...)

Greeks have the safest jobs in the euro area

Greek labour market is hard to crack for an outsider
The Greeks have voted and the left-wing Syriza emerged as the clear winner. There will now follow intensive discussions about Greek reforms and the relationship between Greece and the rest of the world. The labour market is one of the core battlegrounds in Greece. It is very difficult for the country’s unemployed to re-enter the labor market. This is borne out not only by the high unemployment rates but also by data on duration of holding current job. In no Eurozone country has the average (...)

The Effect of Tax progressivity on the quality of entrepreneurship

WP 2015-01 The Effect of Tax progressivity on the quality of entrepreneurship by • Mina Baliamoune-Lutz • Pierre Garello

Freedom helps: especially in times of crisis

Greeks suffer consequences of lack of economic freedom
For several weeks Greece has been, once again, at the centre of European economic policy. Grexit, Greece’s withdrawal from the Eurozone, is being debated again, in light of the forthcoming Greek election of 25 January. Proponents point to the opportunity after such withdrawal for a massive devaluation of Greek currency which would lower the price of Greek goods and services and make them competitive again. However, a quick look at different measures of economic freedom in the Eurozone (...)

February 2015 Workshop in Spain

6 years into the crisis
19 February 2015, save the date for new IREF workshop "Monetary policies, taxation and entrepreneurship six years into the crisis", in cooperation with University Rey Juan Carlos.

3 French Hens

Twelve Days of Fiscal Christmas
This article is from our mini-series looking at modern fiscal issues surrounding items listed in the famous 18th century English carol “Twelve Days of Christmas”. We believe that if the list can be used as an index measure of monetary inflation, (...)

2 Turtle Doves

Twelve Days of Fiscal Christmas
To replace the original sacrifice of two turtle doves, the biggest European authority in the Middle Ages, the Catholic Church, dictated what people should eat. EU governments continue doing the same, by fiscal means. However, this fiscal policy is full of paradoxes. Governments tax consumption of “bad” food, while also subsidising its production at the same time.

1 Partridge in a Pear Tree

Twelve Days of Fiscal Christmas
A partridge in a pear tree, the famous gift of the first day of Christmas, is at the centre of an EU fiscal paradox: European taxpayers are paying for extensive programmes to protect the habitat of the dwindling species. At the same time, they are fiscally forced to help to destroy partridge’s habitat through subsidised conversions into farmland and suburban development.

ECJ ruling strengthens European Welfare States

New ECJ ruling confirms that member states can currently deprive non-residents of welfare payments. Yet, it has been popularly portrayed as a new tool to protect the spiralling costs of EU welfare states. We show that on the contrary, costs may rise, both in the short and long run, and the ruling makes welfare states even more entrenched. Meanwhile, the dominant part of “international welfare tourism” continues since the largest claimants are those with jobs, and the ruling only reinforces (...)

December’14 Financial & Fiscal Features Newsletter

Rancour at ECB Board
Despite the attention offered by the media to Russian banking and foreign exchange markets, tensions are growing in the ECB. Some ECB Board members are unconvinced of the stance the ECB President is taking, doubting that the introduced policy would be effective, let alone constitutional. We explain the economics behind these tensions and review in this light the road how we got here in the financial crisis. — - Our November Newsletter’s analysis has been echoed by other commentators. Banks (...)

Financial Transaction Tax cannot deliver

Free movement of people, capital, goods and services across national borders. Those are, allegedly, the pillars of European integration. One of them, the free movement of capital, crossed swords twice this week with EU policy makers convened at (...)

Increasing Tax Withholding? Bad Idea

"In order to prevent tax fraud, income tax withholding should be increased so that governments over-withhold and most taxpayers receive a refund." This is the policy prescription in a new research about to be published. We argue that this conclusion is wrong. The authors have not proven the link between tax withholding and tax fraud, and even if, increased tax withholding creates more serious problems that would wipe out any anti-fraud benefits. Tax policy should not rely on fooling (...)

November Evaluation of Commision’s Legal Action

Every month, the EU Commision starts dozens of legal actions against Member States for non-compliance with EU law. We evaluate the November crop of fiscally-related cases. While 2 such actions are generally a good idea, 4 are a bad idea, reducing EU citizens’ opportunities for an efficient and transparent government.

Pretence of Knowledge: The Case of Jean-Claude Juncker

The EU as an investment bank we can do without
According to several reports, EU Commission President Jean-Claude Juncker is planning to introduce a 300 billion-euro investment package this Wednesday (November 26th). The idea is to establish a European fund that will assume liability risks on behalf of private investors. Only profitable projects would be eligible for the guarantee; the profitability of individual projects is to be pre-determined by EU bureaucrats. This presupposes too much of President Juncker and his team. They purport (...)

Are tax cuts always necessarily good?

Tax cuts are pretty rare in the real world. When they do happen, they tend to be very partial, offering unjust advantages to a specific group. But even broader tax cuts can paradoxically do much harm. Using Italy as an example, this piece argues that when tax cuts lead to greater debt, they may ultimately curtail rather than enhance liberty – and long run economic growth?

Swede dreams

What happens when high tax rates drop
How do you pay for increased government spending on education, health care and social services? By lowering the tax rate, of course… Wait, what?! Oh indeed. A new report on Swedish fiscal developments over the last dozen or so years shows what’s possible to achieve when a country tries to shake off the reputation for Europe’s highest taxes.

November’14 Financial & Fiscal Features Newsletter

2014 Bank Stress Tests
The Asset Quality Review (Stress Test) results confirm system wide solvency. Yet, regulators announce the rewriting of bank risk models and the ECB plans large scale asset purchases.

“Water Tax”, the Ire of Ireland

It is becoming a pattern. Another weekend, another 100,000+ protest against a new tax. Only not Hungary and tax on the internet, but Ireland and “tax on water”. At least that’s how many media are reporting it. ABC runs with the headline "Marchers Protest Ireland’s New Tax on Water Supply", RT leads with “Ireland Stands Up Against Water Tax”. Protestors’ banners also cite water tax. IREF shows that what Ireland is actually doing is not introducing a water tax but increasing overall taxation. (...)

Taxing the internet – is Hungary leading the way?

8 myths busted
Large demonstrations took place over the weekend in Hungary. Somewhat unusually, people were not protesting against spending cuts, but against a new tax. A targeted tax on internet traffic. The issue of taxing this new paradigm of our lives will not go away anytime soon. As a companion to your on/offline debates, IREF busts 8 fiscal myths about the Internet.

Regulatory Role of One Jean Tirole

The new Nobel Memorial Laureate is one of prime architects of modern regulation of markets. To many that will make him a social engineer. However, as modern EU governments’ budgets are increasingly suffering from similar problems of failed previous regulation and self-regulation, his voice should increasingly be heard also in the European fiscal realm.

October ’14 Financial & Fiscal Features Newsletter

Special Issue on Scotland and Catalonia
Although Scotland voted in September to remain in the United Kingdom, both sides hailed the high voter turnout as recognition of democratic engagement and growing European dissatisfaction with over-centralised, bureaucratic, seemingly unaccountable government. The effect has been to raise morale in Catalonia and a handful of other potential breakaway regions. This is bad news for Europe’s (...)

Deutschland Wages Über Alles

Minimum wage is a tax on those who create jobs
Germany’s minimum wage has been created at a pretty high level, higher than its equivalents in the UK or the US. Increasing the price and reducing the quantity of an economic activity it acts as a tax. A pretty unsocial one as it destroys jobs for the poor and punishes those who create them. That the poorer Eastern Germany should be hit the hardest is saddest of all.

All aboard the fiscal board. Are you bored?

Should fiscal policy be taken away from governments?
When governments are unable to take care of their finances, is it time to appoint them a guardian who will take care of that business and (co-)determine fiscal policy? When is such guardian irreplaceable and how could they help?

New EU members banned from zero

Dawn of Zeroastrianism?
In 2006, the EU outlawed the zero, banning it from VAT rates of member states. Within two years the zero struck back. It now rules supreme in at least three economic areas, but in the tax domain it continues to be banned. Any newcomers to the EU will be hit especially hard. Why would anyone institute a minimum tax anyway? Surely we need protection from a maximum, not a minimum!

Fiscal assets and liabilities during a state divorce

With the Scottish referendum around the corner and other ones looming on the horizon, IREF investigates the accounts of states thinking about a divorce. What are assets and liabilities to be split? Is the currency such asset, for example?

September’14 Financial & Fiscal Features Newsletter

Low interest rates contribute to weak labour markets A new measure of Unemployment and Labour Market Conditions gains support at the Annual Jackson Hole Conference. Doubts continue about European QE as near-zero interest rates may actually be preventing employment from picking up. Concerns about Repo Market Disruptions The Repo market is becoming less attractive due to new Leverage Ratio rules. Doubts remain as to whether this can prevent reoccurrence of credit seizing up should (...)

Nobelist plays poker. For a pound.

Scotland’s coming referendum is offering the country “independence”. Politicians cannot agree about what exactly it would mean, especially what currency the new state would have. Now an economics Nobelist has added his voice to the debate. At face value the question of adopting another country’s currency is very simple, but closer scrutiny reveals deep fiscal connotations which complicate things. IREF disentangles the (...)

5 ways of responding to financial crisis

Most companies were hit hard by the freezing up of financial markets after 2008. Governments responded selectively – by selective tax cuts and subsidies, but they could have more meaningfully “help” everyone, not just big companies, by lowering corporate tax rates. Did they? IREF investigates, and shows EU countries’ responses fall into 5 categories.

Textbook guru: “Scrap corporate taxation!”

Why is anyone against it?
A famous economist, author of even more famous economics textbooks, is calling for an end to corporate taxation. Not because he has been bought by the corporate world and multinational companies, but because it makes economic sense. Perhaps most surprisingly – it should make sense even to left-leaning thinkers.

EU in bolshevik footsteps: the new GOELRO

A century later....
EU governments are increasingly subsidising electric plug-in cars. Many countries have “five year action plans” to electrify their roads, using tax money. Environmental benefits will actually decrease with e-car proliferation, and the governments are forcing us to pay for something we may soon not want.

Cumbersome German pension schemes: Pool them!

New IREF Policy Paper
A new IREF Policy Paper by Senior Fellow Alexander Fink analyses the colourful patchwork of various private pension schemes the government has created, and compares their inflexibility and other disadvantages to the US system. A “single pot” which would enjoy some of the currently individualized incentives would be a much better idea for everyone in Germany. And it may even contribute towards social (...)

For whom the toll bells

So who would build roads without taxes?
A century after privately built and operated roads were either nationalized or closed down, a new private toll road has sprung up in England. It is popular with drivers, if not with the local government. Is it always wrong to charge for use of infrastructure built from tax money? Is it OK that many EU countries start charging for highway mileage?

Naked truth about France

Government is blatantly nudist
Summer temperatures bring new wave of strikes to France (not that they’re seasonal…). Two concurrent current strikes involve nudity. Fiscally, though, they have very different implications. It does not depend on what you do with your clothes, it depends on who is your employer.

Caveat Venditor. Should governments compensate companies for embargos?

After many Occidental countries imposed sanctions on some Russian businesses, Russia has retaliated by restrictions on some Occidental ones. Trade wars rarely work. However, a new fiscal phenomenon has appeared: affected EU companies seek compensation from the state for loss of markets. Should they get it?

Silly season of silly taxes

The media world calls Summer “the silly season”. When politics takes summer break, it is time to roll out the “silly stories” to fill the media. Not this year. Politics strikes back and rolls out silly taxes on media. Hungary’s ruling party introduced a new tax on advertising revenues of up to 40%. This is terrible economics, but economics cannot compete with terrible hatred…

If you’ve won Wimbledon recently, read this.

Key to post-Wimbledon life? Lose the key!
Carrying keys on your person is dangerous if you are a Wimbledon champion, tax authorities will charge you heavily for such audacity. At least one EU government’s budget apparently relies on its citizens winning the Wimbledon. And it encourages envy. If successful sports-people representing their countries want to help their fellow citizens, they should stop being patriotic.

Governments should not be able to blame courts for their deficits

Portuguese Constitution is too PC
Portugal’s Constitutional court joined the ranks of those European courts that have halted crucial welfare reforms by governments. IREF reviews the evidence and concludes that fiscal policy must, for better or worse, remain the sovereign responsibility of the government held accountable at the next election. Being able to blame the courts would pave the way for governments to court misery, the opposite of what constitutions want to (...)

July’14 Financial and Fiscal Features Newsletter

BIS has doubts about monetary policy in the Euro area Latest BIS Report says that present monetary policies risk permanently destabilizing the global economy. It calls for A New Policy Compass, focussing on the ‘Financial Cycle’, not the Business Cycle. Banks remain fragile and imbalances persist The BIS notes that banks have been recapitalising, but in some countries problems with asset quality and earnings persist. The recent issue of a convertible bond for TESLA is a prime example of (...)

Strange property of property tax: an Irish tale

Desperate times call for desperate measures. European governments cannot raise enough tax to cover their spending. Ireland has even been forced to adopt what economists generally consider the least distortive tax feasible. That is good (considering the alternatives), but its execution leaves much to be desired. Strange incentives remain, and punishment for success is built (...)

New Book: Europe in an Age of Austerity

Two years ago, prof. Vani K. Borooah published a working paper for the IREF with the warning title "When the Lights Go Out". We are pleased to announce that the working paper has been since extended into a fully fledged book, now published by Palgrage Macmillan.

Last Seminar

What is Europe’s Future? Prof. Colombatto to reveal in Dublin

Latest Study

The ZIRP Trap - why low interest rates are a tax on recovery

In the media


IREF Bookseller: "Before It’s News"

"Why I Am Going To Leave France" in the Financial Post

"Why I Am Going To Leave France" in the Marginal Revolution

"Why I Am Going To Leave France" in the Telegraph