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.
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Our November Newsletter’s analysis has been echoed by other commentators. Banks continue to be undercapitalised and a new Leverage Ratio cannot help. Governments continue to borrow heavily and the financial market seems to be in another bubble.
Publications
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…
“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 people.
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.
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 to possess knowledge that they cannot possibly have. Unprofitable investment projects do not become socially profitable just by being financed by the state. When the bureaucracy starts acting like a bank, it transfers risks from real banks onto ordinary citizens. Once again.
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?
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.
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.
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. There are two silver linings. 1) The amount of governmental subsidy (if any) will finally be revealed, and 2) the government will stop encouraging waste of an increasingly precious resource.
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.