EconPol Policy Briefs

Extreme poverty in certain global regions remains one of our greatest international challenges: between 2014 and 2016, 800 million people suffered from hunger. Despite this, most EU member states spend less than the required 0.7 percent of Gross National Income (GNI) on development aid and there are high associated administrative costs.

In this EconPol Policy Brief, the authors argue that shifting more financing and management of development aid from member states to the EU would help resolve these problems and reduce costs.

Advances in total factor productivity (TFP) are important for sustaining economic growth in modern economies, in particular in the face of a declining working-age population. In this Policy Brief, we identify investment in research and development, good governance, the capital intensity, a high share of information technology in the total capital stock, and the number of industrial robots per employee as conducive for TFP growth. Based on the empirical results, policies that are beneficial for capital formation in general, investment in computer technology, research and development as well as the use of industrial robots could boost TFP in Europe.

In recent studies the IMF and the OECD claim that inequality has a negative impact on economic growth and conclude that redistribution policies have no adverse growth effects. We argue that this claim is misleading. We show that, for developed countries, the correlation between inequality and growth is positive, not negative. But this correlation cannot be given a causal interpretation.

What are the potential advantages and drawbacks of proposals to create a Capital Market Union in the EU? This Policy Brief discusses the long-term implications of perfectly integrated capital markets, ignoring crises but taking population aging into account. Recent research shows that redistribution would take place, from fast aging to slow aging countries, because investors seek access to the largest labour markets that deliver the highest returns on their investments. In some countries like Austria social security reforms like raising the retirement age would play a crucial role in maximizing the benefits of CMU, or minimizing related losses.

The debate over the next EU budget is already heating up. In early May the European Commission will publish its proposal for the Multiannual Financial Framework (MFF) for the years 2021-2027. Agricultural subsidies and regional transfers are likely to continue to swallow a large share of the EU budget. In view of the acute legitimacy crisis facing the EU, this spending structure calls for reform. The Commission has recommended using “European added value” (EAV) as a reform criterion. This policy brief considers whether allocating competences more effectively between the EU and its member states could boost the EU’s performance.