Many European Economists Take a Critical View of US Law to Curb Inflation

Economic experts in major European countries are particularly critical of the US Inflation Reduction Act (IRA). This is the finding of a global survey carried out by the ifo Institute in collaboration with the Swiss Economic Policy Institute. “Misgivings are especially grave in Germany and France. Economists in the UK, Ireland, Italy, Switzerland, Austria, and Belgium are also skeptical. But their colleagues outside Europe are far more relaxed about the effects of the IRA. There the law is playing a relatively small part in the public debate,” says ifo researcher Niklas Potrafke.

In France, on balance 83 percent of the economists surveyed fear that the IRA will negatively impact their country’s economy, 78 percent expect companies to move elsewhere, and 65 percent recommend that policymakers take action against the effects of the Act. In Britain, they are 53, 63, and 66 percent, in Ireland 81, 36, and 47 percent. In Germany, those figures are 64, 51, and 59 percent respectively.

By way of contrast, economists in many South American countries expect the effects of the IRA will be positive overall. Only 9 percent of the experts surveyed worry that the IRA will cause companies to move away and 21 percent recommend that economic countermeasures be taken.

Analysis of free-text responses reveals that 42.6 percent of the experts favor improving investment conditions and 41.7 percent support active industrial policy and subsidies. “Better investment conditions could help make countries like Germany more attractive to companies over the long term. With subsidies, there’s always the risk that the companies will leave again when the subsidies expire,” Potrafke says.

Questions can be directed to: Prof. Niklas Potrafke, 0049 / 89 / 9224-1319, Potrafke@ifo.de