Economic and Fiscal Policy

Economic & Fiscal Policy

Foremost on industry bosses’ mind and the general public attention alike, economic policy is one of the key areas of EconPol analysis. Fiscal policy, in turn, as a major enabler of economic policy, is another pillar of exploration. Devising the right policies to boost economic growth, assure price stability, and safeguard sustainable public finances is an art in itself, and different for every country and economy. This EconPol section examines policies that impact taxation, government spending, budgetary allocations, and public debt management. Additionally, it investigates the challenges and trade-offs faced by policymakers in balancing competing goals and responding to economic shocks and crises.

Related articles

How Do Taxation and Regulation Affect the Real Estate Market?

BIG-DATA-BASED ECONOMIC INSIGHTS

Mathias Dolls, David Gstrein, Carla Krolage, Florian Neumeier

The following article provides an overview of four projects that assess the effects of regulation and taxation as well as the pandemic’s impact on the German real estate market, using large-scale property price as well as survey data. The projects aim to provide answers to the following questions: Do subsidies make housing purchases more affordable? How do real estate transfer taxes affect house prices? How does rent regulation such as the Berlin rent cap affect the real estate market? And, which future trends in the housing market can be expected given the pandemic’s potentially long-lasting impacts on residential preferences?

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Geoeconomic Strategy

Wanted: Geoeconomic Strategy for Trade Relations

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Expert Opinion
The planned investment by the Chinese state-owned group Cosco in HLLA, the operator of the Port of Hamburg, has triggered a fierce dispute. Critics of the investment argue that the Chinese government would gain unwanted control over the port facilities. Supporters, meanwhile, maintain that it is only a minority stake and that the German government is in a position to impose conditions on port operators, regardless of who the owner is.
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The Revenue Effect of a Global Effective Minimum Tax

ECONOMIC POLICY AND ITS IMPACT

Clemens Fuest, Florian Neumeier

In October 2021, 136 countries and jurisdictions agreed on the introduction of a global effective minimum tax (OECD 2021). The plan is to impose a minimum tax rate of 15 percent on the global profits of multinational corporations (MNCs). If an MNC’s effective tax burden in a country is less than 15 percent, additional taxes will be collected until the ratio of tax payments to profits reaches a level of 15 percent. This is to affect all MNCs whose global consolidated revenue is at least €750 million.

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Corporate Taxes Reduce Investment: New Evidence from Germany

Sebastian Link, Manuel Menkhoff, Andreas Peichl, Paul Schüle

This policy brief provides novel empirical evidence on the causal effect of increasing corporate taxes on firm investment. The study combines unique data on investment plans and their realizations of firms in the German industrial sector and data on more than 1,400 local tax changes in the specific system of business taxation in Germany. We show that firms reduce their investments if corporate taxes were increased. An increase of corporate tax rates to stabilize fiscal revenues would be especially costly during recessions. We conclude that fiscal policy should therefore avoid higher corporate taxation in times of economic crisis. Moreover, our results have implications for the op-timal design of fiscal federalism in Germany. Strong dependencies of municipalities on local business tax revenues should be avoided, as they can be very harmful during recessions.

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Reforming Economic Governance in the Eurozone: Shifting Spending Instead of Expanding Debt Margins

Clemens Fuest

In February 2020, the European Commission announced that it would present a plan for reforming the economic governance of the Eurozone, including the rules for public debt. The project was postponed by the outbreak of the corona pandemic, but now the reform is to come. There is a widespread demand to expand debt leeway, for example for climate protection spending. In view of the already very high national debt and rising inflation, this is the wrong way to go. Fiscal policy coordination should focus more on expenditure reallocations and thus on improving the quality, not the quantity of public spending. What is needed is a modified handling of the existing rules, not a change in the rules themselves.

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