The topic of income and wealth inequality is closely linked to the practice of tax avoidance and evasion, both by international corporations and by wealthy individuals. For example, it is often argued that an increase in top-income taxes and capital taxes intended to mitigate economic inequality will only end up scaring off investors and high-skilled workers or encouraging them to circumvent the law and ultimately hurting national prosperity. The related difficulties of implementing national policies in a globalised world have been highlighted by the recent disclosures of the Panama Papers and the European Comission’s decision to hit Apple with a tax bill of €13 billion after years of paying an effective corporate tax below one percent due to a deal with the Irish government. Unfortunately, any discussion about tax avoidance and evasion is seriously constrained by the opacity of tax havens and the global financial system and its laws and the lack of robust data. Recent research may help to shed some light on the issue at hand. But while there has been made some progress on the international level recently, it remains highly doubtful whether the gigantic globalised financial shadow economy can be tamed. Continue reading “Tax Evasion and Tax Avoidance – A Multi-Trillion-Dollar Business”
On Friday was the inauguration of the new US president, Donald Trump. His speech, invoking a homogenous movement of the people, bore testimony to the threat that his presidency will constitute to a liberal society. He is the spearhead of a multifaceted right-wing movement that is on the rise in most Western countries. Many narratives have been conceived to explain this uprising. One states that modern social media tend to promote fake news and right populist explanations for complex problems. Others include rising nationalist sentiments and aggravating economic inequality. However, while all of these narratives have a true core, what unites all of these new political movements is their promise of change, their promise of overthrowing the existing order. The condemnation of “the liberals” and “the elites” has been commonly looked down on as only appealing to the bigots, the ill-educated, the “deplorables”. What is often ignored are the real inconsistencies and weaknesses of the established system and the fact that in many countries, there is no real political alternative addressing these issues. Make no mistake, most movements representing the “New Right” exhibit an appalling lack of cogent concepts, many disgustingly coquet with racism and use the calculated breach of taboo as their main means of advertisement and all of them have a distasteful style. But their political attacks can only be as rewarding as the systems they are aimed at are frail. Unfortunately, modern Western societies, frequently characterised by the term “Social Liberalism”, are neither very social nor exceptionally liberal. Continue reading “The Crisis of Social Liberalism – And Why We Need More of It”
This week, international leaders from business and politics meet for the 47th World Economic Forum in Davos, Switzerland, to discuss pressing global issues (and improve their networks). In the face of inequality, one of the topics that is on top of this year’s agenda is to design new economic systems that ensure more equally distributed and inclusive economic growth. The organisers of the forum have recognised the disrupting role that the Fourth Industrial Revolution will play in these developments. The importance of issues of inequality has been emphasised by new findings and data that have been published in recent weeks, although situations differ substantially between countries and available data is still highly imperfect. Recent political developments might spell trouble for any collective international efforts to curb inequality. Continue reading “Some New Insights on Inequality”
As the year is coming to a close, the financial economy in large parts of the world is characterised by high levels of uncertainty and central banks navigating through widely unknown territory. In this article, I want to take a brief look at the state of affairs in a few different economic areas and analyse potential implications for monetary policy decisions. For this purpose, a proxy for the financial cycle as developed by Drehmann et al. (2012) from the Bank for International Settlements (BIS) is presented as a visualisation tool. This concept captures cyclical fluctuations in both private credit and house prices. A high point represents above-trend volume of credit to the private non-financial sector and elevated asset prices. A low point on the other hand indicates a contracted credit and housing market (You can find a very brief description how the financial cycle is derived at the end of this article). Additionally, I consider some other important developments throughout the global financial economy. Continue reading “The Financial Cycle Around the World in 2016”
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When uncertainty about the economic future and the perceived probability of market downturns rise, investors often turn to so-called “safe havens” to protect their savings. Especially when these factors are combined with concerns about increasing inflation, gold often gains centre stage in safe haven consideration. In the aftermath of the Financial Crisis and during the Euro Crisis, the gold price surged to levels not seen since the beginning of the 80s (in real terms). However, although uncertainty arguably has not decreased after the Brexit referendum in June and the election of Trump in November and with the referendum on constitutional reform in Italy this Sunday (December 4) looming, gold prices have been falling since July of this year. What is driving these developments? What are the reasons for and against investing in gold? Does it make sense to invest in gold at the moment? Before I investigate these questions, let us take a brief look at the history of gold as a financial tool. Continue reading “Aurora – A Short History of Gold and a Brief Look at Its Investment Opportunities”
The taxation of income often becomes a controversial issue in election debates (given that those debates actually revolve around factual topics). However, the proposals put forth mostly concern new regulations, new special rules, exceptions and deductions and small rate hikes or cuts and often are nothing more than half-hearted gifts to certain interest groups. In the long run, this leads to a progressively complex tax system that, combined with a similarly proliferating social welfare system, results in a bureaucratic leviathan that can paralyse a society and economy and at the same time fails to mitigate inequality. What if one started from scratch and intended to create an income tax system that is simple while being comprehensive and aims to mitigate growing income inequality and was not afraid of experimenting with somewhat unfamiliar ideas? In this article, I want to briefly explore a little thought experiment and imagine a new income tax system (I will sometimes use Germany as reference case). Continue reading “Daydreaming About Inequality – A New Income Tax System”
Ever since the Great Recession, central bank rates in all major developed economies have been on historic lows. The European Central Bank (ECB), whose official sole mandate is to maintain price stability, has lowered its rate even further to 0.00 percent in March in response to consistently low inflation rates across the Euro area, and the Bank of England (BoE), whose mandate combines maintaining price stability and supporting economic growth, has lowered its rate down to 0.25 percent in August, in response to the Brexit decision. Meanwhile, the Federal Reserve of the United States (Fed), whose objectives are maximum employment and stable prices, has increased its target rate to 0.375 percent in December for the first time in several years. However, at its most recent meeting in mid-September , the Fed has been reluctant to further increase its target rate due to an ongoing slow economic recovery and inflation rates below its 2-percent target (Inflation measures the yearly increase in consumption good prices). Consistently low inflation rates despite lengthy phases of expansionary monetary policy, even in countries that appear to be back on economic growth paths, are a concern for central bankers around the globe and puzzle many observers. In this article, I take a look at the case of the United States (simply because it provides by far the best data), derive the main two possible causes and argue in favour of a rate hike in combination with additional monetary and fiscal measures. Continue reading “Inflation, Growth and Monetary Policy – A Case Study of the United States”