By Bilal Hafeez 13-09-2019

Top Picks: Fiscal Policy & Inequality

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20th September

Many are clamouring for more fiscal policy, but it may not be so straightforward. There are clamours for taxing the rich, yet others argue for spending on big infrastructure projects. Then, some argue that fiscal policy won’t solve for real shocks to the economy like trade uncertainty.

The Return of Fiscal Policy (Project Syndicate) Former Goldmans Sachs Asset Management Chairman argues for greater government investments in long-term projects given interest rates are so low.

Taxing the Rich: Issues and Options (NYU, Batchelder and Kamin) Propose 4 viable ways to tax the rich – increase top tax rate, tax wealth on accrued gains, a wealth tax on the rich and a financials transactions tax.

Fiscal Stimulus Under Sovereign Risk (Minnepolis Fed) Finds that fiscal policy is often pro-cyclical as fears of heightened sovereign risk during recessions induce austerity. To overcome this, the authors argue for “fiscal policy forward guidance”.

Germany’s Real Business Cycle (Scott Sumner) He argues that Germany does NOT need a fiscal stimulus as its recent weakness is due to a real shock (trade war) rather than a nominal shock (eg sticky wages in face of weak labour market).


13th September

Taxing Wealth by Taxing Investment Income: An Introduction to Mark-to-Market Taxation (Washington Center for Equitable Growth) Argues for taxing capital gains on a mark-to-market basis rather than on disposal. Another policy aimed at introducing and refining wealth taxes at a time of rising inequality in the US.

Germany to Play Smokes and Mirrors Again (Bill Mitchell) MMT advocated Bill Mitchell argues that Germany uses entities like KFW to engage in fiscal stimulus.

Reallocating Public Spending to Reduce Income Inequality: Can It Work? (IMF) Paper finds that a country can reduce inequality while keeping expenditure fixed if it shifts money away from defense and towards social protection and infrastructure.

The Impact of Brexit on UK Firms (Bank of England) Finds business uncertainty has increased, investment has fallen by 11% over three years and productivity has fallen as top management diverts time to Brexit preparations.


(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)

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