By Bilal Hafeez 18-09-2019
In: top-picks, Other

Top Picks: Fiscal Policy & Inequality

19th October

Elizabeth Warren is gaining popularity in the polls. She’s  floating the of a wealth tax. But they could have massive negative implications.  Equally, tax data suggests taxing the rich more won’t fix the budget deficit.

Some Income Tax Data on the Top Incomes(Conversable Economist)Finds the top 50% pays almost all the federal income tax whereas the very top income brackets get away with proportionately less. However, simple math shows that taxing the rich more won’t be enough to balance out the $800bn yearly budget deficit.

MMT Heaven and MMT Hell for Chinese Investment and U.S. Fiscal Spending(Carnegie)Argues thatthere aren’t inherently unacceptable levels of government debt If the government can spend the additional funds in ways that make GDP grow faster than debt. That way, there wouldn’t be runaway inflation or the piling up of debt.

How to Argue for a Wealth Tax(Marginal Revolution)Estimates that a seemingly benign 2% increase in the wealth tax in the US ends up stacking up to a 50-70% net capital gains tax, which can’t be sustained. Proposes a higher consumption tax instead.

12th October

A tax system overhaul – to improve inequality or to solve the climate issues – seems to be on the cards. A concrete and actionable policy plan to be followed by governments is urgent, but no one is offering it.

Thomas Piketty’s New Book: Impressive Research, Problematic Solutions (Bruegel) Critiques three of Piketty’s bold suggestions: reforming corporate governance, a tax system overhaul, and European transnational Federalism – all are appealing but Piketty offers no concrete suggestions on policy.

Fiscal Policies to Curb Climate Change (IMF) The IMF recommends the best policies to tackle climate change, given the Paris agreement has fallen short. Main points revolve around jump in carbon taxes to $75 a ton by 2030 and how to best use the generated revenue.

Undisclosed Debt Sustainability (Alfaro, Kanczuk) Undisclosed and non-transparent lending to developing markets by creditors outside of the Paris Club, most notably by China, is surging and is negatively impacting debt sustainability for traditional (Paris) lenders.

Japan’s Public Sector Balance Sheet (IMF) In-depth analysis of Japan’s large public sector balance sheet, exceeding 210% of GDP in 2017, but now decreasing in net worth. Looks at risks of crossholdings with the public sector and how pension policies for the aging population will add pressure.

4th October

Fiscal stimulus is all the hype and is often cited as the only tool left to steer away from a recession, especially in the Eurozone. Germany might be just warming up to the idea. We also look at solution to the growing issue of unaffordable housing and how to actually build more – not just fuel buying with cheap debt.

Japan’s Government Will Soon Make a Profit on Its Huge Debt (CEPR) Amids raising worries about Japan’s tax lift from 8% to 10%, this commentary reminds that given the negative nominal rate, the debt service burden is virtually zero. Debt is now becoming a source of revenue.

It’s Time for German Fiscal Expansion (Project Syndicate) Advocates that it now makes sense for Germany to spend more without fears of overheating. It should spend more on infrastructure maintenance and modernization, and it could cut payroll taxes. This piece similarly supports fiscal action for the wider Eurozone.

Estimating Regional Wealth in Germany: How Different Are East and West Really? (Kreutzmann, Marek, Salvati, Schmid) Almost 30 years since the German reunification, this paper finds the East lagging in significantly in regional indicators, most notably private net wealth. Each eastern German federal state private wealth comes to less than half of the national mean.

We Cannot Build Our Way Out of Inequality (VOX) The path to a solution of the housing crisis in large metropolitan areas might be to cut regulation in order to build more and denser housing in metro regions (upzoning). The answer is not simple and needs combining education, social, health, and housing policies.

To Tackle Housing Affordability in Canada, Build MoreHouses (IMF) Argues that to solve the lack of affordable housing in Canada (and most of the Western World), we need accelerated process of supplying houses. Sounds simple – but governments have been too focused on making borrowing quicker and accessible – which fuels house price surges.

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.