IMF Discussion Note on Banking Union in the Euro Area

Rishi Goyal, Petya Koeva Brooks, Mahmood Pradhan, Thierry Tressel, Giovanni Dell’Ariccia, Ross Leckow, Ceyla Pazarbasioglu et al discuss the case for a banking union in the Euro area in an IMF Staff Discussion Note. The authors argue in favour of both a single supervisory-regulatory framework and a common resolution mechanism as well as safety net.

Surnames and Social Mobility

The Economist reports about research that exploits variation in the frequency of surnames over time to infer the degree of social mobility over centuries.

As late as 2011 aristocratic surnames appear among the ranks of lawyers, considered for this purpose a high-status position, at a frequency almost six times that of their occurrence in the population as a whole. Mr Clark reckons that even in famously mobile Sweden, some 70-80% of a family’s social status is transmitted from generation to generation across a span of centuries. Other economists use similar techniques to reveal comparable immobility in societies from 19th-century Spain to post-Qing-dynasty China.

The article quotes several papers on the topic.

Chinese Government Report on Options to Reduce Wealth Inequality

Markus Ackeret in the NZZ discusses a long-awaited Chinese government report on policy options to reduce wealth disparities. They include: Less manipulation of interest rates; more manipulation of wages; higher real estate taxes; higher dividend payments of government owned enterprises; changes in the legal status of workers moving from the countryside to the cities (hukou).

Options for British Tax Evaders to Come Clean

hus in the NZZ writes about options for British tax evaders to come clean about hidden financial assets abroad.

UK residents with Swiss assets who do not want their identity to be disclosed to the British authorities can pay taxes on their asset holdings to the Swiss authorities instead; the Swiss will (partly) hand them over to London. The relevant treaty between the UK and Switzerland was put into effect in 2013.

UK residents often prefer an alternative option, though, namely to “legalise” their world wide asset holdings using a treaty between Liechtenstein and the UK. According to that treaty, assets fully declared before the end of 2016 trigger a penalty of about 10% to 20% of the relevant asset holdings, as compensation for evaded taxes in the past. British tax payers can use this option as long as the fraction of their offshore assets that they invested in Liechtenstein is sufficiently high.

Iceland’s Deposit Insurance Found Non-Discriminatory

The Economist reports about an EFTA court decision concerning Iceland’s decision to discriminate among depositors after the collapse of Icesave, an online bank. The bank had collected deposits in the UK and the Netherlands, using a European “passport” which relied on the notion that the Icelandic deposit insurance scheme would back those deposits. After the collapse, the insurance turned out to be insufficient; while Icelandic savers received their money back, British and Dutch depositors did not. But eventually, their respective governments bailed them out—and now went to court.

… the court found that Iceland was obliged only to make sure that it had a deposit-insurance scheme. The state was not required to pay out if the scheme had no money because of a banking crisis. Oddly, the court also found that Iceland had not breached an obligation not to discriminate between domestic and foreign depositors, even though it made only the domestic ones whole.

“Riskante Renten (Risky Entitlements),” FuW, 2013

Finanz und Wirtschaft, January 5, 2013. PDF. Ökonomenstimme, January 8, 2013. HTML.

  • Future pension benefits will reflect future national income, and how generations share it.
  • Future income depends on current savings and thus, the structure of the pension system.
  • How the income is shared depends on political factors, not promises.

“Economic and Politico-Economic Equivalence,” CEPR, 2012

CEPR Discussion Paper 9203, November 2012, with Martín Gonzalez-Eiras. PDF.

We extend “economic equivalence” results, like the Ricardian equivalence proposition, to the political sphere where policy is chosen sequentially. We derive conditions under which a policy regime (summarizing admissible policy choices in every period) and a state are “politico-economically equivalent” to another such pair, in the sense that both pairs give rise to the same equilibrium allocation. The equivalence conditions help to identify factors that render institutional change non-neutral. We exemplify their use in the context of several applications, relating to social security reform, tax-smoothing policies and measures to correct externalities.

Quality of Life in 2030

The Economist reports about the Economist Intelligence Unit’s quality-of-life predictions. In a first step, current life satisfaction is “explained” based on a cross country, multivariate regression using eleven indicators like national income, crime, trust or health. In the second step, the predicted values of those indicators in the year 2030 are used to predict future life satisfaction.

Switzerland clearly wins, ahead of Australia, Norway, Sweden, Denmark, Singapore, New Zealand, Netherlands, Canada, Hong Kong, Finland, Ireland, Austria, Taiwan, Belgium, Germany, United States, United Arab Emirates, South Korea and Israel. More on the methodology.

Conference on “The Swiss Debt Brake – Ten Years On” at the Study Center Gerzensee

On the occasion of the tenth anniversary of the Swiss “Debt Brake,” the Study Center Gerzensee organized a conference on fiscal institutions, joint with the Swiss Society of Economics and Statistics, the Federal Finance Administration and the Universities of Lucerne and St. Gallen. The program can be viewed here (PDF).

A few tidbits: Eveline Widmer-Schlumpf (President of the Swiss Confederation) emphasized the importance of “rigor and flexibility” as well as democratic legitimacy for the success of the Swiss debt brake rule.

Against the background of his experience at the Congressional Budget Office, Barry Anderson (National Governors Association) stressed the importance of the personality of the head of an independent fiscal institution: What is needed, in his view, is a low key technician who avoids the limelight.

Guido Tabellini (Bocconi University) argued that a successful budgetary framework needs to be consistent with the political system. Rules on the local level can be stricter and simpler because of transfers on the national level and national enforcement possibilities. Enforcement requires public support and thus, understanding by voters.

Similarly, Joakim Sonnegård (Swedish Fiscal Policy Council) argued in favor of self-enforcing mechanisms and institutionalized memory of bad times.

Addendum:

Conference papers published in the Swiss Journal of Economics and Statistics (2013 II; summary).

“‘Mehr Europa’ greift zu kurz (‘More Europe’ Does Not Suffice),” FuW, 2012

Finanz und Wirtschaft, September 8, 2012. PDF. Ökonomenstimme, September 10, 2012. HTML.

  • Policy makers confuse debt and financial crises with a currency crisis.
  • Different crises call for different policy responses. Many of those lie in the national policy domain, not the supra national one.
  • Shifting too much policy responsibility, too quickly to the European level sows the seeds of new problems.

“Makroökonomie I (Macroeconomics I),” Bern, Fall 2012

Undergraduate course at the University of Bern.

Lectures are held in German and cover the following topics: Einfühung; IS-LM; Arbeitsmarkt; AS-AD; Phillips; Erwartungen; Aussenhandel, Kapitalverkehr, Wechselkurse; Gütermarkt in der offenen Volkswirtschaft; Mundell-Fleming; Währungspolitik; Staatsverschuldung; Wachstum (Empirie); Solow; Technischer Fortschritt. Lectures follow these slides (in German): Part 1, part 2, part 3. Time: Wed 12-14. University course site. Exam: See university course site for date, time, location. Course assistant: Sarah Fischer.

“Banken und Staaten (Banks and States),” FuW, 2012

Finanz und Wirtschaft, June 20, 2012. PDF. Ökonomenstimme, June 22, 2012. HTML.

  • Changes in bank regulation reflect changed views about whether banks contribute to the social good. Those views have become less favourable.
  • In Switzerland, bank secrecy is no longer defended because the perceived cost to the general public exceeds the benefits to the banks.
  • Similar doubts start to arise regarding money creation by banks. A proposal to shift to a 100% money regime offers some advantages.

Useful LaTeX Code for Simple, Elegant Slides

This code generates simple but elegant slides and avoids the clutter of many more sophisticated styles. Its main advantage, however, is that it allows to directly recycle the source code of an article (including section commands etc.) .

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\newcommand{\longseminar}[1]{#1} % for slides that are only presented in long seminars
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\usepackage{ulem}
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\usepackage{fancyhdr}
\pagestyle{fancy} % headings, plain, empty, headings, myheadings
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\usepackage[font=footnotesize]{caption}
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\belowdisplayskip \abovedisplayskip
\let\@listi\@listI}
\normalsize
\makeatother
\usepackage{color}
% … here add additional, standard commands, settings, packages, ...
% Workaround to use hyperref and landscape slides
% Remove if you are using portrait slides
\makeatletter
\def\special@paper{297mm,210mm}
\makeatother % this workaround has to come after a hyperref call
\usepackage{mathpazo}

“Ageing, Government Budgets, Retirement and Growth,” EER, 2012

European Economic Review 56(1), January 2012, with Martín Gonzalez-Eiras. PDF.

We analyze the short and long run effects of demographic ageing—increased longevity and reduced fertility—on per-capita growth. The OLG model captures direct effects, working through adjustments in the savings rate, labor supply, and capital deepening, and indirect effects, working through changes of taxes, government spending components and the retirement age in politico-economic equilibrium. Growth is driven by capital accumulation and productivity increases fueled by public investment. The closed-form solutions of the model predict taxation and the retirement age in OECD economies to increase in response to demographic ageing and per-capita growth to accelerate. If the retirement age were held constant, the growth rate in politico-economic equilibrium would essentially remain unchanged, due to a surge of social security transfers and crowding out of public investment.

(Unfortunately, the acknowledgements got lost in the publishing process.) For comments, we thank Casper van Ewijk, Enrique Kawamura, George McCandless, Alex Monge, Vincenzo Quadrini, Jaume Ventura, Fabrizio Zilibotti as well as conference and seminar participants at Banco Central de la Republica Argentina, CREI (Universidad Pompeu Fabra), EEA annual meeting, EPRU (University of Copenhagen), ESSIM, IIES (Stockholm University), Netspar, Penn State, SED annual meeting, Study Center Gerzensee, and Universidad de San Andres. Andreas Walchli provided valuable research assistance.