Recent global trade growth is even more disappointing than global GDP growth. This column argues that this unexpected weakness of trade relative to GDP is related to the high volatility and pro-cyclicality of real trade flows, and that cyclical forces are the main drivers. It also shows that the accuracy of existing trade forecasts can be improved using real-time data on business conditions.
Most policies that target climate change – such as carbon taxes and cap-and-trade programmes – have long-term benefits but short-term economic costs. This column argues that population policies may not be subject to this trade-off. In particular, policies that reduce population growth can have a direct positive effect on income per capita as well as lowering growth of carbon emissions. Such policies could play an important role in the portfolio of actions aimed at mitigating climate change.
Failed financial firms should not be bailed out by the taxpayers. Europe, unfortunately, has a weak track record of following this principle of good governance and sound economic policy. The banking union, with its new approach to supervision and resolution, is meant to improve this matter. This column introduces a new Geneva Special Report on the World Economy which reviews the resolution side of the banking union.
A border tax adjustment from origin-based taxation to destination-based taxation is under consideration for corporate profit tax in the US. This column investigates the implications of such an adjustment for the nominal exchange rate, assuming the real equilibrium of the economy is unchanged. While conventional wisdom is that the currency of the country implementing the adjustment will appreciate by a percentage equal to the VAT or corporate profit tax rate, a depreciation of the same magnitude is just as likely.
Governments have long used taxation to correct for the socially costly overconsumption of alcohol, but as the external cost of overconsumption varies across drinkers, a single tax rate is not optimal. This column argues that variation in preferences for different products and in price responsiveness across heavy and light drinkers provides scope to improve welfare by varying tax rates across alcohol products. The proposed framework is well suited to addressing other sources of external costs, such as obesity.
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