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  • Author: Jeffrey J. Schott
  • Publication Date: 01-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: China’s policies in Xinjiang, Hong Kong, and the South China Sea and its ongoing support for Iran, North Korea, and Venezuela pose major challenges for the United States, where bipartisan pressure is growing to ramp up punitive sanctions against leading Chinese firms and financial institutions. Financial sanctions freeze the US assets or bar US entry of the targeted individuals and firms and prohibit US financial firms from doing business with them. Schott explains why US officials should carefully weigh the risks to international financial markets and US economic interests before imposing punitive sanctions on major financial institutions engaged with China. The collateral costs of such sanctions would be sizable, damaging US producers, financial institutions, and US alliances. By restricting access of major banks to international payments in US dollars and barring use of messaging systems like SWIFT, tougher US financial sanctions would effectively “weaponize” the dollar; friends and foes alike would be pushed to seek alternatives to dollar transactions that, over time, would weaken the international role of the dollar. Instead of doubling down on current unilateral financial sanctions, US policy should deploy sanctions in collaboration with allies and calibrate trade and financial controls to match the expected policy achievements.
  • Topic: Human Rights, Sanctions, Finance, Economy
  • Political Geography: China, Asia, North America, United States of America
  • Author: Peter R. Orszag, Robert E. Rubin, Joseph E. Stiglitz
  • Publication Date: 01-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Orszag, Rubin, and Stiglitz outline a new fiscal framework that they argue would better equip policymakers to face deep uncertainties about future interest rates (which, they say, may not remain low forever), hard-to-predict global shocks, and climate risks. They reject fiscal anchors—simple limits on deficits or debt as a share of GDP that governments adopt to check their spending and borrowing—that have historically guided fiscal policy and believe any attempts to modify such targets for the current period of low interest rates are likely to fail. Instead they propose making the budget respond more automatically to economic distress (through stronger automatic stabilizers) and to long-term fiscal pressures (e.g., embedding adjustment mechanisms in health care and pension programs), as well as creating an infrastructure program and extending debt maturities to insure against interest rate changes. Such a "streamlined dashboard" would then allow policymakers to use discretion as necessary to take any additional actions—either to provide more stimulus during short-term difficulties or to adjust the automatic features themselves—rather than adhering to fiscal targets that may no longer be appropriate when economic conditions change.
  • Topic: Financial Crisis, Economy, Fiscal Policy, Fiscal Deficit
  • Political Geography: Global Focus
  • Author: Julien Maire, Adnan Mazarei, Edwin M. Truman
  • Publication Date: 02-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Among the best-known sovereign wealth funds (SWFs)—government-owned or controlled investment vehicles—are those funded by hydrocarbon revenues in the member economies of the Gulf Cooperation Council (GCC), which comprises all the Arab countries in the Persian Gulf except Iraq, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. This Policy Brief compares the GCC SWFs with each other and with other funds in terms of their transparency and accountability on the fifth SWF scoreboard, available here. Several factors, including the decline in oil prices in recent years, have slowed the growth of the GCC’s SWFs. This slower growth could further diminish their governance and transparency standards, which are already weaker than those of other SWFs. Efforts to improve their governance and accountability will be important to garner public support for these SWFs.
  • Topic: Energy Policy, Government, Markets, Governance, Regulation, Capital Flows
  • Political Geography: Middle East, Gulf Nations
  • Author: Julien Maire, Adnan Mazarei, Edwin M. Truman
  • Publication Date: 02-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the last two decades, sovereign wealth funds (SWFs)—funds accumulated by a government that are invested in whole or in part abroad to benefit the country in the future—have faced increased public scrutiny over their investment patterns, financial results, and governance. This Policy Brief updates and expands a prototype scoreboard rating the transparency and accountability of SWFs, which Truman established in 2007. This fifth edition of the scoreboard shows that the average scores continued to improve for the 64 SWFs examined, but governance issues remain. New funds have emerged—many of them government holding companies or strategic investment funds—but the growth of assets under management by SWFs has slowed, in some cases partly because of withdrawals to help finance expenses related to the COVID-19 pandemic, raising questions about their future role.
  • Topic: Government, Markets, Sovereign Wealth Funds, Governance, Regulation, Capital
  • Political Geography: Global Focus
  • Author: Gary Clyde Hufbauer
  • Publication Date: 03-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Open Sub-navigation BackOpen Sub-navigation Publications Back Policy Briefs Working Papers Books PIIE Briefings Open Sub-navigation Commentary Back Op-Eds Testimonies Speeches and Papers Topics & Regions PIIE Charts What Is Globalization? Educational Resources Open Sub-navigation Back Senior Research Staff Research Analysts Trade Talks Open Sub-navigation Back RealTime Economic Issues Watch Trade & Investment Policy Watch China Economic Watch North Korea: Witness to Transformation 中文 Open Sub-navigation Back All Events Financial Statements Global Connections Global Economic Prospects Stavros Niarchos Foundation Lectures Trade Winds Open Sub-navigation Back News Releases Multimedia Media Center Open Sub-navigation Back Board of Directors Staff Employment Contact Annual Report Transparency Policy POLICY BRIEF VIEW SHARING OPTIONS Will industrial and agricultural subsidies ever be reformed? Gary Clyde Hufbauer (PIIE) Policy Brief21-5 March 2021 Photo Credit: REUTERS/Denis Balibouse One economic argument for government subsidies is that they are necessary to compensate firms and industries for benefits they provide to society at large but cannot capture in the prices they charge for goods or services. For example, subsidies to renewable energy are defended because renewable energy limits carbon emissions. When a major economy subsidizes extensively, however, its trading partners are drawn into the game, with losses all around. As the prisoner’s dilemma suggests, a better outcome would entail mutual restraint. But the goal of mutual restraint is no less difficult in international trade than it is in international arms control. Both the European Union and the US federal system try, in different ways, to regulate industrial subsidies. Hufbauer examines efforts to contain unjustifiable subsidies and proposes modest improvements, bearing in mind that as countries struggle to overcome the global economic downturn resulting from the COVID-19 pandemic, there is little appetite for restoring a free market economy—one in which firms compete with minimum government assistance or regulation. Selective upgrading of the rulebook may nevertheless be possible.
  • Topic: Agriculture, Government, Reform, European Union, Regulation, Manufacturing, Industry, COVID-19, Subsidies
  • Political Geography: Europe, North America, United States of America
  • Author: Robert Z. Lawrence
  • Publication Date: 03-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Afrequently voiced complaint from the Trump administration was that US firms have faced a competitive disadvantage in exports because the US market is open and US tariffs are low but US trading partners protect their markets with high tariffs. The administration used this concern to justify raising US tariffs whenever it could. Lawrence argues that these claims should be more nuanced and account for the extensive unilateral liberalization by many countries over the past 30 years and that the grievances that motivated the Trump trade policies are increasingly misplaced. Many developing countries have reduced their tariffs unilaterally to rates that are far lower than they applied three decades ago and far less than the bound rates reflected in their World Trade Organization (WTO) obligations. Globally, on average, tariffs were not raised during the global financial crisis of 2008 and continued to decline through at least 2018. Even when shocks from imports resulted in serious injury to domestic industries, several developing countries temporarily provided safeguard protection but at levels that were lower than their WTO bound rates. This evidence of import liberalization also suggests that rising protectionism was not responsible for the slow growth in world trade that has been evident since 2011. It remains uncertain whether countries will now respond to disruptions to global supply chains since 2018 caused by Trump’s trade policies and the COVID-19 pandemic by reversing their tariff liberalization stance, but the sustained enthusiasm for new megaregional trade agreements suggests many countries will not.
  • Topic: Emerging Markets, World Trade Organization, Trade Wars, Protectionism
  • Political Geography: China, Asia, North America, United States of America
  • Author: Olivier Blanchard, Josh Felman, Arvind Subramanian
  • Publication Date: 03-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Anew consensus on fiscal policy has emerged in advanced economies, that stimulus is both needed and feasible. At first blush, the scope for stimulus seems even greater in emerging markets, since their primary deficits are smaller and interest-growth differentials more favorable, suggesting that they can sustain much higher levels of debt. But more careful analysis suggests that this is not the case. The authors point out that what matters for debt sustainability are not current conditions but rather the range of possible future outcomes. And prospects for interest rates and growth are more uncertain in emerging markets, while primary balances are more difficult to adjust. As a result, debt limits are in fact tighter than advanced economies. Taking India as a case study, the authors argue that what is needed in the current situation is responsible, slow fiscal adjustment. More generally, one should be careful about importing wholesale the new fiscal consensus into emerging markets.
  • Topic: Emerging Markets, Monetary Policy, Fiscal Policy, Consensus
  • Political Geography: Global Focus
  • Author: Simeon Djankov, Pinelopi Koujianou Goldberg, Lisa Hyland, Eva (Yiwen) Zhang
  • Publication Date: 04-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Despite many significant gains by women in the paid workforce in recent decades, the percentage of women participating in the labor force has remained lower than the percentage of male participants. Now, in response to the COVID-19 pandemic and the global economic downturn it precipitated, the gap in labor force participation between men and women in some economies has actually widened, with potentially damaging repercussions for women’s career prospects and pay. The pandemic has disproportionately affected sectors employing more women, such as retail stores, restaurants, and the hotel and hospitality business. An increase in family caregiving responsibilities because of school and childcare closures has also fallen on working mothers' shoulders. Both factors have pulled women out of the labor force. The authors track trends in male and female labor force participation in 43 countries and find substantial differences across countries in the way women’s participation has been affected relative to that of men. In some countries, such as Colombia, Chile, and Cyprus, the gender gap in labor force participation widened the most during the pandemic. The gender gap also widened in the United States, driving 2.5 million women from their jobs in what Vice President Kamala Harris called a “national emergency” for women. In other economies, such as Luxembourg and Lithuania, the gender gap in labor force participation, unexpectedly, shrank during the early period of the pandemic. On average, female employees have fared better in countries where women are less concentrated in the services sector, less likely to be employed as temporary workers, and where laws supported greater equality at the onset of the crisis. Greater government expenditure on childcare in the pre-COVID-19 era, however, does not appear to have insulated female workers from the damaging repercussions of the pandemic.
  • Topic: Economics, Gender Issues, Labor Issues, Women, Services, COVID-19, Empowerment
  • Political Geography: Colombia, Chile, Cyprus, Global Focus, United States of America
  • Author: Simeon Djankov, Eva (Yiwen) Zhang
  • Publication Date: 05-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: New business applications have surged in the United States since the start of the COVID-19 pandemic. The growth is driven largely by startups in online retail, transportation, and personal services. Many of these new entrepreneurs are self-employed and were likely laid off and forced into entrepreneurship by necessity. No official data are available yet on the number of businesses destroyed in 2020, because business data for firms that close without entering bankruptcy are lagging. But the authors calculate that firm births may have surpassed firm deaths during the pandemic. While this boom in business entry is a tribute to the adaptability and potential innovative spirit in US capitalism, one should not be overly optimistic about jobs created in this wave of startups. As many of these new startups are by people forced to strike out on their own, the number of jobs created per new firm is even smaller than it was during previous US recessions. And like online businesses started around the last recession (e.g., Uber, Airbnb, and Venmo), some of these new firms may turn out to be major contenders in their sectors, displacing workers employed by their traditional rivals.
  • Topic: Science and Technology, Labor Issues, Financial Crisis, COVID-19
  • Political Geography: North America, United States of America
  • Author: Martin Chorzempa, Adnan Mazarei
  • Publication Date: 05-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The COVID-19 shock has exacerbated the struggles of many emerging-market and developing economies (EMDEs) to repay their external debt. One of the most urgent challenges relates to debt owed to China, whose lending spree under its Belt and Road Initiative and other programs has played an outsized role in what amounts to a crisis for many countries. The scope of the problem is striking. China is owed more than $100 billion, or 57 percent of all debt owed to official creditors by the countries that need help the most. China is not a member of the Paris Club of official creditors, which coordinates, within a multilateral framework, the resolution of general sovereign illiquidity or unsustainable external debt of EMDEs. There is an urgent need to put in place more effective, long-term solutions to help durably lower the risks of prolonged debt difficulties in EMDEs. These problems could be partly addressed by creating creditor committees to coordinate debt relief with China. The Group of Twenty (G20) has taken some steps to include creditor committees in the context of the Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative (DSSI), but only for low-income countries that qualify for the DSSI and only for official creditors. To better address debt distress, it needs to extend the approach, especially to middle-income debtor countries.
  • Topic: Debt, Development, Emerging Markets, G20
  • Political Geography: China, Asia
  • Author: Joseph E. Gagnon, Steve Kamin, John Kearns
  • Publication Date: 05-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: COVID-19 vaccination programs are generally understood to be a prerequisite for a return to normalcy in our social and economic lives. Emergency measures to research, test, produce, and distribute vaccines have been expensive, but increases in GDP resulting from the vaccines are expected to exceed those costs by wide margins. Few studies have quantified the economic costs and benefits of different rates of COVID-19 vaccination, however. This Policy Brief focuses on developing such a quantitative assessment for the United States; the approach may be applied to other countries as well. Two illustrative scenarios support the conclusion that most plausible options to accelerate vaccinations would have economic benefits that far exceed their costs, in addition to their more important accomplishment of saving lives. This Policy Brief shows that if, for example, the United States had adopted a more aggressive policy in 2020 of unconditional contracts with vaccine producers, the up-front cost would have been higher but thousands of lives would have been saved and economic growth would have been stronger. Instead, the federal government conditioned its contracts on the vaccines’ being proven safe and effective. The projections presented in this analysis show that even if unconditional contracts led to support for vaccines that failed the phase III trial and ultimately were not used, the cost would have been worth it.
  • Topic: Economics, Health, Crisis Management, COVID-19, Health Crisis
  • Political Geography: North America, United States of America
  • Author: Egor Gornostay, Madi Sarsenbayev
  • Publication Date: 06-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: An intense debate has erupted over whether the unprecedented size of the US fiscal stimulus will cause the US economy to overheat and generate high inflation. To date, the debate has focused primarily on the United States, even though many other developed economies responded to the COVID-19 crisis with unprecedented economic stimulus packages. By some measures, Japan stands out: The total amount of its three consecutive stimulus packages is estimated to exceed 50 percent of its GDP, about twice as high as the US fiscal packages (about 26 percent of US GDP). However, overheating concerns are not being actively raised for Japan. This Policy Brief finds that although Japan’s headline number looks astonishingly high, the actual size of its discretionary fiscal measures is about 16 percent of GDP, substantially smaller than the total size of the US packages. US fiscal stimulus is the largest among Group of Seven (G7) countries relative to GDP, justifying the attention economists have given it. The United Kingdom is estimated to spend more than Japan as a proportion of GDP, but even the UK stimulus program markedly lags behind that of the United States. If additional stimulus measures making their way through the legislative process in Canada are counted, Japan’s fiscal stimulus looks even smaller and would amount to being only average in size among G7 countries. Given this and the lackluster performance of its economy in the first quarter of 2021, it is unlikely that Japan will find itself in overheating territory any time soon.
  • Topic: Inflation, G7, COVID-19
  • Political Geography: Japan, Asia, North America, United States of America
  • Author: Cullen S. Hendrix
  • Publication Date: 03-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The Trump administration’s Africa strategy is rooted in three misconceptions about China’s African footprint—and a fourth about US-Africa economic relations—that are either factually incorrect or overstated in terms of the broader strategic challenges they pose to US interests: (1) Chinese engagement in Africa crowds out opportunities for trade and investment with and from the United States; (2) Chinese engagement in Africa is resource-seeking—to the detriment of US interests; (3) Chinese engagement in Africa is designed to foster debt-based coercive diplomacy; and (4) US-Africa economic linkages are all one-way and concessionary (i.e., aid-based). Hendrix finds little evidence to suggest Chinese trade and investment ties crowd out US trade and investment opportunities. China’s resource-seeking bent is evident in investment patterns, but it is more a function of Africa’s having comparatively large, undercapitalized resource endowments than China’s attempt to corner commodity markets. Chinese infrastructural development—particularly large projects associated with the Belt and Road Initiative—may result in increased African indebtedness to the Chinese, but there is little reason to think debt per se will vastly expand Chinese military capacity in the region. And finally, US-Africa economic relations are much less one-sided and concessionary (i.e., aid-based) than conventional wisdom suggests.
  • Topic: Bilateral Relations, Infrastructure, Economy, Trade, Donald Trump
  • Political Geography: Africa, China, North America, United States of America
  • Author: Julia Coronado, Simon Potter
  • Publication Date: 03-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The US monetary system faces significant challenges from advances in technology and changes in the macroeconomy that, left unaddressed, will threaten the stability of the US economy and financial system. At the same time, low interest rates mean that central banks will not have the policy ammunition they had in the past during the next recession. The Federal Reserve needs new tools to meet its mandates of price stability and maximum employment. It also needs to preserve the safety and soundness of the financial system in a rapidly digitizing world. The authors propose a Fed-backed digital currency to solve both problems. Their proposal creates a regulated system of digital currency accounts for consumers managed by digital payment providers and fully backed by reserves at the Fed. The system would be limited in size, to preserve the functions and stability of the existing banking system. Fed backing would mean low capital requirements, which would in turn facilitate competition. Low fees and no minimum balance requirements in the new system would also help financial institutions reach the roughly 25 percent of the US population that is currently either unbanked or underbanked. Digital accounts for consumers could also provide a powerful new stabilization tool for both monetary and fiscal policies. For fiscal policy, it could facilitate new automatic stabilizers while also allowing the Fed to provide quantitative easing directly to consumers. This tool could be used in a timely manner with broad reach to all Americans.
  • Topic: Economics, Government, Monetary Policy, Banks, Macroeconomics
  • Political Geography: North America, United States of America
  • Author: Julia Coronado, Simon Potter
  • Publication Date: 04-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the second part of their Policy Brief, Coronado and Potter discuss how the system of digital payment providers (DPPs) proposed in their first Policy Brief on this topic adds a new weapon to the monetary toolkit that could be implemented in a timely, effective, and inclusive manner. They describe how a digital currency backed by the Federal Reserve could augment automatic fiscal stabilizers and—more importantly—harness the power of “helicopter” money or quantitative easing directly to consumers in a disciplined manner. To implement QE directly to consumers, Coronado and Potter propose the creation of recession insurance bonds (RIBs)—zero-coupon bonds authorized by Congress and calibrated as a percentage of GDP sufficient to provide meaningful support in a downturn. Congress would create these contingent securities; Treasury would credit households’ digital accounts with them. The Fed could purchase them from households in a downturn after its policy rate hits zero. The Fed’s balance sheet would grow by the value of RIBs purchased; the initial matching liability would be deposits into the DPP system. The mechanism is easy for consumers to understand and could boost inflation expectations more than a debt-financed fiscal stimulus could.
  • Topic: Economics, Government, Monetary Policy, Insurance
  • Political Geography: North America, United States of America
  • Author: Soyoung Han, Marcus Noland
  • Publication Date: 04-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The Summer Olympic Games are the most globalized sporting event on earth. Until now, the Summer Games had been postponed only three times—in 1916, 1940, and 1944—all because of world wars. So, the announcement that in response to the COVID-19 pandemic, the 2020 Tokyo Games would be postponed by a year is significant, implicit testimony to the destructiveness of the pandemic. The Tokyo Games were expected to continue the evolution of the Games away from the aristocratic European milieu where the modern Olympic movement began. As poverty has declined and incomes across the global economy have converged, participation in the Games has broadened and the pattern of medaling has become more pluralistic, particularly in sports with low barriers to entry in terms of facilities and equipment. This Policy Brief presents forecasts of medal counts at the 2020 Tokyo Summer Games had they had gone on as scheduled, setting aside possible complications arising from the coronavirus pandemic. The forecasts are not just a depiction of what might have been. They establish a benchmark that can be used when the Games are eventually held, to examine the impact of the uneven incidence of the pandemic globally.
  • Topic: Economics, Globalization, Sports, Olympics
  • Political Geography: Japan, Asia, Global Focus
  • Author: Soyoung Han, Marcus Noland
  • Publication Date: 05-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Despite steady progress, women remain grossly underrepresented in corporate leadership worldwide. The share of women executive officers and board members increased between 1997 and 2017, but progress was not uniform. Partly in response to gender quotas, the shares of female board members have risen rapidly in some countries while lagging elsewhere. This Policy Brief reports results derived from the financial records of about 62,000 publicly listed firms in 58 economies over 1997–2017, which together account for more than 92 percent of global GDP. The authors conclude that if, as emerging evidence in the literature indicates, gender diversity contributes to superior firm performance, then progress in this area could help boost productivity globally. Policymakers and corporate leaders should consider supportive public and private policies, including more gender-neutral tracking in education, firm protocols that encourage gender balance in hiring and promotion, enforceable antidiscrimination laws, public support for readily available and affordable high-quality childcare and maternity and paternity leave, and quotas.
  • Topic: Gender Issues, Women, Economic Inequality, Private Sector
  • Political Geography: Global Focus
  • Author: Olivier Blanchard, Thomas Philippon, Jean Pisani-Ferry
  • Publication Date: 06-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The measures that most governments took in response to the sudden collapse in economic activity during the COVID-19 lockdowns nearly exclusively focused on protecting vulnerable workers and firms. These measures included unemployment benefits, grants, transfers, loans at low rates, and tax deferrals. As lockdowns are lifted, governments must shift policies toward supporting the recovery and design measures that will limit the pain of adjustment while preserving productive jobs and firms. This Policy Brief explores how such measures can be designed, with particular emphasis on Europe and the United States. The authors propose a combination of unemployment benefits to help workers, wage subsidies and partially guaranteed loans to help firms, and debt restructuring procedures for small and medium-sized companies handicapped by excessive legacy debt from the crisis.
  • Topic: Debt, Economics, Government, Labor Issues, Unemployment, Coronavirus
  • Political Geography: Europe, North America, United States of America
  • Author: Ana González, Euijin Jung
  • Publication Date: 01-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: By refusing to fill vacancies in the World Trade Organization’s (WTO) Appellate Body—the top body that hears appeals and rules on trade disputes—the Trump administration has paralyzed the key component of the dispute settlement system. No nation or group of nations has more at stake in salvaging this system than the world’s big emerging-market economies: Brazil, China, India, Indonesia, Korea, Mexico, and Thailand, among others. These countries have actively and successfully used the dispute settlement system to defend their commercial interests abroad and resolve inevitable trade conflicts. The authors suggest that even though the developing countries did not create the Appellate Body crisis, they may hold a key to unlock it. The Trump administration has also focused its ire on a longstanding WTO practice of giving these economies latitude to seek “special and differential treatment” in trade negotiations because of their developing-country status. The largest developing economies, which have a significant stake in preserving a two-step, rules-based mechanism for resolving trade disputes, could play a role in driving a potential bargain to save the appeals mechanism. They could unite to give up that special status in return for a US commitment to end its boycott of the nomination of Appellate Body members.
  • Topic: Development, Government, World Trade Organization, Developing World, Donald Trump
  • Political Geography: China, Indonesia, India, South Korea, Brazil, North America, Mexico, Thailand, United States of America
  • Author: Olivier Blanchard, Lawrence H. Summers
  • Publication Date: 02-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: With interest rates persistently low or even negative in advanced countries, policymakers have barely any room to ease monetary policy when the next recession hits. Fiscal policy will have to play a major and likely dominant role in stimulating the economy, requiring policymakers to fundamentally reconsider fiscal policy. Blanchard and Summers argue for the introduction of what they call “semiautomatic” stabilizers. Unlike purely automatic stabilizers (mechanisms built into government budgets that automatically—without discretionary government action or explicit triggers—increase spending or decrease taxes when the economy slows or enters a recession), semiautomatic stabilizers are targeted tax or spending measures that are triggered if, say, the output growth rate declines or the unemployment rate increases beyond a specified threshold. The authors argue that the trigger should be changes in unemployment rather than changes in output, and the design of semiautomatic stabilizers, whether they focus on mechanisms that rely primarily on income or on intertemporal substitution effects (changing the timing of consumption), depends crucially on the design of discretionary policy.
  • Topic: Economics, Government, Monetary Policy, Finance
  • Political Geography: Global Focus, United States of America