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81. The state of financial knowledge in the European Union

Author:
Maria Demertzis, Luca Léry Moffat, Annamaria Lusardi, and Juan Mejino Lopez
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Only one in two individuals in the European Union, on average, is financially knowledgeable. In response to a 2023 survey containing five questions assessing basic financial knowledge, only half of the respondents answered at least three of the five questions correctly. This represents a low level of financial knowledge and an obstacle for individuals to invest in financial markets. The questions most often answered correctly by respondents measured understanding of inflation and the relationship between risk and return. By contrast, only one in five respondents answered a question on the relationship between interest rates and bond prices correctly. Regarding inflation, there is a large difference between the least and most educated respondents in terms of answering the relevant question correctly. Gaps in understanding the concept of inflation are also evident between the youngest (18-24) and oldest respondents (55+) and between the poorest and richest households. A gender gap is present in financial knowledge, with 18 percentage points more men than women answering at least three out of five questions correctly, on average in the EU. Those with greater financial knowledge are less financially fragile in that they can still cover their expenses if there is a sudden loss of income, and are more confident that they will have sufficient funds to sustain themselves during retirement. Countries with higher proportions of people who are financially knowledgeable have higher numbers of people who both save with and borrow from financial institutions, an indication that financial knowledge may improve financial inclusion. All EU countries have, or are in the process of putting together, a national financial literacy strategy. There is an urgent need to roll out these strategies, to monitor progress over time and to establish best practices. Particular attention needs to be given to how financial knowledge interacts with digital skills as financial services are increasingly digitalised. Financial literacy strategies should also help close gender and other gaps in knowledge among vulnerable groups, and should ensure that financial education starts early and in schools.
Topic:
European Union, Economy, Inflation, and Financial Literacy
Political Geography:
Europe

82. Unity in power, power in unity: why the EU needs more integrated electricity markets

Author:
Georg Zachmann, Carlos Batlle, Francois Beaude, and Christoph Maurer
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The energy crisis that started in 2022 reminded European governments of the resilience provided by relatively well-integrated European electricity markets, which have been painstakingly built-up over several decades. European Union leaders thus decided to reverse a creeping energy renationalisation and to invest in completing the internal market. However, there are some indications that this momentum is being lost, with different EU capitals taking different lessons from the energy crisis, at a time of unprecedented investment needs in generation and grids across the EU. The multiple benefits of enhanced EU energy-market integration should be emphasised. ‘Techno-economic’ benefits can be secured from optimising the design and operation of several national electricity systems jointly, rather than individually. These benefits will increase massively with higher shares of renewables and include less fossil-fuel burn and less volatile short-term prices, cost savings through harnessing regional renewables advantages, reduced need for expensive back-up capacity and flexibility, and enhanced resilience to shocks. In addition, greater energy-market integration will trigger benefits of a more managerial-governance related nature, though these are harder to quantify. They include benefits in terms of competition, innovation and credibility, which are particularly useful in the electricity sector, which typically faces rather long investment times and high degrees of concentration in purely national markets. Further market integration requires substantial political investment. Governments will need to deal with significant distributional effects within and between countries. Experience has shown that domestic political constraints in this respect are often numerous and difficult to overcome. Therefore, achieving the benefits of integration will require a vision on what degree of integration is feasible and desirable, and how to properly implement and govern it. It will also require an honest acknowledgement of the implications and costs of not pursuing greater integration.
Topic:
Markets, European Union, Regional Integration, Electricity, and Energy Crisis
Political Geography:
Europe

83. Smarter European Union industrial policy for solar panels

Author:
Ben McWilliams, Simone Tagliapietra, and Cecilia Trasi
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The European Union plans a major increase in solar PV capacity from 263 GW today to almost 600 GW by 2030. If nothing changes, this expansion will be based almost exclusively on solar panels imported from China, which supplies over 95 percent of solar panels used in the EU. This dependence has raised concerns about EU economic security and geopolitical vulnerabilities, especially in light of recent global disruption. The EU has agreed in principle a non-binding 40 percent self-sufficiency benchmark for solar panels and other identified strategic technologies, to be approached or achieved by 2030. However, for the solar sector specifically, there is no strong economic justification for an import-substitution approach. Such a strategy risks increasing the costs of solar panels, slowing deployment and creating industries that are over-reliant on subsidies. EU solar manufacturing subsidies are not appropriate based on criteria of European production alone. Subsidies could, however, be justified on innovation grounds, by supporting new solar products that have a real chance to develop into sustainable industries that contribute to climate goals. To address concerns about short-term dependence, alternative tools should be employed: accelerated solar deployment, strategic stockpiling and gradually diversifying import sources. In the longer term, recycling of solar panels deserves greater attention and funding. In terms of strengthening economic resilience relative to China, Europe should implement an industrial policy that intervenes in sectors that are more likely to contribute to sustainable economic growth and alleviate decarbonisation bottlenecks.
Topic:
Industrial Policy, European Union, Imports, Solar Power, Economic Security, and Energy Transition
Political Geography:
Europe

84. Europe’s under-the-radar industrial policy: intervention in electricity pricing

Author:
Ben McWilliams, Giovanni Sgaravatti, Simone Tagliapietra, and Georg Zachmann
Publication Date:
01-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The different ways in which European Union member-state governments add levies to the price of electricity creates huge discrepancies in the prices paid by consumers. Europe’s energy transition depends upon increasing electrification of the economy and increasing the share of that electricity produced by renewable sources. Both factors raise the importance of electricity taxes set by governments. The energy crisis drew attention to this: as electricity prices soared, governments responded with billions of euros in subsidies to protect households and companies. While the acute phase of the energy crisis has passed, growing concerns about industrial competitiveness create political pressure for governments to continue with such subsidies or tax exemptions. High profile examples include the French reform of nuclear-power generated electricity pricing, and a political debate in Germany over how aggressively to subsidise the electricity price paid by energy-intensive firms. We frame the debate on intervention in electricity pricing around five distributional dilemmas concerning the recuperation of electricity expenses: 1) whether to raise general or electricity taxes, 2) the split between household and companies, 3) the split between energy-intensive and non-energy intensive companies, 4) cross-border effects, and 5) trade-offs in attracting new clean-technology manufacturing factories. Priorities according to these distributional criteria will differ by country, but these factors should be central to discussions. Governments must recognise that efforts to lower prices artificially for one group of consumers will raise prices for others, including with cross-border implications. The current compromises in the French and German cases do not pose substantial issues to the integrity of the European single market and do not penalise non-energy-intensive domestic consumers excessively.
Topic:
Industrial Policy, European Union, Electricity, Price, and Energy Crisis
Political Geography:
Europe

85. Bold International Tax Reforms to Counteract the OECD Global Tax

Author:
Adam N. Michel
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Nearly 140 countries, including the United States, have endorsed a new global tax system proposed by the Organisation for Economic Co-operation and Development (OECD). This proposal, which aims to increase global business taxes and targets America’s most successful companies, threatens to undermine crucial features of the international corporate tax system. Congress will face a decision in 2025: conform to the OECD’s system or opt out and safeguard America’s position as the most attractive place to do business. The taxation of multinational businesses often raises concerns about a “race to the bottom” through harmful tax competition and businesses shifting profits to low-tax countries. Yet the magnitude and effect of these two phenomena are commonly misunderstood. Tax competition has allowed average statutory corporate tax rates to be cut in half over the past four decades, fueling investment and economic growth. Among OECD countries, revenues have increased while tax rates declined. The magnitude of profits shifted to low-tax countries is often inflated by researchers relying on data that overstate income in tax havens. A more comprehensive picture shows that about 8 percent of US corporate profits are reported in tax havens, only half of US multinationals have any presence in a tax haven, and they face higher effective tax rates than domestic competitors. Where it does exist, profit shifting acts as a tax cut on investment, boosting jobs and economic growth in both tax havens and higher-tax home markets. Following the long history of costly reforms to stop businesses from moving profits overseas, US policymakers should try a different approach. Instead of enacting new rules to stop income shifting out of the United States, Congress should focus exclusively on increasing the attractiveness of the United States as an investment destination.
Topic:
Reform, Business, Multinational Corporations, Tax Systems, OECD, and Competition
Political Geography:
Global Focus

86. A Return to US Casualty Aversion: The 9/11 Wars as Aberrations

Author:
John Mueller
Publication Date:
04-2024
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Impelled by an overwhelming desire to hunt down those who were responsible for the September 11, 2001, terrorist attacks, the United States launched military invasions of Afghanistan and Iraq, where it toppled regimes that had little or nothing to do with 9/11. There has been a tendency to see these exercises as misguided elements of a coherent plan to establish a liberal world order or to apply liberal hegemony. However, the warring of the post–9/11 period has been a glaring, extended, and highly consequential aberration. During the quarter century before that, the United States pursued a foreign policy that was far more casualty averse. Over the past decade, the country has moved back to—and appears poised to expand on—that tradition after its exhausting 9/11–induced military ventures that ran such high costs for so few benefits. Moreover, public opinion in the United States is not messianic or in constant search of hegemony or of monsters abroad to destroy. As part of its move back to a more limited military approach, the United States developed—or further developed—a strategy called “by, with, and through” that was particularly evident in its successful military campaign from 2014 to 2019 against the Islamic State. In this, the United States worked with local forces by providing advice, supplies, and intelligence, and by carrying out air strikes while the locals were expected to take almost all of the casualties. Although this approach is hardly new, it seems to have a future and is currently being applied in the war in Ukraine. It might also be applied to deal with a Chinese invasion of Taiwan.
Topic:
Foreign Policy, Armed Forces, 9/11, War on Terror, Casualties, and Military
Political Geography:
North America and United States of America

87. Slashing Tax Rates and Cutting Loopholes: Options for Tax Reform in the 119th Congress

Author:
Adam N. Michel
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
The 2017 Tax Cuts and Jobs Act (TCJA) marked a significant overhaul of the US tax system. It reduced taxes for individuals and businesses through the end of 2025 and boosted economic growth. However, beginning in 2026, Americans face an automatic tax increase of about 8 percent (more than $400 billion a year). In the context of the debate over the expiration of the TCJA, the next Congress has an unprecedented opportunity to cut tax rates to their lowest level in almost a century. The Cato Institute is putting forth this tax plan that pairs massively pro-growth tax cuts with the elimination of $1.4 trillion worth of annual tax loopholes, corporate welfare, and other special-interest tax subsidies. The plan would reduce the top income tax rate to 25 percent, the capital gains rate to 15 percent, and the corporate rate to 12 percent; enact full expensing for all investments; and repeal the estate tax, alternative minimum tax, and net investment income tax. The more aggressively Congress eliminates loopholes in the tax code and cuts spending, the deeper it can slash tax rates, eliminate the costliest taxes, and boost the economy.
Topic:
Reform, Economy, Economic Growth, and Tax Systems
Political Geography:
North America and United States of America

88. Geopolitics in the Pacific Islands: Playing for advantage

Author:
Meg Keen and Alan Tidwell
Publication Date:
01-2024
Content Type:
Policy Brief
Institution:
Lowy Institute for International Policy
Abstract:
Pacific Islands Countries are leveraging geopolitical rivalries to maximise their development options. But unmanaged competition for influence among key development partners can compromise good governance and privilege geopolitical posturing over local priorities. Australia, the United States, and other traditional donors can capitalise on areas of strength, such as social inclusion and regional and multilateral initiatives. Joint efforts along these lines and the pooling of resources would scale up impact and set higher accountability standards. Despite the risk that higher standards will open gaps for non-traditional donors with less burdensome criteria, there is much long-term value in traditional development partners collaborating in a “race to the top” in meeting the region’s needs.
Topic:
Foreign Policy, Development, Regional Cooperation, Foreign Aid, Geopolitics, and Donors
Political Geography:
China, Australia, Australia/Pacific, United States of America, and Pacific Islands

89. Overcoming digital threats to democracy

Author:
Lydia Khalil
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
Lowy Institute for International Policy
Abstract:
The internet was once considered an open door to democracy and liberty. Today, it is seen as an agent of democratic erosion. Digital challenges to democracy include the scale and spread of disinformation and misinformation, the increase in polarisation and extremism that are facilitated and escalated online, and inadequate regulation. Digital platforms are increasingly perceived by the public as serving the needs and interests of the powerful rather than the public good. Average users have few means to influence key decisions and debates about how digital technologies are used and developed. The rules of the digital sphere — whether made by tech companies, regulators, or politicians — often lack public legitimacy. Applying deliberative democracy principles — where small but representative groups of people make decisions after deliberating on issues in depth — can help address the challenges of legitimacy and generate broadly acceptable solutions to the problems that bedevil online spaces and challenge democracy.
Topic:
Democracy, Disinformation, Polarization, and Digital Technologies
Political Geography:
Global Focus

90. Accelerating GBVF Response Through Community-Led Platforms – Lessons from the Scorecard of the Localisation of the National Strategic Plan on Gender-Based Violence and Femicide

Author:
Gugu Resha and Cathy-Ann Potgieter
Publication Date:
03-2024
Content Type:
Policy Brief
Institution:
Centre for the Study of Violence and Reconciliation (CSVR)
Abstract:
his policy brief highlights the findings from the scorecard on the localisation of the NSP-GBVF, emphasising the areas of priority for all state and community-based actors as they continue to implement to objectives of the policy. This brief is intended to be used by organisations and community leaders working to strengthen efforts against GBVF, service providers providing protection, prevention and support to victims of GBV, stewards of safety and gender equality in public institutions, police representatives, CPF coordinators and business leaders seeking to make positive contribution to the efforts against GBVF towards gender justice and a violence-free South Africa.
Topic:
Crime, Gender Based Violence, Violence, Legislation, Domestic Violence, Femicide, and Community Initiatives
Political Geography:
Africa and South Africa