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91. Testing the Modigliani-Miller Theorem of Capital Structure Irrelevance for Banks

Author:
William R. Cline
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Some advocates of far higher capital requirements for banks invoke the Modigliani-Miller theorem as grounds for judging that associated costs would be minimal. The M&M theorem holds that the average cost of capital to the firm does not depend on its capital structure (ratio of equity finance to debt finance), because any reduction in capital cost from switching to higher leverage using lower-cost debt is exactly offset by an induced increase in the unit cost of higher-cost equity capital as a consequence of the associated rise in risk. Statistical tests for large US banks in 2002–13 find that less than half of this M&M offset attains in practice. Higher capital requirements would thus impose increases in lending costs, with associated output costs from lower capital formation. These costs to the economy would need to be compared with benefits from lower risk of banking crises to arrive at optimal levels of capital requirements.
Topic:
Economics, International Trade and Finance, Markets, Politics, and Budget
Political Geography:
Global Focus

92. Influencing the Development and Integration of National Standard Climate Change Indicators into the Monitoring and Reporting Frameworks in Uganda

Author:
Tracy Kajumba and Irene Karani
Publication Date:
12-2015
Content Type:
Policy Brief
Abstract:
This paper documents the results of the process of developing and selecting national standard climate change indicators for integration into two national monitoring and evaluation frameworks in Uganda: the Output Budgeting Tool (OBT) and the Local Government Assessment tool (LGAT). The OBT is used by the Ministry of Finance, Planning and Economic Development (MoFPED) to determine national development standard indicators that are monitored and reported across all sectors in the country. The LGAT determines and annually assesses the minimum performance measures for all local governments in Uganda. Before the intervention of the Africa Climate Change Resilience Allicance (ACCRA) and the International Institute for Environment and Development (IIED) as part of the Tracking Adaptation and Measuring Development (TAMD), both frameworks lacked standard performance indicators on climate change. This meant that local governments were not required to plan, budget or report on climate change. The briefing draws out lessons learned from using a highly participatory and bottom-up process, as well as policy implications at national, sub-national and sectoral levels. It also highlights key prerequisites for successful development and integration of climate change indicators in existing monitoring and reporting frameworks of national states
Topic:
Climate Change, Human Welfare, Politics, Governance, and Budget
Political Geography:
Uganda

93. Still Broken: Governments must do more to fix the international corporate tax system

Author:
Francis Weyzig
Publication Date:
11-2015
Content Type:
Policy Brief
Abstract:
The gap between where companies pay tax and where they really do their business is huge, as shown by new research described in this briefing. In 2012, US multinationals alone shifted $500–700bn, mostly to countries where these profits are not taxed, or taxed at very low rates. G20 countries themselves are among the biggest losers. The measures recently announced by the OECD leave the fundamentals of a broken tax system intact and do not stop the race to the bottom in corporate taxation. G20 governments must do more and should strongly support further reforms.
Topic:
International Trade and Finance, Labor Issues, Governance, Budget, G20, and Income Inequality
Political Geography:
United States

94. Climate Change Spending in Ethiopia: Recommendations to bridge the funding gap for climate financing

Author:
Neil Bird and Eshetu Zedwu
Publication Date:
11-2015
Content Type:
Working Paper
Abstract:
The Government of Ethiopia considers climate change to be one of its priorities in responding to the country’s long-term development needs. The nation’s widely acclaimed Climate Resilient Green Economy (CRGE) strategy has called for annual spending of $7.5bn. With federal budgetary resources for climate change relevant actions estimated to be in the order of $440m per year, and international sources adding an uncertain amount that may be in the tens of millions (USD) per year, there appears to be a major financing gap. Therefore, if the CRGE strategy is to be delivered, and the lives of the country’s most vulnerable people made more resilient, much more effort needs to be exerted to mobilize additional resources both domestically and externally. In particular, international commitments on climate finance need to be realized. This is now a matter of urgency for Ethiopia, as it is for many other African States. Drawing on research by the Climate Science Centre of Addis University and the Overseas Development Institute, this policy brief, supported by the ACCRA programme, sets out recommendations to bridge the funding gap for climate financing in Ethiopia.
Topic:
Climate Change, Politics, Natural Resources, Budget, and Finance
Political Geography:
Ethiopia

95. The EU’s New Climate Target: Contribution to a Successful Deal in Paris

Author:
Susanne Droge, Thomas Spencer, Alexandra Deprez, Liz Gallagher, Artur Gradziuk, Andrei Marcu, and Sebastian Oberthur
Publication Date:
09-2015
Content Type:
Policy Brief
Institution:
The Polish Institute of International Affairs
Abstract:
Prior to the Paris Climate Conference each country is to submit an Intended Nationally Determined Contribution (INDC) – a vision of the country’s efforts to tackle climate change. The EU’s submission is very clear in its goal to reduce greenhouse gases emissions by 40% by 2030, but it leaves room for defining precisely how the Union plans to achieve this target. The European INDC also lacks specifics on the adaptation and climate finance, thus putting at risk the EU’s ability to build a more ambitious coalition in support of the Paris Agreement. Also important for the Union is to hammer out plans for adjusting its domestic policy processes to regular five-year review cycles.
Topic:
Climate Change, Treaties and Agreements, Budget, and European Union
Political Geography:
Global Focus

96. Embattled Superpowers

Author:
John H. Maurer
Publication Date:
01-2015
Content Type:
Journal Article
Journal:
Fletcher Security Review
Institution:
The Fletcher School, Tufts University
Abstract:
On the eve of the Second World War, the noted journalist John Gunther could still maintain that: “Great Britain, as everyone knows, is the greatest Asiatic power.”[1] The British Empire in Asia controlled a vast territory and large population, sweeping in a great arc from New Zealand and Australia in the South Pacific, to Southeast Asia and South China, and on to India and the Middle East. Britain stood as a superpower with economic interests and security commitments stretching around the globe, much as the United States stands today. That position of leadership, however, was endangered. The emergence of major new industrial great powers was transforming the international landscape. These challengers, as they converted their growing economic strength into military power, confronted Britain’s leaders with uncomfortable strategic choices. In Asia, one of those rising challengers, imperial Japan, posed a dangerous threat to Britain’s standing as a world power after it embarked on a policy of expansion. We know the outcome of Japan’s challenge: war and the catastrophic breakdown of Britain’s standing in Asia. The collapse of British power was in part brought about by dynamic changes in technology and the lethality of modern weaponry, particularly the advent of naval aviation, which shifted the naval balance in Japan’s favor. On the eve of war, Britain sought to deter Japan by forming a naval force in the Pacific, known to history as Force Z, consisting of the battleship Prince of Wales and battle cruiser Repulse. Even as Force Z steamed eastward, the Admiralty could spare none of its aircraft carriers, to protect it from air attack. Nor did the Royal Air Force have enough modern aircraft based in the Far East to offer adequate protection for Force Z. Britain’s inability to control the skies meant the Royal Navy could not command the seas, and this permitted the Japanese to land ground forces in Malaya and seize Singapore, the strategic pivot of British defenses in Asia. Not since Yorktown had Britain suffered such a crushing setback. The world’s leading naval power had been bested by a challenger that exploited innovations in technology and doctrine to gain a marked qualitative edge in fighting power.
Topic:
Defense Policy, History, Power Politics, Budget, and Navy
Political Geography:
Britain, Japan, Asia-Pacific, and United States of America

97. Digital Single Market. SMEs and the Juncker Investment Plan for the European Union

Author:
Juan Antonio Pavón Losada
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Fundación Alternativas
Abstract:
A few months ago (25/11/2014), the European Commission disclosed the mechanism for its much-heralded €315 billion investment plan, revealing how a a scarce €21 billion of initial public money is intended to lift fifteen times as much in capital. In March 2015, EU finance ministers agreed upon delivering on the commitment they took at the European Councils in October and December 2014, to wind-off Juncker's flagship investment plan. The idea was to create a new European Fund for Strategic Investments (EFSI), with €5 billion coming from the European Investment Bank and an €8 billion guarantee from existing EU funds designed to secure a further contribution of 16 billion Euro from the institutions. The €8 billion guarantee will come over a three-year period from the Connecting Europe Facility (€3.3 billion); Europe’s research programme Horizon 2020 (€2.7 billion) and socalled “budget margin”, or unused funds, worth €2 billion. On the one hand, the EFSI plans to generate investments into the European economy of about €315 billion, by providing guarantees for higher-risk projects which aim at developing telecommunications and transport infrastructure, energy efficiency projects, research, education and innovation activities to finally generating about 240 billion in long-term investments, showing a timid responsiveness for the claims against austerity over the past years. On the other hand, the alternative purpose of the Fund is to provide financing to SMEs to enhance the viability of new venture capital injections, loan guarantees, securitisations and seed financing designed to offer micro-loans to SMEs, to fund start-ups or offer mid-cap companies venture capital, projected to generate €75 billion for those SMEs and mid-cap firms over the period 2015-2017. In addition, the Commission aims to attract private investors to the Fund. Nevertheless, private investors seem sceptical about investing and assuming greater risks when the returns are not guaranteed. In fact, the basis for most longterm infrastructure or energy efficiency projects will most likely remain public funding -his is especially true of the newer EU member states, where the private sector is not strong enough-. In fact, the EU executive believes that more financing can be provided by individual member states. Two ways are being discussed: Capital contributions, which are not limited to the respective Member State and may entail voting rights and a claim on the fund´s return (if any); and that participation in investment platforms that can be restricted to the Member State itself. As an incentive, this amount will be then discounted from the calculations of their deficits within the European Semester. There is a rising concern between Member States that the new fund will turn into a parallel EU budget -where voting rights could be purchased- not subject to enough democratic control, since this is fund is expected to be managed by Commission and the EIB and. In order to prevent such situation, the Commission has announced that the fund will not consider to make investments on the basis of geographical distribution, but rather based on quality and viability. This may convince member states who fear the introduction of a parallel budget, but it might also raise problems of transparency and for those countries who wish to contribute voluntarily to the EFSI. Several alternatives to the current functioning of the EFSI -that still need to pass the European Parliament filter- has been tabled: e.g. the possibility that the EFSI regulation could establish mandatory national contributions in order to increase the credibility of the ratio 1:15; also, transforming the fund into a permanent financing system with legal personality, so it could access financial markets for funding; and that but not least, turning the EIB's contribution to EFSI into a regularly one rather a one-off, as it has been agreed so far. In any case -often accused of relying on leverage private investment unrealistic projections, lacking ambition, means and clear goals- this Juncker's investment plan goes along with several batteries of measures seeking to facilitate a boost in business activity, removing the obstacles hampering private investment in Europe.
Topic:
Infrastructure, Budget, European Union, and Investment
Political Geography:
Europe and Brussels

98. European Defense Trends: Briefing Update

Author:
David J. Berteau, Gregory Sanders, T.J. Cipoletti, Meaghan Doherty, and Abby Fanlo
Publication Date:
01-2015
Content Type:
Working Paper
Institution:
Center for Strategic and International Studies
Abstract:
The European defense market, though impacted by lethargic economic growth and painful fiscal austerity measures, continues to be a driver in global defense. Five of the fifteen biggest military spenders worldwide in 2013 were European countries, and Europe remains a major market for international arms production and sales. Surges in military spending by Russia, China, and various Middle Eastern countries in recent years has augmented the defense landscape, especially as European countries in aggregate continue to spend less on defense and the United States embarks on a series of deep-striking budget cuts. This report analyzes overall trends in defense spending, troop numbers, collaboration, and the European defense and security industrial base across 37 countries. To remain consistent with previous reports, this briefing utilizes functional NATO categories (Equipment, Personnel, Operations and Maintenance, Infrastructure, and Research and Development) and reports figures in constant 2013 euros unless otherwise noted. Many of the trends identified within the 2012 CSIS European Defense Trends report continued into 2013, namely reductions in topline defense spending, further cuts to R spending, and steadily declining troop numbers. Though total European defense spending decreased from 2001-2013, with an accelerated decline between 2008 and 2010, select countries increased spending2 between 2011 and 2013. Collaboration among European countries has decreased in the R category; however, it has increased in the equipment category – indicating increased investment in collaborative procurement. Defense expenditure as a percentage of total government expenditure has decreased across Europe from 2001-2013 with the exceptions of Albania and Estonia. An updated CSIS European Security, Defense, and Space (ESDS) Index is included within this report and exhibits a shift in geographic revenue origin for leading European defense firms away from North America and Europe and towards other major markets between 2008 and 2013. Finally, a brief analysis of Russian defense spending is included in the final section of this report in order to comprehend more fully the size and scope of the European defense market within the global framework. In 2013, Russia replaced the United Kingdom as the third largest global defense spender, devoting 11.2 percent of total government expenditures to defense. This briefing report concludes with summarized observations concerning trends in European defense from 2001 to 2013. CSIS will continue to follow and evaluate themes in European defense, which will appear in subsequent briefings.
Topic:
Security, Defense Policy, Military Affairs, and Budget
Political Geography:
Russia, China, United Kingdom, America, and Europe

99. Institutional Foundations of Federated Defense

Author:
Stephanie Sanok Kostro and Rhys McCormick
Publication Date:
01-2015
Content Type:
Working Paper
Institution:
Center for Strategic and International Studies
Abstract:
While the united states has long acknowledged the value of working with partner nations to address shared security concerns, drawdowns in defense spending have underscored the importance of bilateral and multilateral cooperation to leverage capabilities and investments. the Center for strategic and International studies' multiyear Federated Defense Project aims to inform policymakers about global and regional security architectures and defense capabilities that support the achievement of common security goals, as well as ways to improve defense cooperation among nations to address those goals together. This report on institutional foundations of federated defense recognizes that successful cooperation in a budget-constrained environment often rests on the u.s. ability and willing-ness to provide assistance and/or equipment to partner nations. CSIS project staff drew on a literature review, workshops, and a public event (“the Future of the security Cooperation Enterprise”) to identify key findings in five areas: Priorities/Strategic Guidance: Proponents of federated defense should better articulate priorities. A proactive, interagency component that includes, at a minimum, officials from the Defense Department, State Department, and White House is necessary to effect a cultural shift and combat potential backsliding into unilateral approaches. Foreign Military Sales: In a federated approach, officials should identify capabilities that could most effectively support partner nations' contributions to federated defense. Toward that end, officials should also emphasize the establishment and maintenance of high-demand capabilities over time. other key issues related to potential difficulties in foreign sales include surcharges, overhead costs, and transparency in offsets. Export Controls: study participants noted that recent export control reform efforts have not yet resulted in significant change and have inadequately addressed industry concerns. Moreover, there appears to be a lack of appetite for these reforms in Congress. Technology Security and Foreign Disclosure: Improvements are needed to coordinate and speed technology transfer and foreign disclosure decisions. transparency across stovepipes within the executive branch is critical to create a common vision and objectives for federated defense, which is especially important when working with industry and foreign government partners. Acquisition and Requirements Processes: Within the Department of Defense, there is insufficient consideration of the export value and challenges of systems in early stages of the acquisition and requirements processes. Modifications during late stages of development are often far more expensive than building in exportability earlier. Having examined these key areas, the study team identified and analyzed three over-arching institutional challenges to and opportunities for federated defense. First, study participants remarked upon the lack of sufficient advocacy for federated defense among senior U.S. government officials. A second challenge was the cultural resistance to federated defense; experts noted that significant cultural change, such as that brought about by the Goldwater-Nichols Department of Defense Reorganization Act of 1986 (Pub.L. 99-433), may require top-down direction, years to implement, and decades to be accepted. A third challenge was the need for a perceived or actual budget crisis to drive change. The study team's recommendations resulting from this examination were five-fold. First, U.S. national strategies should address the grand strategy questions that could imperil implementation of a federated approach. Implementation of the u.s. National security strategy could impel a new effort to focus on partner capabilities and areas for sharing the common global security burden, as well as to prioritize interests and activities related to U.S. security cooperation, export controls, and technology security/foreign disclosure. Second, proactive U.S. leaders should articulate a vision, objectives, and priorities for a federated approach to defense. third, the Administration and Congress should work together to ensure completion of legal and regulatory reforms already under way (e.g., on export controls). Fourth, executive and legislative officials—perhaps through an interagency task force that works with committee staffs—should identify additional reforms to streamline or create authorities and to eliminate unhelpful directed spending on capabilities and systems that do not contribute to federated defense. Finally, the Department of Defense should start with incremental steps to create a culture that values federated defense; for example, the Defense Acquisition University and Defense Institute of Security Assistance Management could update coursework to institutionalize knowledge regarding federated approaches. This study made it clear that enduring changes in these five areas—from strategy to culture—are necessary to ensure the success of a federated approach to defense.
Topic:
Security, Science and Technology, and Budget
Political Geography:
United States