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92. Study and Reports on the VAT Gap in the EU-28 Member States: 2018 Final Report
- Author:
- Adam Śmietanka, Alejandro Esteller Moré, Grzegorz Poniatowski, José María Durán-Cabré, and Mikhail Bonch-Osmolovsky
- Publication Date:
- 10-2018
- Content Type:
- Special Report
- Institution:
- Center for Social and Economic Research - CASE
- Abstract:
- In this Report, the Authors present the new Value Added Tax (VAT) Gap estimates for 2016, as well as updated estimates for 2012-2016. In addition to the analysis of the Compliance Gap, this Report examines the Policy Gap in 2016 as well as the contribution that reduced rates and exemptions made to the theoretical VAT revenue losses. Moreover, the Report contains an econometric analysis of VAT Gap determinants, which is a novelty introduced from this year’s Study. In 2016, most European Union (EU) Member States (MS) saw positive tailwinds with a combined real GDP growth of 2.0 percent. As a result of a growing base and increasing VAT compliance, VAT revenue increased in all MS with three exceptions. Most pronounced is the case of Romania, where VAT revenue decreased in response to reduction of the standard rate by four percentage points. In nominal terms, in 2016, the VAT Gap in EU-28 MS fell below EUR 150 billion and amounted to EUR 147.1 billion. In relative terms, the VAT Gap share of the VAT total tax liability (VTTL) dropped to 12.3 percent from 13.2 percent in 2015, and is the lowest value in the analysed period of 2012-2016. Denoted at the share of GDP, the VAT Gap in 2016 amounted to 0.99% compared to 1.05% in 2015. Of the EU-28, the VAT Gap share decreased in 22 countries and increased in six—namely, Romania, Finland, the UK, Ireland, Estonia, and France. The biggest declines in the VAT Gap—of over five percentage points—occurred in Bulgaria, Latvia, Cyprus, and the Netherlands. The smallest Gaps were observed in Luxembourg (0.85 percent), Sweden (1.08 percent), and Croatia (1.15 percent). The largest Gaps were registered in Romania (35.88 percent), Greece (29.22 percent), and Italy (25.90 percent). Overall, half of EU-28 MS recorded a Gap below 9.9 percent. The Policy Gaps and its components remained stable. The average Policy Gap level was 44.8 percent, out of which 9.95 percentage points are due to the application of various reduced and super-reduced rates (the Rate Gap). Countries with the most flat levels of rates in the EU, according to the Rate Gap, are Denmark (0.93 percent) and Estonia (2.97 percent). The Exemption Gap, or the average share of Ideal Revenue lost due to various exemptions, is, on average, 35 percent in the EU, whereas the Actionable Policy Gap—a combination of the Rate Gap and the Actionable Exemption Gap—is, on average, 16.5 percent of the Notional Ideal Revenue. The econometric analysis can be considered a successful first attempt at inferring the impact of various determinants. Firstly, it can be observed that the productive structure of the economy exerts an impact on the VAT Gap. The share of retailers has the strongest impact on the VAT Gap; however, telecommunications, industry, and art also have a positive impact. Secondly, liquidity constraints and the productive structure of the economy also play a role in determining VAT compliance. The most interesting results have to do with the impact of the variables under the direct control of the tax administration. We show that the impact of the size of the tax administration and the VAT Gap is concave. On the contrary, in the case of IT expenditure, the impact is convex, albeit small, until productivity vanishes when IT expenditure is about 9.8 percent of the total expenditure of the tax administration.
- Topic:
- Financial Crimes, Tax Systems, Fiscal Policy, and VAT
- Political Geography:
- Europe, Poland, and European Union
93. Virtual currencies and their potential impact on financial markets and monetary policy
- Author:
- Lukasz Janikowski and Marek Dabrowski
- Publication Date:
- 09-2018
- Content Type:
- Special Report
- Institution:
- Center for Social and Economic Research - CASE
- Abstract:
- Virtual currencies are a contemporary form of private money. Thanks to their technological properties, their global transaction networks are relatively safe, transparent, and fast. This gives them good prospects for further development. However, they remain unlikely to challenge the dominant position of sovereign currencies and central banks, especially those in major currency areas. As with other innovations, virtual currencies pose a challenge to financial regulators, in particular because of their anonymity and trans-border character.
- Topic:
- Science and Technology, Monetary Policy, Economic growth, Currency, and Trade
- Political Geography:
- Europe, Poland, and European Union
94. Economic recovery and inflation
- Author:
- Marek Dabrowski
- Publication Date:
- 04-2018
- Content Type:
- Special Report
- Institution:
- Center for Social and Economic Research - CASE
- Abstract:
- In the last decade, advanced economies, including the euro area, experienced deflationary pressures caused by the global financial crisis of 2007-2009 and the anti-crisis policies that followed—in particular, the new financial regulations (which led to a deep decline in the money multiplier). However, there are numerous signs in both the real and financial spheres that these pressures are disappearing. The largest advanced economies are growing up to their potential, unemployment is systematically decreasing, the financial sector is more eager to lend, and its clients—to borrow. Rapidly growing asset prices signal the possibility of similar developments in other segments of the economy. In this new macroeconomic environment, central banks should cease unconventional monetary policies and prepare themselves to head off potential inflationary pressures.
- Topic:
- Economics, Monetary Policy, Economic growth, Inflation, Macroeconomics, and Unemployment
- Political Geography:
- Europe, Global Focus, and European Union
95. Enhancing Credibility and Commitment to Fiscal Rules
- Author:
- Grzegorz Poniatowski
- Publication Date:
- 03-2018
- Content Type:
- Special Report
- Institution:
- Center for Social and Economic Research - CASE
- Abstract:
- The objective of this paper is to derive the characteristics of an effective fiscal governance framework, focusing on the incentives that ensure a commitment to the fiscal rules. We study this problem with the use of econometric tools, complementing this analysis with formal modelling through the lens of a dynamic principal-agent framework. Our study shows that both economic and institutional factors play an important role in incentivising countries’ fiscal efforts. Fiscal balances are affected not only by the economic cycle, but, among others, by the level of public debt and the world economic situation. We find that the existence of numerical fiscal rules, their strong legal entrenchment, surveillance mechanisms, and credible sanctions binding the hands of governments have a significant impact on curbing deficits. The relationship between the Commission and European Union (EU) Member States (MS), where the EU authorities act as a collective principal that designs contracts for MS, has elements in common with the assumptions of the principal-agent framework. These are: asymmetry of information, moral hazard, different objectives, and the ability to reward or punish the principal. We use a dynamic principal-agent model and show that to ensure good fiscal performance, indirect benefits should be envisaged for higher levels of fiscal effort. In order to account for the structural differences of exerting effort by different MS, it is efficient to adjust fiscal effort to the level of indebtedness. To ensure a commitment to the rules, MS with difficulties conducting prudent fiscal policies should be required to exert less effort than the MS with more modest levels of debt. The FIRSTRUN project is a European Union funded multinational research project that investigates the need for fiscal policy coordination in the EU.
- Topic:
- Debt, Economics, Regional Cooperation, European Union, and Fiscal Policy
- Political Geography:
- Europe and European Union
96. Is a Fiscal Policy Council needed in Poland?
- Author:
- Balazs Romhanyi and Lukasz Janikowski
- Publication Date:
- 11-2018
- Content Type:
- Special Report
- Institution:
- Center for Social and Economic Research - CASE
- Abstract:
- Unsustainability and procyclicality of fiscal policy are problems that many developed countries face. The public debt crisis revealed that fiscal rules are a useful but insufficient instrument for mitigating them. A large and growing group of economists are calling for the creation of ‘fiscal policy councils’ – independent collegial bodies made up of experts whose role is to act as independent reviewers of government policy and advise the government and parliament on fiscal policy. Such councils currently exist in at least 40 countries. Poland is the only EU country that does not have a fiscal policy council. The aim of this paper is to address the issue of whether a fiscal policy council is needed in Poland and what kind of additional contribution such a council might make to the public debate on fiscal policy.
- Topic:
- Debt, Government, Governance, Economy, and Fiscal Policy
- Political Geography:
- Europe, Poland, and European Union
97. Thinking about pension systems for the 21st century: A few remarks based on the Polish example
- Author:
- Marek Gora
- Publication Date:
- 07-2018
- Content Type:
- Working Paper
- Institution:
- Center for Social and Economic Research - CASE
- Abstract:
- The end of 2018 will mark the 20th anniversary of the introduction of Poland’s current pension system. It has been subjected to constant modifications, in general dictated by either ideological or ad hoc goals, but it has resisted destruction, and in essence is working as it was designed. The need for its introduction, misleadingly called a reform, was dictated by a long-term shift in the age structure of the population. In essence, the earlier system was replaced by the current one. The essence of this switch is a shift from the quasi-tax financing suited to the population structure by age of the past, to quasi-savings financing suited to the structure in the 21st century. This text is not an overview of the 20-year history of the current system; it is a critical examination of the functioning of Poland’s pension system against the backdrop of the universal challenges that pension systems are facing in the 21st century. The text barely touches on many fundamental questions. A full discussion of them would require a longer discourse, for which there is no space here. The purpose of introducing the current system was to balance the interests of the working generation and the generation of retirees. The previous system worked only for the interests of retirees, while those of the working generation, expressed in the level of its net income, was treated as an afterthought. This kind of system could operate in the 20th century. But in the 21st, it turned out to be not so much immediately impossible, as socially harmful. A change of system was thus essential. The current system is now quite well suited to the current population structure. The biggest problem in its functioning is citizens’ negligible awareness of how it is actually structured and what that implies – both on the macro level and on the level of individual behaviors. Pension issues are counterintuitive. This results both from their combination of macro- and microeconomic issues and from the fact that their time horizon exceeds any other undertaking. For a pension system to work well, it has to be understood by its participants; meanwhile, pension education practically does not exist. What’s worse, the public debate concerning pensions tends to frighten people rather than helping them. Instead of knowledge, there are chaotic assumptions, often far removed from reality. They are adopted as axiomatic, or as a result of inertia in thinking, or unrealistic expectations. In the first case, the current system is perceived as if it were the previous one. Meanwhile, in reality they are fundamental opposites. In the second case, people expect that the system will miraculously multiply the funds available for pensions. But in reality each system can only divide up what has been created. Discussions partly concern side issues, partly consist of misunderstandings and partly are derivations of general views. Much harm was done by the discussion on changing the proportions of the division of contributions in the universal system (the so-called OFE discussion). Debate on pension questions requires that the issues be laid out in an orderly fashion; we need a critical view of basic concepts and how they are understood. Without that there is no chance to solve the problems of pensions systems, or even to understand what they’re about.
- Topic:
- Demographics, Labor Issues, Finance, and Social Policy
- Political Geography:
- Europe, Poland, and European Union
98. From Energy to Climate Security: The EU’s Evolving Views
- Author:
- Ellen Scholl
- Publication Date:
- 07-2018
- Content Type:
- Journal Article
- Journal:
- Fletcher Security Review
- Institution:
- The Fletcher School, Tufts University
- Abstract:
- The European Union (EU) has increasingly interconnected energy and climate policy, with the formulation of the Energy Union as one notable — if yet incomplete — step in this direction. In addition to the linkages between energy policy and efforts to reduce greenhouse gas emissions to meet climate goals under the Paris Agreement, the EU has been increasingly vocal about the link between climate and security, and under- taken (at least rhetorical) efforts to incorporate climate security concerns into broader externally focused policy areas. This shift toward a focus on climate security, however, raises questions of how energy security and climate security relate, the impact of the former on the latter, and how the Energy Union fits into this shift, as well as how the EU characterizes climate risk and how this relates to geopolitical risks in its broader neighborhood. It also begs the question of how to go beyond identifying and conceptualizing the security risks posed by climate change to addressing them. This paper charts changes in the EU’s energy and climate security discourse, focusing on their intersection in the Energy Union and the EU’s promotion of the energy transition to lower carbon forms of energy, and the relevant risks in the European neighborhood. The paper concludes that while the EU has evolved to include climate priorities and climate risks into foreign and security policy thinking, the complicated relation- ship between climate change and security complicates efforts to operationalize this in the EU, in relations with the broader European neighborhood, and beyond...
- Topic:
- Security, Climate Change, Energy Policy, and Regional Cooperation
- Political Geography:
- Europe, Global Focus, and European Union
99. Building Trust and Confidence in International Security: A Conversation with OSCE Secretary General Thomas Greminger
- Author:
- Thomas Greminger and Ryan Rogers
- Publication Date:
- 07-2018
- Content Type:
- Journal Article
- Journal:
- Fletcher Security Review
- Institution:
- The Fletcher School, Tufts University
- Abstract:
- Ambassador Thomas Greminger was appointed Secretary General of the OSCE on 18 July 2017 for a three- year term. Ambassador Greminger joined the diplomatic service of the Federal Department of Foreign Affairs (FDFA) in 1990 and has held numerous senior management positions during his career. Prior to his appoint- ment as OSCE Secretary General, he was Deputy Director General of the Swiss Agency for Development and Cooperation, overseeing an annual budget of USD 730 million and 900 staff in Bern and abroad. From 2010 to 2015, Greminger was the Permanent Representative of Switzerland to the OSCE, serving as Chair of the Permanent Council during Switzerland’s 2014 OSCE Chairmanship. Prior to his assignment at the Per- manent Delegation of Switzerland to the OSCE, Greminger was Head of the Federal Department of Foreign Affair’s Human Security Division, Switzerland’s competence centre for peace, human rights, and humanitarian and migration policy. Thomas Greminger holds a PhD in history from the University of Zurich and the rank of Lieutenant Colonel (General Staff) in the Swiss Armed Forces. He has authored a number of publications on military history, conflict management, peacekeeping, development and human rights. His mother tongue is German; he speaks fluent English and French, and has a working knowledge of Portuguese. In 2012, he was awarded the OSCE white ribbon for his long-standing support for gender equality.
- Topic:
- International Relations, Security, Regional Cooperation, and Territorial Disputes
- Political Geography:
- Europe, Ukraine, and European Union
100. Macron, Diplomat: A New French Foreign Policy?
- Author:
- Thomas Gomart and Marc Hecker
- Publication Date:
- 04-2018
- Content Type:
- Special Report
- Institution:
- Institut français des relations internationales (IFRI)
- Abstract:
- How can we define Emmanuel Macron’s foreign policy since he took office? After Nicolas Sarkozy’s brazen style of “gutsy diplomacy” and François Hollande’s “normal diplomacy”, the eighth president of the Fifth Republic seems to have opted for an agile classicism. In substance, he makes no claim to any radical break with the past, but sees his approach as being in line with historical tradition. In relation to his predecessors, he has adjusted the balance between alliances, values, and interests in favor of the latter, while giving his policies an unambiguous European orientation. Formally, his approach is characterized by recourse to symbolism, strict control of communications, and an agile personal style. A term used within the business world to encourage organizations and individuals to adapt and innovate, “agility” also connotes a will to utilize and master new technologies. [...] Comprising 14 brief analyses, this collective study contributes to the initiative launched by Ifri in 2016 to analyze French foreign policy, and follows on directly from the earlier study published on the eve of the presidential election. It aims to give an update on the action Emmanuel Macron has taken on the principal international issues since his arrival in office. It should therefore be read not as an overall assessment, which would be impossible at this early stage of the presidential term, but more as an impressionist tableau giving a sense of an overall movement containing many different hues. Emmanuel Macron has four years left to perfect it.
- Topic:
- Foreign Policy, Defense Policy, Diplomacy, Trade Policy, and Emmanuel Macron
- Political Geography:
- Africa, Russia, Middle East, Asia, France, United States of America, and European Union