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121. The UN’s Response to the COVID-19 Infodemic

Author:
Gabriel Delsol and Albert Trithart
Publication Date:
05-2023
Content Type:
Policy Brief
Institution:
International Peace Institute
Abstract:
The COVID-19 pandemic has been accompanied by a related “infodemic.” This infodemic emerged as widespread demand for information about the public health emergency was met with large volumes of false and misleading information. Many of the national and international institutions leading the response to the COVID-19 pandemic, including the UN, quickly recognized that they also needed to respond to the infodemic. This led to a quick, broad-based response by a broad array of UN agencies and partners. To date, however, there has been no systematic mapping or assessment of the range of initiatives across the UN system. To begin filling that gap, this paper provides an overview of the UN system’s response to the COVID-19 infodemic across four areas: monitoring harmful information related to COVID-19; dispelling false information and providing authoritative information; building information resilience; and setting the agenda. It then assesses some of the successes and challenges of the response across four areas: external partnerships, including with governments, civil society, academia, and social media companies; coordination within the UN system; financial, human, and technological capacity; and impact assessment. The report concludes that the UN’s infodemic response finds itself at a pivotal point: Due to donor fatigue around COVID-19, funding for the infodemic response is falling even while the need for a robust infrastructure to address infodemics and other information disorders may be increasing. UN entities working to address the infodemic and other information disorders should therefore consider the following: Engaging in a consultative process to develop a shared understanding of the infodemic by defining its specific harms in relation to each of their mandates; Sustaining and building capacity to counter infodemics and other information disorders, both in communications departments and in other sections working on infodemic management; Adopting a more standardized, system-wide approach to the use of new technologies and engagement with technology platforms; and Continuing to strengthen long-term information resilience by building the capacity of governments to manage infodemics and supporting strong, independent media.
Topic:
Health, Science and Technology, United Nations, and COVID-19
Political Geography:
Global Focus

122. The EU can manage without Russian liquified natural gas

Author:
Ben McWilliams, Giovanni Sgaravatti, Simone Tagliapietra, and Georg Zachmann
Publication Date:
06-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The European Union has committed to eliminate all Russian fossil-fuel imports by 2027. Progress has been made, with sanctions on oil and coal already introduced. The glaring exception is natural gas, on which the EU has so far refrained from imposing limitations, owing to greater dependence on Russia. Nevertheless, pipeline gas imports have fallen by four-fifths following Russia’s weaponisation of gas supplies. However, Russia’s exports of liquified natural gas (LNG) to the EU have increased since the invasion of Ukraine. The EU needs a coherent strategy for these LNG imports. Our analysis shows that the EU can manage without Russian LNG. Anticipated impacts are not comparable to those felt in 2022 as Russian pipeline gas dried up. The regional impact would be most significant for the Iberian Peninsula, which has the highest share of Russian LNG in total gas supply. Meanwhile, the global LNG market is tight, and we anticipate that Russia would find new buyers for cargos that no longer enter Europe. We discuss the options available to the EU. Wait-and-see implies delaying any action until 2027, while soft sanctions would discourage additional purchases but not break long-term contracts. We argue instead for an EU embargo on Russian LNG, to reduce exposure to an unreliable and adversarial entity, and to limit the extent to which EU consumers fund the Russian state. The embargo may be designed to allow purchases only if they are coordinated via the EU’s Energy Platform, with limited volumes and below market prices. This could be accompanied by the implementation of a price cap on Russian LNG cargos that use EU or G7 trans-shipment, insurance or shipping services.
Topic:
European Union, Gas, Energy, and Green Economy
Political Geography:
Russia and Europe

123. Can Chinese growth defy gravity?

Author:
Alicia Garcia-Herrero
Publication Date:
06-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Chinese growth, astounding since the beginning of the reform era, has slowed in the last decade. We offer a baseline estimate (based on the current trend) of China’s medium-term growth rate, which we project to fall to 2.4 percent by 2035. Several factors create uncertainty around this baseline. China’s rapid aging is already incorporated into our long-term growth scenario, but its impact on growth will depend on how China’s remaining urbanisation process spreads over time, how the shrinking labour supply affects labour productivity and whether the decline in total factor productivity growth, reflecting the lack of reform during the last decade and possibly the rising role of the state, can be reversed. Investment in China, for decades the largest factor in China’s growth, is expected to contribute less to growth given the increasingly low return on assets, particularly on state-led investment. The rapid piling up of public debt is also becoming a heavy burden for the Chinese economy. Finally, the COVID-19 pandemic may have left significant scarring effects, such as structurally high youth unemployment and low investment confidence. On the upside for China, the rise in human capital and research and development expenditure may support innovation and growth, but the magnitude of this effect is uncertain, because it is unclear if higher innovation will translate into higher total factor productivity, and because of the United States’s push to contain China technologically.
Topic:
Industrial Policy, European Union, Economic Growth, and COVID-19
Political Geography:
China, Europe, and Asia

124. Adjusting to the energy shock: the right policies for European industry

Author:
Giovanni Sgaravatti, Simone Tagliapietra, and Georg Zachmann
Publication Date:
05-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
In 2022, overall European Union industrial employment and output increased above 2021 levels, despite rocketing energy prices. However, output declined from energy-intensive industries including basic metals, chemicals, non-metallic minerals and paper, for which energy costs represent a much bigger share of production costs than for less energy-intensive manufacturing. Energy prices are likely to remain above historic levels for the foreseeable future. In its industrial strategy response to this context, the EU must ask first whether the energy-intensive parts of the value chain should be outsourced permanently. Conditional on the answer being no, the second question is how to reduce energy prices to ensure the competitiveness of the energy-intensive productions stages that remain in the EU. First, the EU could bridge the high energy price period with unconditional subsidies, which seems to be the preferred strategy currently. This will avoid irreversible large-scale relocation abroad but is expensive, does not help to drive down energy prices and poses risks of fragmentation within the EU. It will only succeed if internationally competitive energy supplies are made available quickly. Second, the EU could support decarbonised production processes built on large-scale deployment of domestic renewables, grid interconnectors and storage. This would accelerate the green transition and reduce clean-tech prices worldwide. However, EU taxpayers would bear the cost of new technologies, without any guarantee of solving the current cost-competitiveness issue. Third, the EU could facilitate imports of energy-intensive products, while helping EU industry move to higher value-added parts of the value chain. Subsidies could be given directly to industrial sectors that have not become structurally uncompetitive, while bringing down energy demand and thus energy prices. However, this strategy would result in temporarily higher unemployment and factory closures in energy-intensive industries, would need to accommodate concerns over excessive reliance on imports and would need to be engineered to address carbon leakage. Policymakers should implement a mix of these policies. The EU should subsidise existing energy-intensive industries only in clearly justified cases, while deciding which energy-intensive products can be left to international market forces. By choosing which decarbonisation investments should be supported in Europe, the EU can combine industrial competitiveness and environmental sustainability.
Topic:
Industrial Policy, European Union, Value Chains, Energy, and Green Economy
Political Geography:
Europe

125. The longer-term fiscal challenges facing the European Union

Author:
Jeromin Zettelmeyer, Gregory Claeys, Zsolt Darvas, Lennard Welslau, and Stavros Zenios
Publication Date:
04-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The pandemic and subsequent price shocks triggered by Russia’s invasion of Ukraine, have increased longer-term fiscal pressures in the European Union through higher debt, higher expected real interest rates and higher public investment needs. This Policy Brief makes some simple quantitative assessments of those effects and discusses policy implications, with the following results. First, long-term increases in primary fiscal balances required to offset higher debt and higher expected real interest rates are in the range of 0.5 percent to 1.5 percent of GDP for most EU countries. However, because of pre-existing differences in fiscal space, not all countries will need to undertake that adjustment, while some countries may need to adjust by substantially more. Among the 21 EU countries for which we have data to undertake this analysis, 14 will need to adjust by more than they were planning to do by 2025. Second, the required additional fiscal adjustment looks manageable, although it is substantial in some cases. To achieve medium-term debt-reducing primary balances, several EU countries will need to raise primary balances by more than 2 percent of GDP above their 2025 target, but no country will need additional fiscal adjustment of more than 3 percent of GDP. Third, market data suggests that the future path of real interest rates is very uncertain. Compared to the period immediately preceding the pandemic, longer-term expected real interest rates have increased by about 2 percentage points but remain low on average, at about 1 percent in real terms. Future developments depend on whether the structural factors that led to low interest rates in the first place persist or unwind. While interest rates might decline again, fiscal policymakers should not make plans that assume such a decline. Fourth, public spending needs for additional defence and climate spending run well above 1 percent of GDP per year. These needs do not appear to have been incorporated into current fiscal baselines, and hence will come on top of the adjustment described above. To ensure that fiscal adjustment does not defeat its purpose by slowing growth, it is essential that it is conducted gradually. In countries that require such adjustment, it should start as soon as cyclical conditions allow.
Topic:
Governance, European Union, Finance, and Fiscal Policy
Political Geography:
Europe

126. Will China’s new financial regulatory reform be enough to meet the challenges?

Author:
Martin Chorzempa and Nicolas Veron
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Effective financial supervision plays a crucial role in maintaining financial stability and a healthy financial system. China’s leadership has made financial risk a core priority, and in reforms approved in March 2023, it reassigned regulatory responsibilities, creating a new supervisory body that will take over some responsibilities from the central bank, the banking and insurance regulator, and the securities regulator. The aim is that a change to the financial supervisory architecture (who does what in financial supervision) will make China’s system more effective and stable. In this policy brief, we argue that this incremental reform will not solve the core issues China faces in financial supervisory effectiveness. We provide an overview of China’s large and complex financial system, including its largely state-owned banks (some of which are the largest in the world by assets), securities markets and other financial intermediaries. Traditional divisions between different types of activities and institutions have been blurred by the rise of large financial conglomerates, risk-transfer techniques and internet-based finance. Reforms in 2018 to China’s supervisory architecture did not eliminate perceived shortcomings, including failures to effectively regulate financial conglomerates, fintech and regional banks. We then survey global benchmarks against which China’s financial supervisory architecture can be compared, including the United States and European Union. China’s supervisory system is already more streamlined, at least on paper, than either of these most comparable global counterparts. Like them, China’s system does not correspond exactly to any of the three textbook archetypes of supervision: sectoral, twin-peaks or integrated supervision. Ultimately, the effectiveness of China’s financial supervisory architecture suffers from excessive state intervention in the financial system through other channels, including through the unique and pervasive influence of the communist party, which hampers supervisory independence and makes it difficult to establish accountability for regulatory failures. While the recently announced reform may improve coordination across supervisory bodies, coordination within the new quasi-integrated supervisor, across central departments, and between them and local branches, will remain a challenge.
Topic:
Reform, Regulation, Finance, and Financial Stability
Political Geography:
China and Asia

127. The potential of sovereign sustainability-linked bonds in the drive for net-zero

Author:
Alexander Lehmann and Catarina Martins
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
European Union governments have for some years issued green bonds that raise funds for climate-related spending. These bonds have been received well in capital markets but because they promise a certain use of proceeds, they complicate budget management and may not match investors’ claims of having an impact on national climate policies. Public commitments made by major investors and asset owners suggest that limiting climate transition risks and the assessment of the alignment of sovereigns with net-zero targets will now become key determinants of portfolio allocation. Yield differentials in bond markets are already beginning to reflect transition risks that arise from the inadequate pursuit by issuers of climate targets. Unlike standard green bonds, sustainability-linked bonds (SLBs) create a link between performance (outcome) indicators and the financial terms of the bonds. SLBs have grown rapidly in importance in private markets and are now being assessed by sovereign issuers. We show that sovereign SLBs could help incentivise climate policies in EU countries, and accelerate emission reductions. They would be an effective tool for signalling commitment. A common EU framework for issuance by EU countries would enhance capital market integration and the transparency of national policies, and would limit climate transition risks in EU capital markets more broadly.
Topic:
Climate Change, European Union, Finance, Carbon Emissions, and Sovereign Bonds
Political Geography:
Europe

128. A model for a participative approach to digital competition regulation

Author:
Christophe Carugati
Publication Date:
02-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Digital competition regulations often put in place participative approaches to ensure competition in digital markets. The participative approach aims to involve regulated firms, stakeholders and regulators in the design of compliance measures. The approach is particularly relevant in complex and fast-evolving digital markets, where whole industries often depend on the behaviours of the regulated firms. The participative approach enables stakeholders and regulated firms to design compliance measures that are optimal for all because they ensure legal certainty for regulated firms, save time for regulators and take into account the views of stakeholders. However, the participative approach is subject to regulatory capture. The regulated firms and stakeholders might try to promote their interests to the regulator. This could result in endless discussions at best, and the adoption of inappropriate solutions following intense lobbying at worst. A governance model is necessary to ensure that the participative approach works without risks of regulatory capture. The model should define clearly each participant's role, duties and rights. There should be: 1) equal and transparent access of all stakeholders to the dialogue; 2) the presentation of tangible and evidence-based solutions from stakeholders and regulated firms; 3) public decisions from the regulator that contain assessments of the proposed solutions, with guidance to clarify rules; and 4) compliance measures proposed by the regulated firm in line with the guidance. The model should provide an assessment framework for the proposed solutions to identify the most effective. The assessment should rely on the principle of proportionality to assess whether the proposed compliance measure is proportionate, to ensure the effectiveness of the regulation. Finally, the model should safeguard against regulatory capture thanks to transparency rules and external monitoring.
Topic:
Regulation, Digital Economy, Innovation, Stakeholders, and Competition
Political Geography:
Global Focus

129. How Europe should answer the US Inflation Reduction Act

Author:
David Kleimann, Niclas Poitiers, André Sapir, Simone Tagliapietra, Nicolas Veron, Reinhilde Veugelers, and Jeromin Zettelmeyer
Publication Date:
02-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The 2022 United States Inflation Reduction Act (IRA) is a significant and welcome climate law. It also includes trade-distortive subsidies, including local-content requirements prohibited under World Trade Organisation rules – the first time the US has done this and a blow to the international trading system that could trigger protectionism in other countries. The expected IRA green subsidies are of similar size to those available in the European Union, except in renewable energy production, where EU subsidies remain far larger. However, there are important qualitative differences. Some IRA subsidies discriminate against foreign producers while EU subsidies do not. IRA clean-tech subsidies are simpler and less fragmented, and they focus mainly on mass deployment of green technologies rather than innovation. The IRA will likely harm Europe through its competitiveness effect, while it will likely benefit climate transition in Europe and most of the rest of the world. However, the magnitude of both effects is very uncertain, partly because the IRA will induce substitution away from Chinese inputs. By forcing the reorganisation of supply chains, the IRA may make the EU and other economies more competitive relative to China. It may also initially slow the green transition. But in the longer run, this effect should be outweighed by the reduction in the cost of clean tech driven by the IRA. In responding to the IRA, the EU should not just seek to protect its competitiveness relative to the US but to pursue broader aims, including competitiveness in general, speedy decarbonisation and broad foreign policy and development policy goals. These aims imply that the EU should not impose local-content requirements of its own, should not loosen state-aid rules and should not mimic the IRA’s approach to manufacturing subsidies. Rather, it should focus on boosting its structural competitiveness, formulate a trade policy response that includes reform of the international subsidies regime, and develop an instrument for EU-level subsidies that focuses on early-stage development and increasing EU resilience to trade disruptions.
Topic:
Governance, European Union, Inflation, and Trade
Political Geography:
Europe

130. Climate versus trade? Reconciling international subsidy rules with industrial decarbonisation

Author:
David Kleimann
Publication Date:
02-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The vast environmental subsidies that may be required for the transition to net-zero greenhouse gas emissions are starting to generate international trade and political frictions between the world’s largest economies. This puts (supra-)national industrial decarbonisation efforts on a collision course with international subsidies rules and national countervailing duty (ie anti-foreign subsidy) laws and regulations. International cooperation will be essential to defuse such tensions before they escalate and impede effective climate policy rollouts, and before they lead to economic countermeasures that create new barriers to trade in environmental goods. This requires agreement on permissible environmental subsidy practices that minimise distortions. Meanwhile, it will be crucial to provide financial transfers to assist poorer economies with industrial decarbonisation at the same time as those poorer economies are suffering from the cross-border negative economic impacts of otherwise net-global-welfare enhancing environmental subsidies paid out by wealthy countries. Various forums can host the technical and political negotiations necessary to set the parameters of net global-welfare enhancing subsidies. These include the G7, the G20, the Organisation for Economic Co-operation and Development, the World Trade Organisation’s Trade and Environment Committee and WTO Trade and Environmental Sustainability Structured Discussions, and the Coalition of Trade Ministers on Climate.
Topic:
Climate Change, Political Economy, Trade, Carbon Emissions, Subsidies, and Decarbonization
Political Geography:
Global Focus

131. How best to ensure international digital competition cooperation

Author:
Christophe Carugati
Publication Date:
02-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Large digital firms pose similar competition issues worldwide, such as promoting their own services over those of rivals, or imposing unfair terms and conditions. Competition authorities have opened several antitrust investigations and policymakers have proposed digital competition regulations to tackle these issues. G7 competition authorities have called for several years for international cooperation on digital markets. They want competition cases and laws around the world that are consistent and work together. However, the question of how this can be done remains. A toolbox for international cooperation in competition enforcement already exists, but it does not provide for cooperation in competition policy and has shortcomings in relation to competition enforcement. Current and proposed legislation targets the largest digital firms to tackle the characteristics of digital markets, such as multi-sidedness, and the same or very similar behaviours, such as self-preferencing. Legislation in different jurisdictions addresses these issues with similar rules. While there is some convergence, some rules diverge in substance and some are at high risk of divergence in interpretation. Inconsistency is thus likely to arise from a divergence of interpretation rather than substance. The solution would be to ensure a coherent approach to competition in digital markets. This could be done by developing a framework based on four elements: (1) adoption of common legal phases for future digital competition laws to ensure clarity; (2) adoption of a common legal interpretation through guidance drafted by international forums, such as the International Competition Network (ICN); (3) adoption of common technical requirements developed in the context of ICN technical workshops, when the rules require it; and (4) the implementation of an international monitoring committee within the ICN to evaluate whether competition authorities and courts enforce the rules consistently. The impact of the framework might be limited because of the non-binding nature of the approach, and the focus on specific competition-related legislation, excluding laws that can also address the issues, such as civil law. Countries can overcome these limitations if they are willing to cooperate to ensure a consistent approach.
Topic:
Markets, Digital Economy, Digital Cooperation, and Competition
Political Geography:
Global Focus

132. Preparing for the next winter: Europe’s gas outlook for 2023

Author:
Ben McWilliams, Simone Tagliapietra, Georg Zachmann, and Thierry Deschuyteneer
Publication Date:
02-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The European Union has so far weathered the energy crisis brought on by Russia’s invasion of Ukraine in February 2022 and will manage winter 2022/23 even if Russia abruptly halts all pipeline gas flows. However, preparations must be made for winter 2023-24. In particular, gas storage facilities should be 90 percent full by 1 October 2023. We assess the demand reduction needed if the 90 percent storage target is to be achieved. Our assessment takes into account EU imports, exports to refill gas storage facilities in Ukraine and Moldova, the weather and the situation in power markets, where gas demand is highly dependent on non-gas energy sources. Assuming limited Russian exports continue, and weather conditions are typical, demand up to 1 October 2023 must remain 13 percent lower than the previous five-year average. The EU should therefore extend its demand-reduction target, which is currently set to expire on 31 March 2023. Two variables will determine how easily the target can be met: 1) liquified natural gas (LNG) supply, and 2) the nature of demand reductions. Plans for rapid deployment of regasification units will alleviate concerns over LNG import infrastructure capacity. However, the EU will continue to compete internationally for LNG cargoes, and will remain vulnerable to global dynamics. Strong economic growth in China, for example, could further tighten markets. The way demand is reduced will determine the economic consequences. So far, large reductions in industrial gas demand have not been accompanied by dramatic drops in industrial output, suggesting good substitution options. However, hardly any gas was saved in the power sector last year, because of weak nuclear and hydro output. The return of French nuclear output will therefore be a huge positive. Finally, households have reduced gas demand, partly driven by warmer than usual weather. Record numbers of heat pumps were deployed in 2022, suggesting the start of a structural shift away from gas demand for heating. Policy should support a continued structural shift away from gas. This involves enabling rapid deployment of renewables and the accompanying grid infrastructure, energy-efficiency measures, help for households that want to switch to cleaner heating, and collaboration with industry to accelerate adoption of new low-carbon production methods.
Topic:
Security, Gas, Energy, Russia-Ukraine War, and Green Economy
Political Geography:
Europe

133. The Long‐​Run Effects of Immigration: Evidence across a Barrier to Refugee Settlement

Author:
Antonio Ciccone and Jan Nimczik
Publication Date:
02-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Some 280 million people around the world are first‐​generation immigrants; in Organisation for Economic Co‐​operation and Development countries, first‐​generation immigrants make up around 14 percent of the population. The economic effects of immigration have become better understood in recent decades. A new focus of research on the effects of immigration is its long‐​run impact on productivity, wages, and income. We contribute to this research by examining the long‐​run economic effects of the arrival of refugees in what would become West Germany after the end of World War II (WWII) in 1945. This period was characterized by one of the largest population movements in modern times. Between 1945 and 1949, millions of people from Czechoslovakia, Hungary, Poland, Romania, and eastern parts of prewar Germany were displaced westward. When the Federal Republic of Germany (West Germany) was founded in 1949, these refugees made up around 15 percent of the country’s population.
Topic:
History, Immigration, Refugees, Resettlement, and World War II
Political Geography:
Europe, France, Germany, and United States of America

134. The Political Economy of Anti‐​bribery Enforcement

Author:
Lauren Cohen and Bo Li
Publication Date:
02-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
A level playing field for firm competition is a fundamental requirement for any market to maximize its potential and achieve productive efficiency. When government favors a set of firms or individuals over others, distortions arise that reverberate throughout entire industries, affecting sales, production, innovation, and more. This is not to say that barriers to firms may not sometimes naturally arise, but if a finger is placed on the scale by government to allow certain firms to gain some unerodable advantage, this can have large implications on allocation and overall economic development.
Topic:
Corruption, Political Economy, Law Enforcement, Accountability, and Bribery
Political Geography:
Global Focus

135. The Economic Effects of the English Parliamentary Enclosures

Author:
Leander Heldring, James A. Robinson, and Sebastian Vollmer
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
In 1808, the English agriculturist Arthur Young stumbled on something interesting. He noticed that the adjacent Cambridgeshire parishes of Childersley and Hardwicke in England had startlingly different economic outcomes, even though they were divided only by a hedgerow. In Hardwicke, wheat yields were 16 bushels per acre, whereas in Childersley, on the other side of the hedgerow, they were 24 bushels per acre—50 percent higher. What could explain the difference? It wasn’t economic fundamentals, because Childersley consisted of similar soil. Rather, Young attributed the difference to the fact that the land in Hardwicke remained in “common field” while the land in Childersley was enclosed.
Topic:
Agriculture, History, Economy, Enclosure, and Parliament
Political Geography:
Europe and England

136. Uncle Sucker: Why U.S. Efforts at Defense Burdensharing Fail

Author:
Justin Logan
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
In 2022, the United States counted 50 of the world’s 195 countries as formal treaty allies, not including dozens more informal security relationships. U.S. allies do not carry a proportionate share of the burden of their defense; Washington’s allies account for roughly 36 percent of world economic output but only 24 percent of world military spending. In every alliance, the United States is the most important member and gives more than it gets in return. American politicians and the American public regularly express frustration with allies’ behavior. In 1959, for example, President Dwight D. Eisenhower lamented that the insufficient defense efforts of U.S. allies in Europe meant that the Europeans were close to “making a sucker out of Uncle Sam.” Things have gotten worse since 1959. Today, America’s alliances act as transfer payments from U.S. taxpayers to taxpayers in allied countries. History and theory both suggest that hectoring allies is unlikely to produce much change. Allies know that they can pocket the gains from U.S. commitments, then spend their own money in the ways they believe benefit them most. Policymakers should evaluate alliance commitments in the context of the net contributions of U.S. allies to U.S. defense, weighed against the costs and benefits of a non‐​alliance. The only way to produce more equitable burdensharing is to make allies doubt the strength of the U.S. commitment: the stronger the belief in the U.S. commitment, the harder it is to get allies to defend themselves. Unless policymakers fundamentally change their approach to alliances, there is little hope that defense burdens can be spread more equitably.
Topic:
History, Alliance, Defense Spending, Military, and Burden-sharing
Political Geography:
North America and United States of America

137. The Fiscal Impact of Immigration in the United States

Author:
Alex Nowrasteh, Sarah Eckhardt, and Michael Howard
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
The National Research Council and the National Academy of Sciences (NAS) published groundbreaking investigations into the economics of immigration in 1997 and 2017. Both publications contained thorough literature surveys compiled by experts, academics, and think tank scholars on how immigration affects many aspects of the U.S. economy. The 2017 NAS report included an original fiscal impact model as a unique contribution to immigration scholarship. Its findings have been used by policymakers, economists, journalists, and others to debate immigration reform. Here, we acquired the exact methods used by the NAS from its authors to replicate, update, and expand upon the 2017 fiscal impact model published in the NAS’s The Economic and Fiscal Consequences of Immigration. This paper presents two analyses: a measure of the historical fiscal impacts of immigrants from 1994 to 2018 and the projected long‐​term fiscal impact of an additional immigrant and that immigrant’s descendants. An individual’s fiscal impact refers to the difference between the taxes that person paid and the benefits that person received over a given period. We use and compare two models for these analyses: the first follows the NAS’s methodology as closely as possible and updates the data for more recent years (hereafter referred to as the Updated Model), and the second makes several methodological changes that we believe improve the accuracy of the final results (hereafter referred to as the Cato Model). The most substantial changes made in the Cato Model include correcting for a downward bias in the estimation of immigrants’ future fiscal contributions identified by Michael Clemens in 2021, allocating the fiscal impact of U.S.-born dependents of immigrants to the second generation group, and using a predictive regression to assign future education levels to individuals who are too young to have completed their education. Other minor changes are discussed in later sections. Immigrants have a more positive net fiscal impact than that of native‐​born Americans in most scenarios in the Updated Model and in every scenario in the Cato Model, depending on how the costs of public goods are allocated. The Cato Model finds that immigrant individuals who arrive at age 25 and who are high school dropouts have a net fiscal impact of +$216,000 in net present value terms, which does not include their descendants. Including the fiscal impact of those immigrants’ descendants reduces those immigrants’ net fiscal impact to +$57,000. By comparison, native‐​born American high school dropouts of the same age have a net fiscal impact of −$32,000 that drops to −$177,000 when their descendants are included (see Table 31). Results also differ by level of government. State and local governments often incur a less positive or even negative net fiscal impact from immigration, whereas the federal government almost always sees revenues rise above expenditures in response to immigration. With some variation and exceptions, the net fiscal impact of immigrants is more positive than it is for native‐​born Americans and positive overall for the federal and state/​local governments.
Topic:
Immigration, History, and Fiscal Policy
Political Geography:
North America and United States of America

138. The Impact of Regulation on Innovation

Author:
Philippe Aghion, Antonin Bergeaud, and John Van Reenen
Publication Date:
04-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
There is considerable research on the economic impacts of regulations but relatively few studies about their impact on technological innovation. Moreover, most analyses focus on the costs and benefits of regulation at a point in time, rather than on its effects over time. Yet potential effects on economic growth are likely to be much more pronounced in the long run. Many scholars have been concerned that slower growth in countries with heavy labor regulations could be due to firms’ reluctance to innovate given the burden of red tape. For example, the slower growth of Southern European countries and parts of Latin America have often been blamed on onerous labor laws.
Topic:
Labor Issues, Regulation, Economic Growth, and Innovation
Political Geography:
Global Focus

139. Balance of Trade, Balance of Power: How the Trade Deficit Reflects U.S. Influence in the World

Author:
Daniel Griswold and Andreas Freytag
Publication Date:
04-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
The U.S. trade deficit is a misunderstood symbol of U.S. economic strength and influence in the world. The deficit is not driven by unfair trade abroad or industrial weakness at home and, as the Trump years show, cannot be “fixed” through higher tariffs. Instead, the trade deficit is driven by a persistent net inflow of foreign capital, which reduces interest rates and fuels economic output. Contrary to myth, the trade deficit is not a cause of deindustrialization or a loss of manufacturing jobs. In fact, the current balance of trade points to America’s continuing influence in global affairs—as a haven for global investment, as a robust producer and buyer of global goods and services, and as the provider of a strong dollar that remains at the center of the global economy. Policymakers should reject measures that restrict trade and foreign investment and instead seek to expand America’s commercial ties to the rest of the world.
Topic:
Foreign Policy, Economy, Trade, and Trade Deficit
Political Geography:
North America and United States of America

140. Course Correction: Charting a More Effective Approach to U.S.-China Trade

Author:
Clark Packard and Scott Lincicome
Publication Date:
05-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Over the past several years the U.S.-China economic relationship has soured and become subordinated to broader concerns about national security and geopolitics. After a decades‐​long reform agenda in China that lifted hundreds of millions out of grinding poverty, Chinese president Xi Jinping has increasingly turned inward—reembracing Maoist socialism and heavy‐​handed central planning. Washington’s response to these worrisome developments has been reflexively hawkish economically, scattershot, and woefully inadequate for the economic challenge that China presents.
Topic:
National Security, Bilateral Relations, Economy, and Trade
Political Geography:
China, Asia, North America, and United States of America