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122. Permanent Budget Surpluses as a Fiscal Regime
- Author:
- Lukas Haffert
- Publication Date:
- 02-2016
- Content Type:
- Working Paper
- Institution:
- Max Planck Institute for the Study of Societies
- Abstract:
- This paper challenges the focus on budget deficits that permeates the literature on fiscal policy. It analyzes countries running budget surpluses and asks why some of them preserved these surpluses while others did not. Whereas several OECD members recorded surpluses for just a few years, balanced budgets became the norm in Australia, Canada, Denmark, Finland, New Zealand, and Sweden in the late 1990s. The paper compares the fiscal policy choices of both types of countries from a historical-institutionalist perspective. It argues that a path-dependent shift in the balance of power among fiscal policy interests explains why surpluses persisted in one group of countries but not in the other. This reconfiguration of interests was triggered by a deep fiscal crisis and an ensuing expenditure-led consolidation. It can be interpreted as creating a new “surplus regime” in which fiscal policy became structured around the goals of balancing the budget and cutting taxes.
- Topic:
- Economics, Financial Crisis, Budget, and Europe
- Political Geography:
- Finland, Denmark, Sweden, and New Zealand
123. The Greek Euro Tragedy
- Author:
- John Ryan
- Publication Date:
- 11-2016
- Content Type:
- Commentary and Analysis
- Institution:
- LSE IDEAS
- Abstract:
- On 4 February 2015, the European Central Bank (ECB) unexpectedly and suddenly cancelled acceptance of Greek bonds as collateral for liquidity funding unless Greece obeyed the Troika agreement. The ECB’s irresponsible and incompetent actions call into question their respect for the Greek government’s attempts to resolve its debt crisis in a sustainable way. The ECB may or may not have good reasons to cut off Greece, depending on your point of view, but it is clear that such a move would be political. A central bank that is supposed to be the lender of last resort and guardian of financial stability would be taking a deliberate and calculated decision to undermine the Greek banking system. The ECB is now seen in some quarters as arrogant, unaccountable and authoritarian.1 This Strategic Update discusses the most recent problems for the Eurozone, namely the Greek crisis and the European Central Bank’s (ECB) lack of democratic accountability which has contributed to considerable difficulties for the stability of the Eurozone.
- Topic:
- International Trade and Finance and Financial Crisis
- Political Geography:
- Greece
124. Assessing the Governance Practices of Sustainability Reporting
- Author:
- Jason Thistlethwaite and Melissa Menzies
- Publication Date:
- 01-2016
- Content Type:
- Policy Brief
- Institution:
- Centre for International Governance Innovation (CIGI)
- Abstract:
- To promote climate change risk mitigation in financial markets, the Financial Stability Board recently proposed the creation of a Climate Disclosure Task Force, coordinated through the G20, to develop standards for companies to disclose their exposure to climate change risks. With more than 400 existing disclosure schemes, this task will be challenging. This brief identifies the key categories of governance practices that must be addressed, how these divergent practices challenge end-users, and how the establishment of criteria that define effective and efficient reporting is a critical first step for the Climate Disclosure Task Force.
- Topic:
- Climate Change, Economics, Markets, and Financial Crisis
- Political Geography:
- Global Focus
125. Fiscal Sustainability: Conceptual, Institutional, and Policy Issues
- Author:
- Marek Dabrowski
- Publication Date:
- 08-2016
- Content Type:
- Working Paper
- Institution:
- Center for Social and Economic Research - CASE
- Abstract:
- 'Since 2008, the world economy has been facing the consequences of the global financial crisis. As a result, many economic policy paradigms have been revised, and this process is far from complete. The policy area, which needs a fundamental rethinking (especially in advanced economies), relates to the role of public finance and fiscal policy in ensuring economic growth and financial stability. The primary task will be to develop a new analytical approach and detailed indicators, which are necessary to provide a correct diagnosis and effective recommendations.' What are the “safe” levels of budget deficit and public debt during “normal” or “good” times? Is there a single norm of fiscal safety?
- Topic:
- Debt, Financial Crisis, Finance, Global Financial Crisis, Macroeconomics, Fiscal Policy, and Deficit
- Political Geography:
- Europe, Global Focus, and Global Markets
126. Change in Economic Policy Paradigm: Privatization and State Capture in Poland
- Author:
- Piotr Kozarzewski and Maciej Bałtowski
- Publication Date:
- 07-2016
- Content Type:
- Working Paper
- Institution:
- Center for Social and Economic Research - CASE
- Abstract:
- Piotr Kozarzewski and Maciej Bałtowski analyse the causes and manifestations of Poland’s recent shift in economic policy towards a more active role of the state, and use privatization policy as an example. The authors examine the effects of the privatization policy and point to a large unfinished agenda in ownership transformation that has had an adverse impact on the institutional setup of the Polish state, creating grounds for rent seeking and cronyism, which, in turn, impede the pace of privatization. They find out that it is the increasing capture of the state by rent-seeking groups, and not, contrary to popular opinion, the global financial crisis, that most contributes to the growing statist trends of Poland’s economic policy. The publication is a part of a CASE Working Papers series.
- Topic:
- Privatization, Financial Crisis, Reform, State, Economic Policy, Institutions, and Macroeconomics
- Political Geography:
- Europe and Poland
127. The EuroZone “Debt” Crisis: Another “Center” – “Periphery” Crisis Under Financial Globalization?
- Author:
- Arturo O'Connell
- Publication Date:
- 11-2016
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- This paper analyzes the Euro crisis in light of the experience of center-periphery relations over the last 40 years of renewed financial globalization. The crisis shows the characteristic pattern evident in so many other crises in the developing world: i.e. “boom” and “bust” phases of cross-border financial flows of massive magnitude, dominated by “push” factors from the center. Financial institutions at the center play a crucial role. The “boom” phase leads to serious imbalances in the peripheral economies - losses of competitiveness among them -ending in a “sudden-stop” that poses acute problems for the overexposed creditors, which then turn to their own governments for bailouts.
- Topic:
- Debt, Globalization, Regional Cooperation, Financial Crisis, and European Union
- Political Geography:
- Europe
128. The Mismeasure of Mammon: Uses and Abuses of Executive Pay Data
- Author:
- Matt Hopkins and William Lazonick
- Publication Date:
- 10-2016
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- On April 7, 2016, the Wall Street Journal ran an article headlined “CEO pay shrank most since financial crisis,” while on May 27, 2016, a similar New York Times story declared “Top CEO pay fell – yes, fell – in 2015.” Unfortunately, both the Journal and the Times mismeasured the actual take-home pay of each and every one of these CEOs in 2014 and 2015. The reason for this mismeasure is that both articles relied on “fair value” estimates of the stock-based pay of these CEOs as reported in the Summary Compensation Table of the definitive proxy statement (Form DEF 14A) that each publicly listed company files annually with the U.S. Securities and Exchange Commission (SEC). Yet the very same proxy statements also report the actual realized gains of these CEOs in the Option Exercises and Stock Vested Table. It is the realized gains on stock-based pay, not fair-value estimates, that enter into the total compensation that a CEO actually takes home and reports as income in his or her income-tax return. Moreover, including actual realized gains instead of estimated fair value of stock– based pay in the measure of total executive compensation can make a big difference. In 2014 average total compensation of the 500 highest-paid executives named on corporate proxy statements based on actual realized gains was $34.3 million, with 81 percent coming from stock-based pay. But average total compensation of the 500 highest paid based on estimated fair value was $19.3 million, with 62 percent attributable to stock- based pay. The excess of total actual realized-gains compensation over total estimated fair-value compensation was greatest in those years when the stock market was booming. Why would the Wall Street Journal and the New York Times report estimates of executive pay when they could be reporting the CEOs’ actual pay? In this paper, we answer this question by explaining the origins of the “fair value” estimates of stock-based pay and how the obsession with these estimates by the SEC, relying on the business-run Financial Accounting Standards Board (FASB), has relegated to statistical obscurity executives’ readily available, accurate, and actual realized gains from stock-based pay. We use Standard & Poor’s ExecuComp database to document that a) stock-based pay, in the forms of realized gains from stock options and stock awards, dominates both the size of and the changes over time in the total compensation of the highest-paid senior executives; and b) the fair-value estimates of stock-based pay tend to understate, often substantially, the realized gains from stock-based pay that these executives actually receive. An irony is that even critics of excessive executive pay, most notably the AFL-CIO on its Executive Paywatch website, use the fair-value estimates when the actual CEO compensation numbers would reveal a much larger ratio of CEO pay to the earnings of the average worker. Indeed, as we discuss in the conclusion to this paper, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, this mismeasure of executive pay has become institutionalized in U.S. government policy in the SEC’s Pay Ratio Disclosure Rule, which beginning in 2017 requires every company to publish the ratio of CEO to median-worker pay. Under this rule, the SEC requires companies to use the fair-value measure of CEO pay. The Pay Ratio Disclosure Rule is supposed to provide the public with a company-level indicator of income inequality. Instead it will tend to underestimate inequality, substituting fictitious estimates for actual known amounts of income that CEOs put into their bank accounts and declare in their income-tax returns.
- Topic:
- Financial Crisis, Inequality, Income Inequality, Stock Markets, and Wage Growth
- Political Geography:
- North America and United States of America
129. The Resolution of Systematically Important Financial Institutions: Lessons from Fannie and Freddie
- Author:
- Mark A. Calabria
- Publication Date:
- 01-2015
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- There was perhaps no issue of greater importance to the financial regulatory reforms of 2010 than the resolution, without taxpayer assistance, of large financial institutions. The rescue of firms such as AIG shocked the public conscience and provided the political force behind the passage of the Dodd-Frank Act. Such is reflected in the fact that Titles I and II of Dodd-Frank relate to the identification and resolution of large financial entities. How the tools established in Titles I and II are implemented are paramount to the success of Dodd-Frank. This paper attempts to gauge the likely success of these tools via the lens of similar tools created for the resolution of the housing government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
- Topic:
- Economics, International Trade and Finance, Financial Crisis, and Reform
130. Globalisation, the Global Financial Crisis and the State
- Author:
- Christopher Huszar
- Publication Date:
- 02-2015
- Content Type:
- Journal Article
- Journal:
- Central European University Political Science Journal
- Institution:
- Central European University
- Abstract:
- The recent financial crisis devastated financial markets the world over. The events of the crisis caused many to question the policies of the pre-crisis era, which tended towards minimizing regulation as well as many others amorphously placed under the term Washington Consensus. The text Globalisation, the Global Financial Crisis and the State , edited by John H. Farrar and David G. Mayes, professors of law and finance, respectively, focuses on the interactions between states, economic policies and laws against the backdrop of the global financial crisis. Utilizing perspectives in the fields of law, political science and economics, the twelve chapters delve into interdisciplinary arguments over the changing regulatory structure of the world and the global forces that shape the state. The authors' overarching argument is that the financial crisis marked a discursive departure from the models supported by pre financial crisis policies typified by the Washington Consensus towards a more multilateral approach symbolized by the emergence of the G-20 and more state oriented control over commercial activities.
- Topic:
- Economics, Markets, Financial Crisis, and Law
- Political Geography:
- Washington
131. Greece and the European Project: Canary in the Coal Mine?
- Author:
- Daniel V. Speckhard
- Publication Date:
- 09-2015
- Content Type:
- Journal Article
- Institution:
- Council of American Ambassadors
- Abstract:
- After serving for two challenging years in the chaos of a war zone as the Deputy Chief of Mission in Iraq, I received word that I would become the next Ambassador to Greece. To be quite honest, I had mixed feelings. I looked forward to the challenge, but I imagined the post would be too sedate compared with the adrenalin-charged days and world-shaping events in Iraq. It was anything but. Within a year of my arrival, the streets were aflame with violent protests over a police shooting of a teenager. A year later, snap elections brought a socialist government to power. And soon thereafter, the onion was further peeled to expose a financial crisis and a crumbling economic foundation built on a corrupt, oligarchic, and debt-addicted system fed by billions of dollars of public and private EU loans and grants.
- Topic:
- Corruption, Economics, Politics, Financial Crisis, and European Union
- Political Geography:
- Europe and Greece
132. Just Enough, Just in Time: Improving Sovereign Debt Restructuring for Creditors, Debtors and Citizens
- Author:
- Richard Gitlin and Brett House
- Publication Date:
- 07-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation (CIGI)
- Abstract:
- Recent international financial turmoil — most notably in Greece — has refocused attention on the risks posed by severe sovereign debt crises and weaknesses in our approaches to restructuring sovereign debt. Since early 2010, these risks have driven a range of debt-related policy proposals and actions in individual economies, across regions and at the international financial institutions. While some incremental first reform steps have been taken, these have not yet produced a more efficient, effective or resilient international framework for handling severe sovereign debt crises and effecting sovereign debt workouts. In contrast, some institutional and policy changes made in the heat of the euro-zone crisis have raised as many questions as they have resolved. Old policy ideas are also being resurrected and configured in new ways for current challenges. After years of substantial fiscal stimulus and exceptional monetary policies, high debt burdens across the advanced economies, fears of secular stagnation, signs of an imminent increase in US borrowing costs and deteriorating demographics together make a compelling case for concerted action to improve international arrangements for dealing with distressed sovereign debt.
- Topic:
- Debt, Economics, Monetary Policy, Financial Crisis, and Global Markets
- Political Geography:
- Global Focus
133. Corporate Debt in Emerging Economies: A Threat to Financial Stability?
- Author:
- Barry Eichengreen, Domenico Lombardi, Malcolm D. Knight, Yu Yongding, Stephen G. Cecchetti, Diane De Gramont, Şebnem Kalemli-Özcan, Phillip R. Lane, Ugo Panizza, and Viral V. Acharya
- Publication Date:
- 09-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation (CIGI)
- Abstract:
- During 1999-2007, the international balance sheets of emerging economies grew stronger through a combination of current account surpluses, a shift from debt funding to equity funding, and the stockpiling of liquid foreign reserves. This risk-mitigating strategy improved the international financial standing of many emerging economies and helped these economies withstand the 2008-2009 global financial crisis. However, a combination of domestic and external factors has led to a partial reversal of this strategy, with some emerging economies accumulating significant external debt since 2010. Previewed by the May 2013 “taper tantrum,” there has been considerable speculation that a tightening of dollar-funding conditions and a macroeconomic slowdown in emerging economies may result in financial instability in some emerging economies.
- Topic:
- Debt, Economics, Emerging Markets, International Trade and Finance, Financial Crisis, and Global Markets
- Political Geography:
- Global Focus
134. International Regulatory Cooperation on the Resolution of Financial Institutions: Where Does India Stand?
- Author:
- Renuka Sane
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation (CIGI)
- Abstract:
- This paper provides a brief description of the principles of cross-border resolution that have emerged after the 2008 global financial crisis, and the progress that has been achieved. The paper then provides an overview of developments on resolution of financial firms in India. It finds that while there is cognizance of the need for international cooperation on resolution, the focus is on first developing institutional capacity on domestic resolution that can interact with the international community in the future. The policy choices of India may be reflective of the thinking in a large number of emerging markets, which considerably lag behind the more developed markets, partly due to lower interconnectedness and partly due to limited experience in domestic resolution.
- Topic:
- Development, Emerging Markets, International Trade and Finance, Political Economy, and Financial Crisis
- Political Geography:
- India
135. Ukraine and the IMF's Evolving Debt Crisis Narrative
- Author:
- Susan Schadler
- Publication Date:
- 11-2015
- Content Type:
- Policy Brief
- Institution:
- Centre for International Governance Innovation (CIGI)
- Abstract:
- Against the International Monetary Fund’s (IMF’s) fraught experience with crises where debt restructuring is needed, Ukraine’s recent restructuring agreement has been a success. Several factors — in particular, Ukraine’s geopolitical position and the composition of its creditors — facilitated official support for the deal. As these are unlikely to be replicated in future debt crises, the IMF still needs a revamping of its policies and approach in crises requiring debt restructuring. This policy brief examines a number of key challenges in the evolution of a coherent role for the IMF in future crises.
- Topic:
- Debt, Political Economy, International Monetary Fund, Financial Crisis, and Global Markets
- Political Geography:
- Ukraine
136. The 2015 Survey of Progress in International Economic Governance
- Author:
- Domenico Lombardi and Kelsey Shanty
- Publication Date:
- 11-2015
- Content Type:
- Policy Brief
- Institution:
- Centre for International Governance Innovation (CIGI)
- Abstract:
- The annual CIGI Survey of Progress in International Economic Governance assesses progress in five areas of international economic governance: macroeconomic and financial cooperation; cooperation on financial regulation; cooperation on development; cooperation on trade; and cooperation on climate change. In this year’s survey, 31 CIGI experts conclude that international economic arrangements continue to show a level of “status quo,” averaging a score of 50% across all five areas. The 2015 survey indicates a slight improvement to the result of last year’s survey, which suggested a minimal regression overall. The experts’ assessment of progress was most promising in the area of climate change cooperation, with an average score of 57%, whereas the least promising area was macroeconomic and financial cooperation, with a score of 44%, indicating minimal regression. The remaining three areas polled all fell within the “status quo” range, with trade at 46%, development at 48% and international cooperation on financial regulation at 53%. Interestingly, in the area of cooperation on development, CIGI’s experts provided a relatively mixed assessment. Responses varied based on experts’ perception of the effectiveness of current rhetoric, from 70% (indicating some progress) to 10% (suggesting major regression). Compared to last year, climate change governance has made the greatest improvement, but the remaining three areas (with the exception of development, which was not included in the 2014 survey) have all, on average, regressed further or remained stagnant. This trend is cause for concern.
- Topic:
- Climate Change, Development, International Political Economy, International Trade and Finance, and Financial Crisis
- Political Geography:
- Global Focus
137. China’s Hidden Obstacles to Socioeconomic Rebalancing
- Author:
- Boy Lüthje and Christopher A. McNally
- Publication Date:
- 10-2015
- Content Type:
- Policy Brief
- Institution:
- East-West Center
- Abstract:
- The global financial crisis of 2008-09 led to a policy consensus in China that its socioeconomic development model needed rebalancing. China's rapid development has been based on extensive growth reliant on exports, low wages, environmental exploitation, and the manufacturing of cheap products. China's current plans identify paths to economic rebalancing through intensive growth driven by rising investment in new technologies and manufacturing processes, improved wages and skills, and improved worker and environmental protections. Two industries, automotive and information technology, demonstrate the experience of and opportunities for rebalancing. Both offer improved employment conditions with better wages, but continue to incorporate large swaths of low-wage employment with little protection for workers' health and the environment. Economic rebalancing in China, therefore, has so far only appeared in pockets. Institutional safeguards for wages and labor standards remain constrained by powerful alliances among multinational corporations, Chinese state-owned/private enterprises, and the Chinese state.
- Topic:
- Economics, Political Economy, Labor Issues, and Financial Crisis
- Political Geography:
- China
138. China’s Hidden Obstacles to Socioeconomic Rebalancing
- Author:
- Christopher McNally and Boy Lüthje
- Publication Date:
- 09-2015
- Content Type:
- Working Paper
- Institution:
- East-West Center
- Abstract:
- The global financial crisis of 2008-09 led to a policy consensus in China that its socioeconomic development model needed rebalancing. China's rapid development has been based on extensive growth reliant on exports, low wages, environmental exploitation, and the manufacturing of cheap products. China's current plans identify paths to economic rebalancing through intensive growth driven by rising investment in new technologies and manufacturing processes, improved wages and skills, and improved worker and environmental protections. Two industries, automotive and information technology, demonstrate the experience of and opportunities for rebalancing. Both offer improved employment conditions with better wages, but continue to incorporate large swaths of low-wage employment with little protection for workers' health and the environment. Economic rebalancing in China, therefore, has so far only appeared in pockets. Institutional safeguards for wages and labor standards remain constrained by powerful alliances among multinational corporations, Chinese state-owned/private enterprises, and the Chinese state.
- Topic:
- Economics, Markets, Science and Technology, Labor Issues, and Financial Crisis
- Political Geography:
- China
139. Rio de Janeiro as a Global Financial Center
- Author:
- Virgílio Gibbon
- Publication Date:
- 10-2015
- Content Type:
- Special Report
- Institution:
- Brazilian Center for International Relations (CEBRI)
- Abstract:
- Situational crises tend to concentrate economic activity in centers where such activity already is historically more significant. As a result, financial markets — especially the organized markets — tend to coalesce around these same centers because they benefit from the higher level of liquidity that concentrated economic activity offers. This undoubtedly was one of the major causes of the waning of the financial market in Rio de Janeiro, and the hegemony conquered by São Paulo as of the 1980s.
- Topic:
- International Political Economy, International Trade and Finance, Financial Crisis, and Financial Markets
- Political Geography:
- Brazil
140. Short-selling Bans and the Global Financial Crisis: Are They Interconnected?
- Author:
- Pierre L. Siklos, Martin T. Bohl, and Badye Essid
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation (CIGI)
- Abstract:
- This paper observes that short-selling bans spread globally beginning in 2007. We seek to empirically determine whether there were spillover effects over and above the domestic impact from the imposition of such bans. There is some evidence that the bans were unsuccessful, at least insofar as they did not take into account the global component a short-selling ban might have. In the individual countries we examine, the bans had relatively little impact. Nevertheless, our finding that equity returns do not appear to show a decline may be evidence that the bans stemmed further deterioration in stock prices that policy makers sought to avoid.
- Topic:
- Financial Crisis