Re-Define produces solutions to current and long-term public challenges and helps policy makers implement them
Financial Reform
What Europe Needs to Do to Tackle the Triple Crises of Tax, Finance & Climate
Our new paper for the European Parliament highlights how old approaches to international governance are increasingly out of date in the day and age of increasing globalization. We now live in a world that is highly interconnected, is full of externalities and is increasingly fast paced. (Available for download in our publications section)
The ever faster and larger cross-border flows of commerce, people, and information technologies has reduced the idiosyncratic risks by allowing us access to an increasing array of options for example for investments or suppliers. At the same time, the higher degree of interconnectedness that this has brought about means that the risk of system wide failure – the dominoes all falling together - has increased significantly as demonstrated by the recent world wide collapse in cross border finance and trade.
Existing international governance structures to pursue shared global goals and manage externalities were designed at a time when systemic risk, externalities and the pace of change was much slower. These institutions and their approach to global governance now look increasingly out of touch. There is an urgent need to plug this governance gap that grows by the day.
Why financial transaction taxes (tobin taxes) have finally come of age!
Proponents of the financial transaction taxes (FTT) are happy that the tax is in the news again. However they can’t help but wonder if it is just another false dawn. It is not.
The financial crisis, the biggest in living memory, has massively titled the political and financial landscape in a direction that makes such taxes not just more desirable also much easier to implement.
Keynes was an early proponent of FTTs and the idea got a new lease of life when James Tobin extended it to currency markets. The Asian crisis helped revive the discussion and after falling off the agenda yet again the idea was brought back to life as a potential source of revenue for funding development. Each time it died a slow death. The opponents of FTTs won those battles but are about to lose the war. Here is why.
Re-Defining Regulation Part I - Strengthen some regulations, expand their scope and increase international co-operation
The current financial and economic crisis owes party to the outdated model of regulation where governments tried unsuccessfully to regulate a global financial industry with a nationally focused and highly fragmented regulatory system. As a consequence of this, large swathes of the financial industry hid in the ‘regulatory cracks’ and was not being supervised.
This lack of supervision was reinforced by an ideologically driven deregulation based on a misplaced faith in the ability of markets to always self correct. Furthermore, even when regulations existed, they were not applied.
It was in this poorly regulated ‘shadow financial system’ comprising SIVs, Hedge Funds and other off balance sheet exposures that the crisis originated and its intensity was reinforced by the risks hidden in ‘shadow financial products’ such as Credit Default Swaps which were also unregulated.
How the current discussion on Tax Havens is missing the point?
The current discussion on tax havens is missing the point - So what do we really need to doThe discussion is generating headlines but precious little in the way of tangible progress. This is a wasted opportunity a this political space is unlikely to open again and as William Buiter has sensibly remarked that it is better to over-regulate and then loosen up than to wait for the financial community to get back up and thwart any real efforts at change.
So what are the problems that Tax Havens contribute to?
- Tax Evasion/Avoidance by OECD country citizens
- Tax Evasion/Avoidance by Developing country citizens
- Tax Evasion/Avoidance by Corporate Entities
- Regulatory Arbitrage
- Money Laundering etc
Of these the discussion on reducing (no one is eliminating bank secrecy) bank secrecy is likely to have a modest impact on Tax evasion by OECD country citizens and not much else. Precious little other change is being discussed.
The first problem is that the issues being discussed for change are bilateral tax information exchange treaties. One quick look and we realize that more than 18,000 of these would need to be negotiated in order for all countries to be covered. This is not only inefficient but is also something that will almost never happen. Developing countries in particular, which lose hundreds of billions every year to capital flight will continue to lose out as tax havens negotiate TIEA’s with select countries which belong to the OECD or G-20.
