Tax Evasion

Eurocrisis Conversation with Peter Bofinger

Note: Peter Bofinger and Sony Kapoor wrote the original Growth Compact for the EU in late 2011, which was then adopted albeit in a very watered down format. Download as PDF.

Sony: Peter, the markets are quiet, but the Eurocrisis is still with us, No?

Peter:  Well, the crisis is continuing and the recession is getting worse, especially as it is affecting more and more counties. It has spread from the peripheral countries into the core of Europe.  It has affected France, which is in recession, and it has also affected Germany, which has seen a severe decline in output in the fourth quarter of last year and more or less stagnated in the first quarter of this year. 

Sony:  When we were talking earlier you mentioned that this may bring new realisation in Germany and may change the debate in Germany somehow.  Up until now the crisis has not actually been felt in Germany, it has just been on the TV.  But is there not a danger that this may make a solution harder?

Personally, I can see it going both ways.  On the one hand, Germans could realise that it is a systemic crisis and they are not immune, and therefore need to do something different. Or, on the other hand, ‘oh my God, we are in trouble ourselves and here are these countries asking us for help; we cannot actually afford to help them’. This could make it less likely that Germany does anything to help them.  Which way is it more likely to go?

A Growth Compact for the European Union

Sony Kapoor, Director of Re-Define Peter Bofinger, Member of the German Council of Economic Experts 

Dated the 30th of January 2012


CONSCIOUS of the need to tackle the unprecedented social, political, economic, employment and institutional challenges confronting the Union, and

RECOGNIZING that promoting growth is the best possible way of rising up to these challenges, thus

DESIRING to kick-start growth in short-term and construct structures and implement policies that put the Union on a path of higher growth in the long-term, especially as only growth will create the economic and political space to enact the serious structural reforms the Union needs, and

Tackling Tax Flight in the European Union

The EU, in common with other major economies of the world, loses a significant amount of potential tax revenue every year to tax evasion and tax avoidance. Some EU-wide estimates are as high as 500 billion – 1,000 billion Euros annually.
This tax loss takes two major forms 1) domestic and international. Domestic tax losses come about when the taxable funds are not shipped overseas but stay within the country. This form of tax loss is on the decline as the increasingly electronic nature of financial transactions and an economy that is less and less cash oriented make domestic avoidance harder.
At the same time, tax flight, the loss of tax revenues related to cross border flows of funds, has been rising rapidly.

EU do it!

''Dear Ms. Merkel and Mr. Sarkozy,

While the US has embarked on a significant overhaul of its financial system and China has been growing at a blistering pace, the EU is lagging behind both on financial reform and on kick-starting growth. We have been too busy fighting fires partly of our own making.

Meanwhile our new-found enthusiasm for austerity measures is sure to stoke even more fires and has already sparked widespread social unrest across the Union.

The EU's citizens are mature enough to understand the need for some belt-tightening, but they resent the fact that the financial sector that is responsible for our misery is getting away scot-free.

A FIT Proposal - Financial Instrument Taxes

The world has woken up to an urgent fiscal challenge. Budget cuts will soon start to bite at home in Europe, while funding for international development and tackling climate change has already been cut. Meanwhile, the financial system that got us into this fiscal mess remains largely unreformed, with proposed changes largely neglecting the issue of systemic risks posed by financial markets in favour of ‘quick fix’ changes to the banking system. Even less has been done to align finance with the real economy.

Implementing a series of Financial Instrument Taxes (FITs) offers a highly flexible toolkit to help achieve progress on all three fronts. These are similar to, but broader than, the widely-discussed financial transaction taxes (FTTs), and can be tailored to the idiosyncrasies of particular markets. For example, more liquid markets in stocks, futures and certain derivatives will be taxed on a per transaction basis, whereas illiquid securitized products, mortgages and OTC derivatives would be taxed on issuance.