Contributions in Merlin

Blacklisting is a widespread and controversial instrument designed to induce tax havens to change their domestic policies. Since the Global Financial Crisis, several international organizations like the OECD and the EU have published tax haven blacklists, but these lists have been widely criticized as a flawed policy tool. In this paper, we use a mixed methods approach to explore the political rationale behind the establishment of the EU blacklist, and the causal mechanisms through which the list was expected to exert influence over governments in tax havens. First, we draw on process-tracing and expert interviews to establish that the list was less designed as an effective policy tool to induce compliance with international standards, and more as a political impetus to shape the overall problem definition, strengthen the Commissions bargaining position, and influence public opinion. Second, we conduct a survey experiment in Switzerland to determine if using a blacklist to name-and-shame and threaten economic sanctions can effectively shape public opinion in a low-tax jurisdiction. We find that “naming-and-shaming” and “economic threat” have a statistically significant effect on public opinion in favor of tax reform, but that this effect is modest.

This paper investigates worker bargaining power evolution over the last decades and its consequences on the American and French labor markets. I use a framework where wages and marginal productivity of labor are linked by a negotiation process, allowing the bargaining power of the parties involved to vary over time. I uncover a sizable disproportion between employees and employers in salary negotiation by estimating an average worker bargaining power of 17% in the U.S. and 25% in France. However, these average estimates mask an aggregate declining trend in both countries since the 90s. Worker bargaining power followed a hump-shaped trend in the U.S. over the last 60 years, peaking in the 80s and then halving until nowadays. In France, it has also been declining steadily over the last 30 years. These patterns help explain the low unemployment and wage growth over the last decades: firms exploited the low level of worker bargaining power to hire an inefficiently high number of employees. I propose marginal wage and profit taxes to restore labor market efficiency. Technological advancement, regulation, trade, and outsourcing seem to play a minor role in the decline of bargaining power.

The rapid proliferation of Global Value Chains (GVCs) has changed the nature of global commerce, and with it, the political contours and economic consequences of trade protection in the 21st century. Trade wars have always been costly, but they are particularity expensive in the GVC era. This article shares insights from recent research in economics, and explains how protectionist policies could backfire.

The Covid-19 pandemic represents an unprecedented economic shock, insofar as it cumulates the effect of both a demand and a supply shock on the aggregate economy, as well as an unprecedented increase in trading costs. In response to this shock, global trade has declined by approximately 30% in the course of the first six months of 2020, but the subsequent rebound of trade volumes during the summer suggests a quick recovery of international exchanges. A detailed analysis of the times series across countries and sectors reveals the magnifying effects of sanitary measures and export restrictions on the effect of the pandemic on global trade. The absence of a significant decline in trade of essential goods and in particular of medical goods is nonetheless cause for optimism, as it illustrates the resilience of global trade relations.

Talks of “deglobalization” or “slowbalization” have multiplied in the aftermath of the Great Trade Collapse of 2008/2009. The recent economic shock of the COVID-19 pandemic and the war in Ukraine have re-ignited fears of global value chain disruptions, and lead many in international trade to claim the end of globalization as we know it. In this Kühne Impact Series we examine these facts and find that while few statistics point towards a slowdown in global trade, looking at the broad picture we can still be cautiously optimistic. More concerns arise, instead, when looking at the policy landscape.

Africa accounts today for 17% of the world’s population, but less than 3% of global GDP. With a fast-growing population, the continent is projected to reach 4.3 billion inhabitants (39% of the world’s total) by the end of the century. This big domestic market could represent a significant opportunity, but the economy of the continent is not growing at the same pace. In fact, Africa is still struggling to overcome its colonial past, and to gain from its current (new-colonial) dependency from China. The consequences of this can be seen in the extremely low share of intra-African trade and the underdeveloped within-continent infrastructure network. The newly implemented African Continent Free Trade Area (AfCFTA) could prove to be a pivotal step forward, paving the way for self-sustaining economic growth and long-lasting social and geo-political stability on the African continent.

The World Trade Organization (WTO) has a new Director General, and we take her appointment as an opportunity to brief the reader on this important international organization. In particular, we (i) explain its past achievements, (ii) discuss its current challenges, and (iii) summarize its planned reforms.

When we talk about the economic consequences of COVID-19, the question arises about the strength and duration of the changes triggered by the pandemic. Currently, all indications are that COVID-19 is likely to change the structure of the world economy permanently. Evidence suggests that the pandemic is a permanent reallocation shock – one that cannot be mitigated with standard fiscal and monetary stimulus. What are the structural reforms and mechanisms that would allow economies to adapt and to effectively reallocate resources in response to such shocks? Which features made economies resilient to major reallocation shocks in the past? To answer these questions, we take a closer look at the China Trade Shock and its impact on the US economy. We then draw lessons for Europe today.

We develop a new method for characterizing global solutions to search and matching models with aggregate shocks and heterogeneous agents. We formulate general equilibrium as a high dimensional partial differential equation (PDE) with the distribution as a state variable. Solving this problem has previously been intractable because the distribution impacts agent decisions through the matching mechanism rather than through aggregate prices. We overcome these challenges by developing a new deep learning algorithm with efficient sampling in a high dimensional state space. This allows us to study search markets that are not “block recursive”. In applications to labor search models, we show that while block recursivity may approximately hold under symmetric shocks, it fails to capture the dynamics when shocks have an asymmetric impact. Business cycles have a “cleansing” effect by amplifying positive assortative matching in recessions, and the magnitude of the countercyclicality depends on the bargaining process between workers and firms.