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The geopolitical and financial significance of Bitcoin

Giancarlo Elia Valori

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Bitcoin and the other “cryptocurrencies”, namely Ethereum and Litcoin- although there are 33 additional currencies arriving on the Internet – are a brand new phenomenon on the currency market.

Currently we are all in the so-called “fiat money” regime, namely any money declared by a government to be legal tender, which is a currency not backed by gold reserves – a currency which is always and anyway accepted by everyone.

Hence it is also fiat money, like the first “lire” of the Kingdom of Italy.

This means it is a State-issued currency that is not convertible by law to any equivalent value in gold or other hard currencies.

Fiat money is stable as it is controlled, almost on a daily basis, with the money demand from the economic system.

When there is an excess of money supply, we talk about inflation.

This is, indeed, the true meaning of the alltoowell-known concept of “inflation”, not the mere “price increase” which, at most, can be an indicator of excessive growth in money supply, not one of its causes.

Accepting the Dollar, the French or Swiss Franc, the Euro, the Ruble or any other currency (albeit, in fact, the situation would be somehow different for the Russian currency) is always mandatory by law.

Hence also seigniorage is mandatory, namely the act of legal magic with which each issuing bank decides that a small piece of paper is worth 100 nominal euro – although costing  only 3 cents to the issuing bank for producing it.

The difference between the face value of money and the cost to produce it (plus fixed costs such as equipment, staff salaries and taxes) is, in fact, seigniorage.

The latter, however, should not be demonized, as done by some theorists who – by using a silly contemporary language dogma – are called “radicals”.

Reasonably, the possible alternative is the intrinsic value money, like the medieval coins – molten gold marked as shown on the coin front or back. Nevertheless the King often “reduced the value” of coins or melted gold and silver with non-monetary metals, such as copper (although the United States was to use it in the future) or even bronze.

Today we would say it was a form of “seigniorage” “with criminal relevance and implications”.

The primal scene – just to quote a concept by Sigmund Freud -stemmed from the 1971 “Smithsonian Agreement”.

It was the American agreement Nixon had wanted as from August 15, 1971, signed in the Smithsonian Museum of Washington. It was signed by what we would currently call the G7 and reestablished an international system of fixed exchange rates without the backing of gold. It certified the end of FED’s obligation to pay for gold up to the fixed rate of 35 US dollars per ounce.

It was the end of the gold-backed currency – the “fiat money” no longer pegged to intrinsic money – occurring after the Allies verifying that the American currency was severely overvalued.

The costs borne for the Vietnam War, the end of the Johnsonian cycle of Great Society and the crisis of US products on European markets, were all factors which led De Gaulle, at first, to ask – without further ado – the payment of the US debt in gold or in hard currencies. Later many other allies who were reluctant to put in place non-tariff barriers against US products followed suit.

To put it more brutally, Nixon shifted the burden of the US super-inflation onto his allies of the Bretton Woods Agreement, which Europeans were forced to pay since they had to buy highly overvalued dollars for their international trade.

As the US Treasury Secretary, John Connally, said at the time to his European colleagues: “The dollar is our currency but your problem”.

In other words, cryptocurrencies are the result of this long historical process.

The currency based on Nothing, the postmodern point of arrival point of the disembodied monetary instrument.

A currency that is believed to be good because everyone thinks so – a financial transposition of Andersen’s tale “The Emperor’s New Clothes”.

As you may remember, it is the tale about two weavers who promise an Emperor a new suit of clothes that they say is invisible to those who are unfit for their position, hopelessly stupid or incompetent – while in reality, they make no clothes at all, making everyone believe the clothes are invisible to them. When the Emperor parades before his subjects in his new “clothes”, no one, including his Ministers, dares to say they do not see any suit of clothes on him for fear that they will  be seen as stupid. Finally, a child in the crowd, too young to understand the desirability of keeping up the pretense, blurts out that the Emperor “is not wearing anything at all” and the cry is taken up by others.

The same will happen to the contemporary monetary equilibrium, but it will certainly not be a child who will get  bankers and the public at large to open their eyes.

Hence today banks create money, which is mandatory to consider valid, with a fiat -namely ex nihilo – from the Void of Value. Or from their debt or even from the State debt.

Just issue securities having another name.

Hence, what is currently money? It is what the Auctoritas decides to be so.

Or, to be precise, the money supply currently issued by the central banks or other banking institutions, which is not based on savers’ deposits or on debt repayment forecasts,  but it is only the sign of a debt, the “promise of a settlement”which, however, is spent immediately.

And hence it is confirmed in its Value. The Value lies in theshift from a currency to another or from a currency to real goods or assets.

Obviously banks still earn interest on the money supply, regardless of its source.

Bitcoin, however, is not a currency like any other, guaranteed by internal law and interbank agreements.

The cryptocurrency is based on a mechanism like the one of online sales, namely the peer-to-peer one, which is gradually accepted by all those who now operate with Bitcoins.

Hence, while the final Bitcoin supply is defined – as always happens – our Internet currency is completely volatile.

Therefore it cannot certainly be a unit of account.

Hence Bitcoin varies- programmatically – as demand changes. In fact, last year its value increased by 47 times.

The reason is simple: it is a monetary supply that adapts to demand, but is also able to stop so as to create sufficiently long Bitcoin income and returns to attract average investors.

In January 2018,the cryptocurrency is worth approximately 900 dollars – a value that will probably increase when, in all likelihood, the Internet currency will be accepted by large commercial and distribution chains.

If it is a currency that influences markets by adapting to buyers’ requests (or artificially reducing supply in an instant), the only ones that can reap benefits are the Great States, the International Crime Organizations or the new networks of global Banks.

Never let them tell you that the small investor of Grand Rapids or Varese can determine the first “peer-to-peer” that, by repetition, triggers the chain off.

It is another fairy tale like the one of the movie Mary Poppins pointing to the magical growth of the penny deposited in a London bank, growing out of all proportion and turning into huge amounts of money.

The fairy tale is the expected automatic growth of funds denominated in Bitcoins, from 10 euro up to millions of millions, like the stars.

In fact, nothing is closer to the world of Andersen or the Brothers Grimm than some bad finance.

We can wonder whether the cryptocurrency is nothing more than a “Ponzi e-Scheme”.

You may recall the Ponzi Scheme or pyramid scheme, in which the high interest rates granted to capital providers -attracted precisely by the rates that are promised – are paid with new investors’ fresh capital.

In fact, what is striking is that the production of Bitcoins is sometimes artificially low because there are many people  who want to buy them.

An issuing bank à la carte.

In fact, the many people who are waiting for buying Bitcoins hope that their value will increase, but only after they have managed to buy them.

A self-fulfilling prophecy.

A mechanism which is exactly the same as the Ponzi Scheme.

As the best US financial advisers say, do not follow the crowd.

Hence the Bitcoin is a “bubble”. A bubble probably bound to last, but still a bubble.

A bubble born in 2016. The primary year, while everybody makes reference to 2009, when the production of notes was no longer enough and the debt to be repaid was huge, while the West was entering its darkest crisis since the 1929one.

The trigger,i.e. the banking panic and the unaware laissez-faire approach of the US Presidency, were the same in both cases.

Two crises – the old and the new -broken out precisely in the United States, the burden of which was later shifted onto  the rest of the West.

With a view to overcoming the first crisis, the huge costs borne for the Second World War were needed.The Rooseveltian stimulus had been to little avail.

The second crisis, much closer to us, which was triggered by the subprime crisis, has needed liquidity injections even greater than those needed during the 1929Great Depression – injections which have not ceased yet.

In the latter case, the exit from the crisis is ensured by the creation from nothing of the largest mass of money in human history, also through the Internet.

In fact, the Internet currencies have allowed to create exchange value, purely financial values ​​that have strongly contributed to multiplying global liquidity in collaboration with standard currencies, which have been distributed indiscriminately to just any market – with helicopter money – by the US Governors and then by the ECB Governor, although certainly in much smaller proportions than his US counterparts.

On the other hand, when there is a liquidity crisis- a crisis caused by an excess of debt – every issuing bank prints money or rather creates money from debt securities. There is no other solution.

Contemporary Value arises from the mastery of a Name and from the artificial dissociation between this Name and a New Name.

Furthermore,in any case, the presence of cryptocurrencies only on the Internet and with a system along the lines of the peer-to-peer mechanism of normal online sales has allowed hackers’ systematic theft of 14% of all cryptocurrencies existing on the worldmarket.

A theft worth 1.2 billion US dollars, with revenues equal to at least 200 million US dollars.

In less than ten years, however, the technology generatingBitcoins will be vulnerable to cyber-attacks launched by quantum computers, which will become more widespread  than they are today.

The attacks on virtual currencies have already cost governments and private companies owning them asmany as 113 billion dollars of turnover.

Nevertheless, who is currently inflating the Bitcoin value, which has more than doubled compared to January 2017 –  a value that is now around 125%?

The main reason for this is China. Beijing is now the first market  for the exchange of cryptocurrencies in the world.

As early as 2015 China alone traded 80% of Bitcoins.

Today, the top 4 among the 32 major exchange platforms of these new currencies mainly trade yuan.

One of these platforms has opened a mining station for  “creating” Bitcoins – an operation which is highly energy-intensive and consuming – on the slopes of Tibet, where there is abundant low-cost energy.

Every time the yuan depreciates, the Bitcoin appreciates, because there are so many Chinese who pocket their capital to avoid government’s control and hence buy Bitcoins.

The yuan is depreciating and the capital flight from China is ongoing. The tool is often the conversion of the yuan masses into Bitcoins.

We may wonder whether the e-currency is used as a tool of  “indirect war” against China.

Moreover, the current growth on the US and on some other European Stock Exchanges has occurred with credit money, borrowed at zero interest rate, which has been provided to  major investors by central banks.

Another possible reason justifying the Bitcoin growth.

Virtual money may havealso been created to avoid the investors’ traditional rush to gold – the “tribal residue”, as Keynes called it – and hence not to increase the dollar value, currently maneuvered downward?

On January 15, one of the most active US-listed banks on the Bitcoin market ceased to convert cryptocurrencies into “traditional” currencies, but especially into dollars.

The beginning of the fall in the Bitcoin value, but the preservation of market liquidity, so as to prevent it from converging towards gold, in particular, or European hard currencies or, even worse, towards the Chinese or Russian financial markets.

Hence the Bitcoin is a pseudo-currency that serves to control the volatility and trends of global financial markets, as well as to keep it artificially high and avoid some currencies becoming “full” or sovereign like the Swiss Franc.

In fact, in 2018 a referendum will be held throughout the   Helvetic Confederation on the so-called “full” or sovereign currency, i.e. on a Swiss Franc created by the national central bank and not by international banks.

“True Francs on our accounts”. Only the Swiss National Bank can create e-money, where necessary.

These are the goals of those who have proposed the referendum.

Let us hope for the best. Those who almost invented modern finance – the Swiss merchants of the Middle Ages, the link between Italian ports and large Central European markets -now realize the dangers of creating value from nothing, the Faustian (and darkly malicious) mechanism currently governing the magical and alchemical transformation of banks’ and States’ debt into credit for individuals.

Let us hope that the financial world will come to its senses, just in time.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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Economy

Pandemic Recovery: Three Sudden Surprise Gifts

Naseem Javed

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A new shine across the globe is entering into boardrooms; a new awakening is enforced and a new shift emerges… the sudden popularity of new awakenings

“Simultaneous Synchronization”: For about a decade, the most difficult concept at leadership discussions in both Public and Private Sectors was ‘simultaneous synchronization’ deployments of national mobilization and upskilling of hidden talents on large-scale digital platforms. The obvious lack of vision and skills at top leadership grossly failed to figure out how all this works. Suddenly this the most talked about topic and now seen as a rapid-fire solution to save broken economies. The pressure cooker with skeleton economies on the boil now released the steam and blew the whistle to attract open-minded innovative thinking. It is finally time to lead, follow or get out of the way.

“Upskilling and Reskilling”: Last many decades the developed economies blatantly ignored this area, now like a shark bite there is global panic on upskilling and reskilling. Ignoring once the almighty German model of apprenticeships treated as young apprentices changing motor-oils but preferred teams of ‘wet behind ears’ young MBA learning hedge-funding charades as better options. Today, upskilling to have skilled citizenry capable of quality productivity, performance and profitability is critical for survival. Trade wars are old schools, internal wars of upskilling to create confident and skilled citizenry to save nations with dignity is now the new survival.

“Big Business Is Big But Small Business Is Bigger”:
Economic heads buried in sands all across Western economies, resorted to election time lip service and allowed SME slip down the drains. Big business is big but small business is bigger. Worship accordingly. Today, heavy membership fees from top firms influence all trade gropus all over the world, from national trade associations to Chambers of Commerce, sacrificing local SME. Do the math.

Pandemic awakened the sleeping giants: All three above challenges now suddenly becoming survival strategies and nation-by-nation and town-by-town new language and dialogues emerging as new gifts. A new series under way with high-level discussions and debates by Expothon covers such topics in greater depths.

The warm facts and cold realties;
No further proof required, as most economies of the world will be shrink-wrapped soon
No further validation needed, as unlimited printing monies will only flush down economies
No further denial accepted, as hologramic stock markets would not save the jobs or nations

When facing truth becomes taboo; facing music suddenly becomes a new occupation; understanding cries of public a new art and swimming against economic currents a new science. In the end, it is the critical analysis and complex problem solving to capture the dodging truth a new survival strategy. The pandemic recovery is no longer election theatrics but all about Mastery of Covidism, isolating novices to deal with recessions, depressions and economic compressions.

The Tribulation Factors:
50% of downtown of the world may not survive,
50% of tall office towers may go empty,
50% of retail shops may go under,
50% businesses may never open,
50% of displaced may not have any jobs soon
50% of office workers may work remote,
50% economies may lose a decade to recover,
50% hailed as successful economy now mostly illusion,
50% political leadership may lose power,

The Brand New Thinking:
100% brand new concepts underway around the world,
100% new skill-transformation underway for new economies,
100% global thinking connecting and shaping new platforms,
100% new vision shaping brand new voice over fakery,
100% rejection of old competency over new thinking,
100% adoption of entrepreneurial mobilization,
100% rise on diversity, tolerance and equality issues
100% critical thinking to face the truth and march forward,

Stand up and claim your expertise. Ask three difficult questions:
Why local or national mobilization of entrepreneurialism and upskilling of small midsize business base cross the nation stalled? When or if ever was there a national or regional bold debate on these specific topics? What possible forces are stopping such activities and why?Depending on style and type of skilled leadership and based on geographic location some, amazing opportunities are alive and active. Study Pentiana Project, especially when all such thinking is not new funding dependent as these are all deployment hungry and execution starved steps.
The rest is easy

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Economy

Millionaires for Humanity Petition: Who does not want to sign

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Recently millionaires from different countries signed a petition under the name “Millionaire for Humanity” demanding their respective governments to raise taxes on them to help with the coronavirus pandemic. More than 80 individuals have signed the letter, and most signatories belong to the developed nations like the US, UK, and Germany. One of the key aspects of the petition is that taxes can only create a huge impact against charitable contributions, no matter how generous these contributions are. It might be a rare and historic moment to witness wealthy individuals quoting “Tax us, Tax us, Tax us” to fund the social sector like health, education, and security. The phrase “rebalance our world through wealth tax” seems like a unique moment of truth for the wealthy to play their part towards humanity.

But is the voluntary action enough to counter the state’s inaction to tax the wealthy? A few individuals’ voluntary actions are a drop in the ocean that might not even make a dent to make all wealthy accountable?Wealthy do indeed pay proportionate taxes according to their state laws in many parts of the world. But the bitter truth is that there are also increased tax avoidance cases by the wealthy, which the Paradise Papers, Panama Papers, and other evidence show. That is why there is a rigorous debate on taxing the rich even more.

According to Oxfam’s 2020 report world’s 2,153 dollar billionaires had more wealth than 4.6 billion people or 60% of the world population in 2019. Even in the aftermath of COVID-19 there has been no change in the millionaire’s status quo who actually saw their wealth grow exponentially. According to Forbes magazine report, 10 billionaires gained $51.3 billion or Rs 3.9 lakh crore (at exchange rate of Rs 76) in just a week between April 2 and 9 when the global economy was almost shut (except for a few essentials) and millions were losing their incomes and jobs.They did this through the stock market. These billionaires included Jeff Bezos, Mark Zuckerberg, Warren Buffett, Elon Musk, Bill Gates, and Mukesh Ambani.

Thus the paper analyses two main issues in relation to the petition. Firstly, why similar actions were not taken by the wealthy in the developing nations, with focus on India? Secondly, will a voluntary compliance mechanism via a petition resolve the ongoing issue of tax evasion by the wealthy?

  1. Why there is no similar petition in developing countries?

The petition seems to appear as a global movement, but in reality, it is a mere representative of the few wealthy individuals residing in developed economies. The less participation and debate amongst the developing countries on taxing the rich can be understood in terms of their societal and cultural background. In India, it is easier to project it as a home to the poorest, but it is also a home for some of the world’s wealthiest people. In this context, it is essential to understand how the wealthier population’s nature changed significantly since Independence and how a favourable tax system helped them to grow.

1.1. From Inherited wealth to private enterprise:

When the British left, a handful of business families and dynastic royalties were in charge of key economic industries. These dynastic royalties had amassed and inherited great fortunes over time due to their close ties to the colonial administration. Although there was poverty amongst the general population, the most lavish lifestyles were only enjoyed by the princely classes, some business houses and large zamindars (landlords).

Primarily the inherited wealth was the primary source of wealth amongst the wealthier population.

However, between 1961 and 1986, India’s notorious macroeconomic plight undermined a progressive effort to reduce the incumbent rich’s size and importance. Low economic growth was accompanied by a sharp reduction of the real value of wealth held by the top 0.1%. The backdrop for this decline was itself rooted in the integration of India when the government quickly took steps to abolish inherited wealth amongst the super-rich royalty. Hence inflation, progressive taxation, and nationalization that characterized the late 1960s and 1970s punished the outdated rentier class and expropriated much-existing wealth.

In the 1990s, domestic and external liberalization happened in India, resulting in the deregulation of taxation and private investment. This led to a rapid increase in stock market capitalization relative to GDP. In fact, given the tremendous rise in stock market capitalization, it seems possible that wealth concentration in India may have surpassed its pre-1970 levels in recent decades. This transformative wealth dynamics of the 1960s and 1970s are crucial to understanding how the elite class, once populated by inherited wealth, is now made up of private enterprises.

However, the rise of the new private enterprise did not address income inequality, only to make the rich richer and the poor more miserable. According to Oxfam’s January 2020 report ‘Time to Care‘ said, in 2019, the wealth of top 1% Indians went up by 46% while that of the bottom 50% by 3%. In 2019, the top 1% Indians held 42.5% of national wealth, which is, more than 4 times the wealth of 953 million people constituting the bottom 70%. The bottom 50% held just 2.5% of national wealth. According to the Credit Suisse’s ‘Global Wealth Report of 2019‘, there were 7,59,000 dollar millionaires in India 2019, up from 725,000 in 2018 and 34,000 in 2010. This shows that even as a developing economy we do not have a dearth of wealthy people who are unable to participate in the petition.

1.2. How the tax system works favourably for the wealthy?

In developing countries, the governments’ primary focus is on resource mobilization, which dictates their tax system. This is due to the unequal income distribution. However, the tax system is also designed in such a way that makes it harder to tax the rich. This is because wealthy taxpayers’ political and economic power often prevents the government from developing fiscal reforms to increase their tax burdens.

Moreover, there are high personal exemptions and the plethora of other exemptions and deductions that benefit those with high incomes (for example, the exemption of capital gains from tax, generous deductions for medical and educational expenses, the low taxation of financial income). India has been an active recipient of FDI for decades. As a result, it results in lower effective tax rates for MNCs.

Simultaneously, the government keeps on slashing the corporate income tax rate during every budget, providing strong incentives for taxpayers to choose the corporate form of doing business for purely tax reasons. For instance, the Indian government slashed corporate tax to 22% (without exemptions) for domestic companies in September 2019, bringing the effective rate to 25.17%  (with surcharge and cess). Such a move happened when the economy had nose-dived for several consecutive quarters.

According to the IMF, the combination of tax incentives and low corporate tax rates leads to the following:

  • Increased incidences of tax evasion due to the ease with which multinationals seem able to avoid tax, combined with the three-decade-long decline in corporate tax rates, undermines both tax revenue and faith in the fairness of the overall tax system and
  • the current situation is especially harmful to low-income countries, depriving them of much-needed revenue to help them achieve higher economic growth, reduce poverty and meet the 2030 Sustainable Development Goals.

Hence, it can be observed that wealthy individuals are provided with a plethora of tax incentives in a developing economy to prevent capital flight. However, this does not translate into high tax morale for these individuals due to increased tax evasion incidences. Now is the time for the wealthy to take part in the petition to share responsibility in rebuilding the economy.

  • Will the Petition be effective in achieving fair taxation by the wealthy?

2.1. Assessing the problem of tax evasion by the wealthy

Empirical data has shown (e.g., E. Hofmann, Voracek, Bock,& Kirchler, 2017b[1]), that the motivation to engage in tax avoidance and evasion increases with wealth. Recent studies indicate that tax evasion is directly proportional to wealth, with the top 0.01% of the wealth distribution (i.e., households with more than $40 million in net wealth) evades almost 30% of their wealth and income tax versus 3% by taxpayers overall (Altstaeder, Johannesen, & Zucman, 2017[2]). With the aim to minimize their taxes, it is easier for the wealthy to hire tax agents who are skilled in devising ways to achieve that(Sakurai & Braithwaite, 2001[3]).

Tax avoidance is a huge issue that amounts to $240 billion every year (Rs 18.24 lakh crore), according to OECD-G20’s anti-tax avoidance initiative, ‘Action Plan on Base Erosion and Profit Shifting’ (BEPS). Recent data by Fair Tax Mark shows that Facebook, Google and four other US tech giants, described as the Silicon Six (others being Netflix, Amazon, Microsoft, and Apple) had avoided paying $100 billion tax (Rs 760,000 crore) between 2010 and 2019. Due to tax evasion, according to 2019 IMF study, the non-OECD countries are losing 1.3% of their GDP or $200 billion of revenue every year while the OECD countries about 1% of GDP or close to $450 billion.

Nonetheless, the blame cannot be squarely put on the wealthy for causing tax evasion. It is the legal, political, and economic context of national tax loopholes which not only give the wealthy many more opportunities to avoid taxes than the average citizen but might also create an ideal environment that legitimises aggressive tax avoidance behaviour.

2.2. How the petition will help in combating massive tax evasion problem?

It can be said that the petition is an example of committed motivation by the wealthy which drives them to pay taxes because of a felt moral duty(Gangl et al., 2015[4]) or due to emotional stress, caused by anticipated guilt or shame (Blaufus, Bob, Otto, & Wolf, 2017[5]). However before delving into the question whether such an initiative will be effective to combat tax evasion in the long run, it is important to understand the social psychological process that motivates the wealthy to either pay or evade taxes.

The wealthy can easily identify and compare themselves with other wealthy individuals as a result of pychological process in relation to belonging to a particular group. As a result they imitate not only lifestyles but also tax behviours out of comparison and competition, because one does not want to fall behind in the financial race (Mols & Jetten, 2017[6]).For instance, if all wealthy friends move money to offshore tax havens, then the individual will also more likely do that.

Also, wealthy individuals do acquire a heightened sense of self-esteem, freedom, and perceived control, which increases the willingness to resist anything that hinders freedom (Brehm, 1966[7]). Taxes on the wealthy is a classical case where the rich find it as an attack on their personal freedom for which they look for ways to fight against it. In fact, experimental research shows that coercive fines and audits increase taxpayer reactance more than less coercive attempts by the tax authorities (Gangl, Pfabigan, Lamm, Kirchler, & Hofmann, 2017). Thus, when faced with coercive form of taxation wealthier individuals will be motivated to employ more resources (compared to the average taxpayers) to escape this situation. This might make the classical coercive attempts to increase the tax honesty less effective.

In such a scenario, the voluntary form of tax compliance might appear as the ultimate solution to fight against reactance. Such a form of compliance comes with trust in the tax system, and thus, people accept their tax obligations without threatening audits and fines. However, state measures like suspending fines and audits or tax amnesties, which gives leeway to rich taxpayers to repatriate their money from tax havens without being fined, also show no long‐term positive effect (Alm & Beck, 1993[8]; Toro, Story, Hartnett, Russell, & Van‐Driessche, 2017[9]). Thus, it is important to combine voluntary and coercive tax measures to ensure fair taxation with a sense of tax honesty on the part of the wealthy individuals.

3. Conclusion

In view of the COVID-19 it is apparent that the petition by the few wealthy individuals brings in a wave of hope towards achieving fair taxation for the sake of humanity. However, the outreach is still not global, with a participation of a fraction of wealthy individuals from a few developed economies.Thus, there is a need to ensure the huge participation of wealthy people, not only from developing economies but those involved in tax evasion.

As discussed in the article,  tax-related decisions of the wealthy are different from average taxpayers due to social psychological differences of belonging to a particular community. So a unique approach must be followed to motivate the wealthier population to pay their share of taxes.

3.1. Possible solutions:

There are many ways to motivate the wealthy, either in developed or in developing countries, to contribute more taxes to the benefit of society. It is true that mere public plea to join the campaign will not attract the attention of majority of wealthy individuals. On the other hand, coercive audit or fines to ensure fair taxation also does not help much towards the cause. For example, a fine of 18.8 million Euros imposed on Portugal’s football superstar Cristiano Ronaldo did not diminish the fame and positive image associated with the player.

One possible solution to influence the tax decisions of the wealthy is to combine coercive and voluntary state measures by publicly naming and shaming the wealthy individuals who resist to be part of the global campaign or pay their fair share of taxes. Thus, if such accusations on famous wealthy individuals like Chief Executive Officers or politicians violate ordinary citizens’ tax morale, these latter might start questioning the reasons for their tax honesty. For instance, after Greece published a blacklist of over 4,000 citizens who owed tax money to the state (Aswestopoulos, 2012[10]),  it experienced a decline in the shadow economy’s size from 25.4% in 2010 to 22.0% in 2016 (Schneider, 2016[11]). This way, identifying evaders publicly may act as punishment and a deterrent from engaging in aggressive tax avoidance. However, it is equally true that shaming needs active public support and media coverage, without which the debate towards fair taxation will lose its grip. So the time is ripe for citizens to join their hands in the global movement towards fair tax and compel the wealthy to be accountable.


[1]Ackermann, L., Becker, B., Daubenberger, M., Faigle, P., Polke‐Majewski, K., Rohrbeck, F., … Schröm, O. (2017, June). Cum‐ex. The great tax robbery. Zeit Online .

[2]Altstaeder, A., Johannesen, N., & Zucman, G. (2017). Tax evasion and inequality . Retrieved from http://www.nielsjohannesen.net/wp-content/uploads/AJZ2017.pdf

[3]Sakurai, Y., & Braithwaite, V. (2001). Taxpayers’ perceptions of the ideal tax adviser: Playing safe or saving dollars ? Working Paper No 5, The Australian National University, Centre of Tax System Integrity.

[4]Gangl, K., Hofmann, E., & Kirchler, E. (2015). Tax authorities’ interaction with taxpayers: A conception of compliance in social dilemmas by power and trust. New Ideas in Psychology37, 13–23. https://doi.org/10.1016/j.newideapsych.2014.12

[5]Blaufus, K., Bob, J., Otto, P. E., & Wolf, N. (2017). The effect of tax privacy on tax compliance – An experimental investigation. European Accounting Review26(3), 561–580.

[6]Mols, F., & Jetten, J. (2017). The wealth paradox. Economic prosperity and the hardening of attitudes. Cambridge, UK: Cambridge University Press.

[7]Brehm, J. W. (1966). A theory of psychological reactance. Oxford, UK: Academic Press.

[8]Alm, J., & Beck, W. (1993). Tax amnesties and compliance in the long run: A time series analysis. National Tax Journal46(1), 53–60.

[9]Toro, J., Story, T., Hartnett, D., Russell, B., & Van‐Driessche, F. (2017). Italy. Enhancing governance and effectiveness of the fiscal agencies. Interantional Monetary Fund. Fiscal Affairs Department . Retrieved from http://www.mef.gov.it/inevidenza/documenti/Rapporto_FMI_Eng.pdf

[10]Aswestopoulos, W. (2012, January). Finanzamt stellt “Liste der Schande” ins Netz. Focus Online . Retrieved from http://www.focus.de/finanzen/news/staatsverschuldung/liste-der-schande-viele-deutsche-unter-griechischen-steuersuendern_aid_706059.html

[11]Schneider, F. (2016). Estimating the size of the shadow economies of highly‐developed countries: Selected results. CESifo Dice Report14(4), 44–53.

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Economy

Decoding European Union’s Economy

Aakash Agarwal

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European Union (EU) is a political and economic union which consists of 27 member countries. It acts as one economic unit in the world economy and is considered a major world trading power. They are subject to obligation and privileges of the membership. It focuses on comprehensive growth of all countries.

The Formation

The EU was formed to end the centuries of warfare that culminated during World War II. The union was founded in 1992 with the Maastricht treaty but was given its reformed structure and powers in 2007 with the Lisbon treaty. Under these treaties, the 27 members agree to come together with their sovereignty and delegate many decision-making powers to the unified body. Currently, there are seven official EU institutions which are made for the executive, judicial and financial functions. The primary aim of this treaty was to boost economic social and political integration amongst the nation.

The European Central Bank is the EU’s central bank . It regulates monetary policy and manages bank lending rates and foreign exchange reserves . The institution over the

years has expanded and strengthened its own authority. It has proved to be a competent institution and is serving its purpose.

However, It has also faced a series of unforeseen circumstances including the 2008

economic crisis, an influx of migrants from the Middle East and Africa and Brexit Negotiations. In June 2016 the United Kingdom decided to leave the European Unionand officially from 31 January 2020, the United Kingdom is no longer part of the EU.

Breakdown Of The Economy

Most countries that are a part of the European Union and use the same currency Euro. A group of nineteen of the twenty-seven EU members use the Euro currency. Therefore the trade process is simplified and the rest of the EU is also legally required to join the eurozone at some point. In terms of the total value of all the goods and services, it is considered bigger than the US economy. The 19 EU member states that comprise the euro area accounted for 85.5% of the EU’s GDP in 2019. However, due to the unforeseen circumstances implemented across the world in 2020 GDP is down by 3.8% in the euro area and 3.5% in the EU.

The EU’s trade structure has helped it to become one of the world’s largest economies after China. In 2018 it surpassed China’s GDP with a difference of $3.3 trillion. These measurements use purchasing power parity to the account of discrepancy between each country’s standard of living. Some experts argue that the EU produces more but the US still a larger economy, whereas the US is a country and the EU is a trading area which compiles the 27 countries. Despite the eurozone debt crisis, the EU is staggering towards a bigger fiscal integration. The EU’s currency, the euro has successfully competed with the global currency dollar. The EU’s exports in 2019 were for products petroleum, automobiles and medication while its top imports are petroleum, communications equipment, and natural gas.

Classification Of Eu Budget

The biggest chunk of the percent spent on the agricultural sector. Which includes the direct payment to farmers development of fisheries, forest and rural areas. The second chunk goes into economic, social and territorial cohesion, which is meant to help the EU’s less developed countries. It includes infrastructure, job development, technical assistance for

Small business. The rest is spent on research and development and building the EU’s foreign policy which is under Global Europe. The EU budget must balance as it has no authority to spend more than it takes in.

Trade

The 64% trade is undertaken within the EU states. The trade with the rest of the world accounts for some 15.6% of global imports and exports. The EU countries had the second-largest share of global imports and exports of goods in 2016.

Employability

After the global economic crisis and eurozone turbulence in 2008, the employability saw a rise in future.


The Economy Post Covid-19

The world economy has witnessed a plethora of ups and downs in this pandemic. European Union leaders sealed a 750 million – euro ($857billion) deal for their coronavirus blighted economies after a marathon talk. The EU was slow to coordinate initially with the pandemic and already weakened by Brexit, It was important for an upfront on economic aid which would demonstrate its come back. Earlier it has been observed bitter rows over how the grants would be managed. Council President Michel said securing a deal as “not only about money, it’s about people, about the European future, about our unity.”

Chancellor of Germany Angela Merkel said on Monday that EU leaders had come up with a “framework” for a possible agreement. Whereas Michel told, “This agreement sends a concrete signal that Europe is a force for action”. French President Emmanuel Macron, who spearheaded the deal with German Chancellor Angela Merkel, hailed it as “truly historic”.

But Currently, Countries like France, Spain and smaller nations in the EU have been adversely affected, It is believed that the economies of France and Spain will shrink by over 10%. The Country’s GDP is not expected to return to last year’s level before 2022. Earlier this month that it expects the EU economy to shrink 8.3% in 2020, The European Commission said considerably worse than the 7.4% slump predicted two months ago.

Comparisons With India

The deficiency in India’s COVID relief package is inadequate fiscal spending ( just 1% of GDP). For spending more the government will have to borrow more. However, without spending, the economy will likely struggle a little longer. Whereas in the EU package Euro 390 billion of grants. Cheap loans and credit guarantees are important but for a declining economy, stress should be given more to wage subsidies and emphasis on the MSME sector.

The meeting of the EU is the first major in-person gathering of world leaders since the COVID-19. The ideal emphasis which every leader is saying is the concept of ‘fundamental of the internal market should begin again with all necessary precautions and not just countries most affected by the crisis but also for those which benefit the most from the internal.

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