Did Reagan Rule In Vain? A Closer Look at True Expenditure Levels in the United States and Europe

Conventional wisdom holds that the United States is a country of low taxes and small government, while the European countries have much larger governments with a higher tax burden. Fully measuring the role of government in a society, however, requires more than a comparison of tax burdens or the gross size of government spending in GDP terms. A proper accounting of the total share of national economic output allocated to governmental tasks and social expenditures in the United States and Europe calls this supposed transatlantic difference into question. European countries do have a much higher tax burden than the United States. However, healthcare and educational services, including tertiary education, are overwhelmingly provided by the government in Europe, while in the United States these services are much more often provided through the private sector. When private-sector spending on education and healthcare are combined with total government spending, the share of GDP allocated to these typically governmental functions in the United States is nearly identical to that in most European countries. Likewise, European countries have much higher levels of public social expenditures than the United States, but when the tax treatment of social benefits and tax breaks targeted to social purposes are considered, total public and private-sector social expenditures in the United States and Europe are quite similar. Thus there is very little difference between the United States and Europe in the share of resources allocated to governmental tasks and social expenditures, with the exception of much higher US private-sector healthcare expenditures. There is, however, little empirical evidence that higher private-sector US healthcare spending produces noticably better healthcare outcomes. Equal existing total levels of expenditures suggests that reform of US social and economic institutions does not require greater total resources, but instead an adjustment of how and to what purposes these resources are allocated. The more extensive provision of frequently tax-benefitted governmental and social services indirectly through the private sector in the United States further shields recipient groups from the public scrutiny usually given to direct government transfers. Similarly, tax-benefitted indirect services provision may explain why Americans are more hostile to higher taxes than Europeans, who generally receive these services as a direct quid pro quo from their governments and are thus likely more disposed to paying taxes.

Outsourcing and Offshoring: Pushing the European Model Over the Hill, Rather Than Off the Cliff!

Offshoring and offshore outsourcing is increasingly affecting the EU-15, both in the manufacturing and services sectors. While no official statistics exist for the scope of the phenomenon, industry experts and press surveys point to a relatively limited extent of perhaps up to 2 percent of the workforce as affected. Offshoring and offshore outsourcing, similar to other trade, creates both domestic winners and losers. The EU-15 countries have the potential to become net beneficiaries from offshoring and offshore outsourcing, if they go ahead and implement the EU Lisbon Agenda with respect to labor market reforms and worker-skill upgrading. Furthermore, EU governments should take steps to promote the mobility of the workforce by increasingly linking social benefits to the willingness to move for work, thereby combating their archipelago of high unemployment enclaves, and to reform EU regional aid by shifting it from infrastructure spending to human capital investment.Offshoring, Outsourcing, Multinational Companies, European Union, Public Regulation, Labor Markets, Regional Aid

How Europe Can Muddle Through Its Crisis

Europe's financial market contagion is infecting systemically important eurozone members, causing a rise in demands that European policymakers make greater strides toward solutions. While Jacob Funk Kirkegaard believes that the European Union will do "whatever it takes" to save the euro and the eurozone, he argues that powerful political constraints prevent EU leaders from making optimal decisions. Europe can get through the current crisis by producing a compromise among member states in the form of a permanent European Stability Mechanism (ESM) with an option to issue a conditional Eurobond, which would aid eurozone members suffering asymmetric economic shocks in return for taking domestic reforms to return to a sustainable fiscal path. An ESM with a conditional Eurobond option offers a less clear-cut solution than a full fiscal union, a straightforward Eurobond, European Central Bank money-printing, or a breakup of the eurozone.

Outsourcing and Skill Imports: Foreign High-Skilled Workers on H-1B and L-1 Visas in the United States

This working paper looks in detail at the H-1B and L-1 visa programs for temporary employment in the United States. Based on official data from the US Citizenship and Immigration Services and the US Department of State, H-1B and L-1 visa issuance rapidly increased in the late 1990s, followed by a marked slowdown after 2001. This points to the highly cyclical nature of both visa programs. Indian nationals and immigrants working in computer-related occupations dominate the H1-B and L-1 population in the United States, but these two groups are also found to be the most cyclical segment, with very large declines in inflows after 2001. The total population of H-1B visaholders in 2003 is estimated to range between 387,000 and 746,000, of which 160,000 to 306,000 were Indian nationals. As all data on H-1B/L-1 visaholders are gross numbers and gross jobs data for comparable categories are absent, the extent of the impact of these visa programs on the US labor market cannot be gauged precisely. A broad range of US industries and educational institutions are found to be employing H-1B recipients, with the IT industry being the dominant sector. Evidence of aggressive wage-cost cutting, including paying H-1B recipients only the legally mandated 95 percent of the prevailing US wage, is found among some H-1B employers, although no systematic abuse of the system is present.Outsourcing, offshoring, high-skilled labor, immigration, H1B/L-1 visas

Accelerating the Globalization of America: The Role for Information Technology

Information technology (IT) was key to the superior overall macroeconomic performance of the United States in the 1990s--high productivity, high growth, low inflation, and low unemployment. But IT also played a role in increasing earnings dispersion in the labor market--greatly rewarding workers with high education and skills. This US performance did not happen in a global vacuum. Globalization of US IT firms promoted deeper integration of IT throughout the US economy, which in turn promoted more extensive globalization in other sectors of the US economy and labor market. How will the increasingly globalized IT industry affect US long-term growth, intermediate macro performance, and disparities in the US labor market? What policies are needed to ensure that the United States remains first in innovation, business transformation, and education and skills, which are prerequisites for US economic leadership in the 21st century? This book traces the globalization of the IT industry, its diffusion into the US economy, and the prospects and implications of more extensive technology-enabled globalization of products and services.

The Coming Resolution of the European Crisis

The economic and financial problems in the euro area are clearly serious and plentiful. An increasing number of commentators and economists have begun to question whether the euro can survive. There are only two alternatives. Europe can jettison the monetary union or it can adopt a complementary economic union. Every policymaker in Europe knows that the collapse of the euro would be a political and economic disaster for all and thus totally unacceptable. Europe's overriding political imperative to preserve the integration project will surely drive its leaders to ultimately secure the euro and restore the economic health of the continent.

Distance Isn’t Quite Dead: Recent Trade Patterns and Modes of Supply in Computer and Information Services in the United States and NAFTA Partners

This paper evaluates the statistical strengths and weaknesses of available data on US computer and information services trade and estimates the scope of delivery through GATS modes 1, 3, and 4. Trade values are estimated using a new methodology that adheres, to the greatest extent possible, to the definitions of modes of supply in the 2002 Manual on Statistics of International Trade in Services. This paper finds that US trade (particularly exports) in computer and information services are overwhelmingly and increasingly delivered through mode 3. The United States is found to have experienced declining overall revealed comparative advantage (RCA) in traditional mode 1 cross-border computer and information services trade from 1986 to 2006, while having a stable, positive RCA in mode-3 trade. A new methodology for tentatively estimating US imports of computer and information services in GATS mode 4 suggests that the IT services sector dominates US mode-4 imports, and that these are several times larger than US traditional mode-1, cross-border imports of computer and information services.US computer and information services trade; Services trade data validity; GATS modes of supply; Revealed comparative advantage

Toward a Sunny Future? Global Integration in the Solar PV Industry

Policymakers seem to face a trade-off when designing national trade and investment policies related to clean energy sectors. They have pledged to address climate change and accelerate the large-scale deployment of renewable energy technologies, which would benefit from increased global integration, but they are also tempted to nurture and protect domestic clean technology markets to create green jobs at home and ensure domestic political support for more ambitious climate policies. This paper analyzes the global integration of the solar photovoltaic (PV) sector and looks in detail at the industry’s recent growth patterns, industry cost structure, trade and investment patterns, government support policies and employment generation potential. In order to further stimulate both further growth of the solar industry and local job creation without constructing new trade and investment barriers, we recommend the following: (1) Governments must provide sufficient and predictable long-term support to solar energy deployment. Such long-term frameworks bring investments forward and encourage cost cutting and innovation, so that government support can decrease over time. A price on carbon emissions would provide an additional long-term market signal and likely accelerate this process. (2) Policymakers should focus not on solely the manufacturing jobs in the solar industry, but on the total number of jobs that could possibly be created including those in research, project development, installation, operations and maintenance. (3) Global integration and broader solar PV technology deployment through lower costs can be encouraged by keeping global solar PV markets open. Protectionist policies risk slowing the development of global solar markets and provoking retaliatory actions in other sectors. Lowering existing trade barriers—by abolishing tariffs, reducing non-tariff barriers and harmonizing industry standards—would create a positive policy environment for further global integration.Solar PV, climate change, renewable energy, government support, green protectionism, green jobs, global integration

New Avenues for Empirical Analysis of Cross-Border Investments: An Application for the ASEAN Members and Middle and Low Income Country Outward Investments

This thesis presents a new innovative data collection methodology and analysis of cross-border foreign direct investment (FDI) from middle and low income countries. Special emphasis is given to FDI in the ASEAN region. Responding to the dearth of available detailed FDI data for non-OECD countries from traditional macroeconomic sources in the official sector, this thesis presents a new detailed microeconomic transactional dataset for the analysis of cross-border investments based on individual greenfield investments and mergers and acquisitions (M&A). The transactional dataset constructed is considerably more detailed in country-, sector-, and mode of investment than existing alternative FDI data sources. This enables far more detailed descriptive analysis of FDI trends to be carried out for middle and low income countries, and the ASEAN membership in particular. This thesis presents a new and more detailed version of the directional 4-type FDI typology from Ramamurthy and Singh (2009), and empirical findings concerning the directions, sectors and modes of investment of outward FDI from middle and low income countries. When measured in dollars invested and number of transactions, up to around half of outward FDI from middle and low income countries is found to flow upwards into economies generally more – and often much more – advanced than the country of origin. New descriptive empirical results show that outward FDI from middle and low income countries tend not to follow factor endowment driven investment hypotheses, or predictions of investments in countries of similar economic development (except among the lowest income country investors). Instead, the descriptive results suggest that middle and low income country outward investors are predominantly driven by firm-level incentives to try to obtain new technologies, market access or economies of scale. The results indicate that middle and low income country outward investors should consequently predominantly be analyzed like other multinationals from advanced economies. Probabilistic probit/tobit regression analysis of a partial dataset verifies that the most powerful investment motivations among middle and low income country investors are to try to enter far more advanced economies early in origin country development, and to seek to take control over assets in advanced economies through M&A