The World Economy: World Overview Naisbitt, Barry; Boshoff, Janine; Hurst, Ian ...
National Institute economic review,
11/2019, Letnik:
250, Številka:
1
Journal Article
Recenzirano
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Global output growth has slowed since the recent peak in 2017 and early 2018, with the slowdowns most marked in industrial production and trade. The weakness in aggregate demand that has arisen from ...the trade war and the uncertainty over future tariff imposition has led to slower economic growth that previously expected and, especially in the advanced economies, contributed to continued below target inflation.
A common feature within most corporate income tax systems is that the cost of debt is deductible as an expenditure when calculating taxable profits. An unintended consequence of this tax distortion ...is the creation of under-capitalized firms - raising default risk in the process. Using a difference-in-differences approach, this paper shows that a reduction in tax discrimination between debt and equity finance leads to better capitalized banks. The paper exploits the exogenous variation in the tax treatment of debt and equity created by the introduction of an Allowance for Corporate Equity (ACE) system in Italy, to identify whether an ACE positively impacts banks' capital structure. The results demonstrate that a move to an unbiased corporate tax environment increases bank capital ratios, driven by an increase in equity rather than a reduction in lending activities. The change also leads to a reduction in risk taking for ex-ante low capitalized banks. Overall, these results suggest that the ACE could be a valuable policy instrument for prudential bank regulators.
The World Economy: World Overview Naisbitt, Barry; Boshoff, Janine; Hurst, Ian ...
National Institute economic review,
08/2019, Letnik:
249, Številka:
1
Journal Article
Recenzirano
After a period of relatively strong GDP growth in 2017 and early 2018, global output growth has slowed. In particular, growth in industrial production and world trade has stalled since the third ...quarter of last year, raising worries that this will lead to a widespread and significant slowing in economic growth. The central case forecast recognizes the downside effect on activity from the stalling in industrial production growth but also notes that monetary policy loosening in major economies, together with the prospect of fiscal stimulus in some economies, should result in the global economic expansion continuing.
Banking regulation and, in particular, macroprudential regulation have gained significant interest since the crisis that began in 2007. At the centre of banking regulation is a deep-rooted concern ...that the economic and social costs of systemic crises are significant and their implications are far-reaching. Banks play a number of crucial roles in the functioning of any economy. However, the banking system in which they operate is inherently fragile, and after many painful experiences, regulators are quite convinced that this is particularly true during economic downturns. As such, it is important to explore and assess prudential policies that could be designed or improved to prevent banking crises from occurring and to make the system more resilient. This thesis uses panel micro-econometric methods to explore factors that could have an impact on financial stability and suggests policies that could be used to address them. The first essay empirically analyses how the capital buffer held by banks behave over the business cycle after financial factors have been accounted for. Using a large panel of banks for the period 2000-2014, it documents evidence that capital buffers behave more pro-cyclical than previously found in the literature. Furthermore, it also shows that this relationship is more pronounced for large commercial banks where access to bail-out and equity markets incentivise an increase in credit exposure and reduced capital reserves accordingly. The second essay notes that a common feature within a lot of corporate income tax systems is the long-standing bias towards debt finance. That is, the cost of debt has been deductible as an expenditure when calculating taxable profits. An unintended consequence of this tax distortion is the creation of under-capitalized firms - raising default risk in the process. Using a difference-in-differences technique, this essay demonstrates that with a more equal treatment of equity and debt, banks capitalisation significantly improves. The essay takes advantage of the exogenous variation in the fiscal treatment of equity and debt as a result of the introduction of an Allowance for Corporate Equity (ACE) system in Italy, to identify whether an ACE positively impacts banks' capital structure. The results demonstrate that a move to an unbiased corporate tax environment leads to better capitalised banks, fuelled by equity growth rather than a reduction in lending activities. The change also triggers a decrease in the risk-taking of ex-ante low capitalised banks. The third essay analyses the impact of liquid asset holdings on bank profitability. Using a large sample of banks, the essay documents evidence of a non-linear relationship between additional liquid asset holdings and bank profitability. That is, banks' profitability is improved with the holding of some liquid assets. However, evidence suggests that there is a point at which holding further liquid assets diminishes profitability. The essay also finds that growth in credit and asset prices is more important for bank profitability than output growth, suggesting that bank returns respond to the financial and not the business cycle. Another important finding of this essay is that long-term interest rates tend to increase bank profitability, whilst short-term rates tend to lower bank profits - via increasing funding costs. These findings are homogeneous across countries with different development status as these results appear consistent for advanced and emerging market economies. Overall, the findings from this thesis provide important implications for regulators seeking to provide stability and resilience to the financial system. They provide further evidence that supports the call for the use of countercyclical capital buffers, but more importantly, they highlight the need for a more rigid approach to the setting of the countercyclical capital buffer rate. The thesis also suggests that an allowance for corporate equity system that eliminates or significantly reduces the tax-induced distortions in banks, might be worth considering as a macroprudential policy tool that targets capital standard. Finally, it also highlights the importance of finding the right balance between policies geared toward mitigating liquidity risk and maintaining bank profitability.
After two years during which global economic growth has slowed from a cyclical peak in 2017 to its slowest rate since 2009, we expect that the growth slowdown will halt this year. We project global ...GDP growth of 3 per cent this year, effectively the same as last year, and 3¼ per cent next, with these forecasts unchanged from those of three months ago. The headwinds to output growth since 2017 have been widespread, due to several factors. With China now accounting for around 20 per cent of global GDP,1 the reduction in GDP growth in China since 2017 as the economy has continued its adjustment path has reduced global growth by about 0.2 percentage points. The era of over 7 per cent annual economic growth in China has ended and growth last year of 6.1 per cent was the slowest for 29 years, reflecting both international factors and the phase of economic development adapting. In the US, the ending of the boost to growth from the fiscal stimulus has occurred at the same time as interest rates increased as part of monetary policy normalisation and US growth has slowed from 2.9 per cent in 2018 to 2.3 per cent in 2019. Last year the imposition of new tariffs by the US (and subsequent retaliation) and uncertainty over future tariff imposition led to disruption and uncertainty in global goods trade. In addition, disruption in the automobile market from changing regulatory and demand patterns has played a role, especially in Germany. Finally, recessions in Argentina and Turkey and slower growth in India, largely from domestic factors, have also contributed to explaining slower overall economic growth. This confluence of factors has worked to reduce global growth.
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