NEW PARADIGM
The New Paradigm Papers of the Month of January
Once a month the Forum New Economy is showcasing a handful of selected research papers that lead the way towards a new economic paradigm.
BY
FORUM NEW ECONOMYPUBLISHED
31. JANUARY 2025READING TIME
5 MIN
Policy Papers around the German Federal Election
Shortly before the federal election in Germany, two studies estimate the financial effects on households using different methodologies.
Party Reform Proposals for the 2025 Federal Election: Financial Impact
ZEW - Leibniz Centre for European Economic ResearchWhat financial impact will the parties’ plans have on German households? To answer this question, ZEW has analyzed a range of measures related to income tax, the solidarity surcharge, wealth tax, citizen’s allowance, minimum wage, and climate money. The analysis considers only the direct effects of the proposed reforms, without second-round effects (see the second study below for more details).
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Income Tax Reform: Proposals from Party Platforms, Their Costs, and Growth Effects
Leonard Mühlenweg, Florian Schuster-JohnsonMethodologically, the second study differs from the first by incorporating potential additional tax revenues resulting from positive growth effects. However, these effects occur with a time lag, making the financing gaps particularly large in the first two years. This complicates the financing of a substantial income tax reform within the constraints of the debt brake, which is why the authors advocate for a reform that allows for productive borrowing.
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Technological Disruption in the US Labor Market
David Deming, Christopher Ong, Lawrence Summers
A new NBER working paper by Larry Summers, David Deming, and Christopher Ong documents that the trend of an ever polarising U.S. labor market with fears of a growing divide between high-wage professional jobs and low-wage service roles has stalled. The authors show that since the mid-2010s, Americans have been moving up the job ladder, with good jobs replacing bad ones. Low-paid service employment is declining, while highly paid professional roles, particularly in STEM fields, are surging—STEM employment has grown over 50% since 2010. It is important to note, however, that these aggregate trends might mask spatially concentrated labor market polarisation.
Post-growth: the science of wellbeing within planetary boundaries
Jason Hickel, Tim Jackson, Kate Raworth, and others
While economic growth (or rather the lack of it) is back at the center of policy debates in Europe, its compatibility with environmental sustainability (inter alia decoupling) remains contested. Arguments about the possibility and desirability of exponential economic growth have animated the environmental movement for half a century. While the standard assumption in economics is that economic growth is a good indicator for human wellbeing, the post-growth literature focuses on wellbeing within planetary boundaries as the primary societal goal and is rather agnostic about economic growth. A recently published literature review, the authors explore the rapidly advancing field of post-growth research. For example, the development of ecological macroeconomic models that test policies for managing without growth. Understanding growth dependencies that tie social welfare to increasing GDP in the current economy. Characterising the policies and provisioning systems that would allow resource use to be reduced while improving human wellbeing. The review also reflects on the politics of post-growth and trade-offs between development and sustainability goals.
Der Armutsnachteil: Wie es um die Chancengleichheit am Finanzmarkt steht
Moritz Czygan, Britta Langenberg
One widely recognised statistic on wealth inequality in Germany is that while the richest 10 percent own around 60 percent of total wealth, the bottom half of the distribution owns almost nothing. Less known is the structural inequality regarding the return on wealth. A recently published report by Finanzwende e.V. sheds light on the structural disadvantages standing in the way of low wealth individuals to accumulate wealth. Due to a less favorable portfolio structure, they receive significantly lower returns—on average, nearly four percentage points less—than those in the middle of the wealth distribution. Additionally, there are stark differences in debt structure: while 99 percent of low-wealth individuals rely almost exclusively on high-cost consumer loans, 88 percent of those in the middle wealth group primarily pay off lower-interest mortgage loans.
Europe and the global economic order
Aslak Berg
Globalisation is under the pressure of a renewed great power rivalry (mainly between the US and China). For Europe with its trade and export intensive economy this poses significant risks, which add to the problems caused by low productivity growth. A new report by the Centre for European Reform recommends for the EU to leverage cooperative global governance structures to navigate higher fragmentation. The report highlights a potentially closer cooperation with the US through the Trade and Technology Council, to manage disputes and align policies. Additionally, a balanced approach to China—leveraging economic opportunities for European consumers while selectively addressing strategic concerns. The report suggests for the EU to expand its network of free trade agreements and develop a supplemental legal framework outside the WTO, integrating neighboring economies into its regulatory sphere.
Geoeconomcis
Cathrin Mohr, Cristoph Trebesch
In the last decade, the international political and economic order has undergone massive changes with the weakening of U.S. hegemony, the emergence of new powers in Asia, and new external wars. These developments raise challenging questions for the discipline of economics, which can be subsumed under the term ‘geoeconomics’. A recently published literature review by Christoph Trebesch and Cathrin Mohr comprehensively summarises the literature on geoeconomics, which the authors define as the field of study that links economics and geopolitics (power rivalry). Topics include for example sanctions, geopolitics of international trade, or the spillovers of geopolitical risks on the economy.