NEW PARADIGM
The New Paradigm Papers of the Month of July
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
DAVID KLÄFFLINGPUBLISHED
31. JULY 2025READING TIME
5 MIN
Nur 3 % Spielraum
Florian Schuster-Johnson, Philippa Sigl-Glöckner
Despite the adhoc reform of the debt brake, Germany’s federal budget is becoming more and more inflexible. Schuster-Johnson and Sigl-Glöckner from the Dezernat Zukunft warn in a recent policy brief that the share of discretionary spending could fall to just 3% within the next decade, down from 25% today. The main culprits: rising interest payments and social transfers. The brief argues that piecemeal spending cuts won’t be enough — without fundamental reform, fiscal maneuverability may depend solely on special funds requiring a two-thirds parliamentary majority. The authors call for an overhaul of Germany’s fiscal framework to preserve long-term financial autonomy.
Mind the Mission, Not the Gap
Mariana Mazzucato, Rogério Vieira de Sá
The idea is simple: the state insures private investors against downside risks to mobilize money for development finance. In a new study, Mazzucato and Vieira de Sá challenge the underlying premise that development hinges on a funding gap, rather than on the absence of mission-driven investment pipelines. According to the authors, blended finance primarily flows to low-risk sectors and often socializes risks while privatizing rewards—without delivering transformative impact. Instead of trying to “fix” markets, blended finance should help shape them: building productive capacity, directing investment toward public goals, and generating long-term public value.
The Role of Industrial Policy in the Renewable Energy Sector
Todd Gerarden, Mar Reguant, Daniel Xu
Industrial policy can supercharge the green transition — or derail it. Gerarden, Reguant, and Xu provide a deep dive into the economics and politics of renewable energy, with a focus on solar and wind. They show how past policies helped drive down costs and ramp up investment, but caution that rising protectionism and geopolitical tensions could hinder progress. The paper synthesizes recent evidence on firm-level spillovers and global coordination, offering insights into how industrial policy can support — or sabotage — climate goals.
The Personalist Penalty
Christopher Blattman, Scott Gehlbach, Zeyang Yu
Not all dictatorships are created equal. Blattman, Gehlbach, and Yu show that economic growth in autocracies hinges on how power is concentrated. Personalist regimes — where authority rests with a single individual or elite circle — consistently underperform compared to institutionalized autocracies and democracies. Using cross-country data and multiple measures of personalism, the study traces this “personalist penalty” to poor public goods, low investment, and heightened conflict. The findings underscore the importance of unpacking the nuances of authoritarian rule.
Can Trade Policy Mitigate Climate Change?
Farid Farrokhi, Ahmad Lashkaripour
Trade tools can help fight climate change — but only under the right design. Soon to be published in Econometrica, Farrokhi and Lashkaripour evaluate trade-based approaches to curbing carbon emissions. They find that simply layering carbon border taxes onto existing tariffs does little, reducing emissions by just 3.4% of the optimal. By contrast, a climate club model that uses coordinated border adjustments to deter free-riding can slash emissions by up to 68%. The takeaway: climate clubs outperform tariffs in both efficacy and global cooperation.
