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Shadow economy and reform agenda

A recent research on shadow economies raises some issues that need to be addressed by the two reform committees.  In June, Friedrich Schneider, Andreas Buehn, and Claudio Montenegro published a paper entitled “Shadow Economies all over the World:  New Estimates for 162 Countries from 1999 to 2007”

The researchers define a shadow economy as all market-based production of goods and services that are deliberately concealed from public authorities to avoid any of the following:  (1) paying income, value-added or other taxes, and social security contributions; (2) meeting labor market standards, such as minimum wages, maximum working hours, safety requirements; and (3) complying with administrative procedures, such as completing statistical questionnaires.

Local autonomy and pending reforms

Development of local governments is one of the 14 issues to be addressed by the two reform committees. This presumably is because local governments are not close to receiving full autonomy envisioned by the architects of the earlier reforms. Below are some reports of what highly autonomous local governments have been experiencing since the onset of the so-called “Great Recession” two years ago.

In Italy, a large number of local governments have been in dire financial straights as revenue collections have declined. They have cut essential programs such as assistance to the elderly and maintenance of buildings and streets. Some are forced to sell off assets. Recanati, birthplace of poet Giacomo Leopardi, is so short of money even after deep cuts in its expenditures that it has to sell off parkland. Some municipalities cannot close the budget gaps, not only as a result of low tax collections, but also as a result of losing investments or having to pay higher interest rates on their borrowings, because they failed to understand the full implications of the highly complex financial derivatives arranged with the assistance of international financial institutions. Milan is blaming big banks for hiding details of the arrangements and is suing them.

A need for other methods besides hair of the dog

By all accounts, the world economy has recovered from the recession which began two years ago. Views differ, however, as to whether the recovery will be sustainable and what should be done next. This is partly because unemployment in the US remains stubbornly high. The US government has called for more measures to stimulate spending while other G20 governments have taken the opposite view, for more spending would further increase public debt, which has been inching towards an unsustainable level in a large number of countries. Many government officials and economists have reiterated the call for the Chinese government to implement measures aimed at inducing the Chinese to increase consumption, to re-balance the world economy and help sustain the recovery.

We can easily outdo the billionaires

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The cat is out of the bag. It was revealed on June 16 that over the past year, Warren Buffett and Bill Gates had been holding a series of secret meetings with billionaires, beginning in New York City last May with David Rockefeller, the last grandson of John D. Rockefeller, hosting. They were not plotting to overthrow a government or to rule the world. Rather, they were trying to persuade their fellow billionaires to give at least half of their fortunes to charity. After many meetings, they agreed to set up a website called “givingpledge.org” on which any person can post a pledge of giving.

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