In many studies on the impact of taxation, tax revenues are expressed as a ratio of some aggregate tax base (for example, labor income, capital income, consumption, corporate income, transfers, and so on), to come up with a proxy for the tax burden. Such ratios are often referred to as tax ratios. Calculating tax ratios is not a straightforward exercise, because several conceptual and practical problems have to be solved. The fundamental methodological problem in constructing tax ratios is that most tax categories as distinguished in the OECD Revenue Statistics relate to more than one macroeconomic category (labor, capital, etc.).  Consequently, it is impossible to calculate tax ratios without using some technique to separate out the revenue amounts to be allocated to various macroeconomic categories. This study reviews attempts to calculate tax ratios. It turns out that most tax ratios reported in the literature contain methodological flaws. Furthermore, those numbers are not good approximations of the actual tax burden. The report comes up with several suggestions for improving the measurement of tax ratios. The report (joint work with Björn Volkerink) is available here.

For the EIB two projects on the impact of government investment (capital stock) on economic growth have been done. One study, jointly written with Ward Romp, provides an overview of both theoretical and empirical literature on the link between government investment (capital) and economic growth. The study first surveys the channels through which public capital can conceivably affect growth. After that, the report reviews the empirical literature and concludes that although not all studies find a growth-enhancing effect of public capital, there is now more consensus than in the past that public capital furthers economic growth. However, the impact reported by recent studies is not as big as some earlier studies suggested. The report concludes with an overview of what is known about the optimality of public capital stocks. The report is available here. 

Another study for the EIB, done with Richard Jong-A-Pin, comes up with new estimates for the impact of public investment on economic growth for 21 OECD countries covering the period 1960-2001. The report focuses on two questions. First, to what extent does the impact of public capital differ across countries? Second, to what extent does this impact change over time? The results suggest that the estimated long-run impact of public capital on output varies across countries and is negatively correlated with both the ratio of public capital to private capital and the variability of public capital over time. Furthermore, in most countries the effect of a public-capital shock on output decreased during the 1990s. Countries where the impact of public capital on output increased had an increasing capital-to-GDP ratio and vice versa. The report is available here.

The study zooms in on central bank independence and transparency in The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago. Central bank independence is the extent to which a central bank can decide on using its instruments in a way it deems optimal in view of accomplishing its mandate, without external (political and other) interference. Central bank transparency can be defined as the extent to which central banks disclose information that is related to the monetary policymaking process. The study assesses central bank independence and transparency in these countries and comes up with suggestions for improvement. The study will be published as: J. de Haan, Improving Monetary Policy Institutions in the Caribbean, in: D.W. Beuermann and M.J. Schwartz (eds.), Economic Institutions for a Resilient Caribbean, Inter-American Development Bank, Washington DC.

Aruba's economy has been hit hard by the global COVID-19 pandemic. Aruba is heavily dependent on income from tourism, which – due to established travel restrictions – has largely collapsed. Therefore, the Netherlands provides financial support to Aruba. In the conditions for the third round of support to Aruba (and Curacao and St. Maarten) an investigation is announced into the social costs of the own currency versus dollarization. Aruba has its own currency (the Aruban florin) that has been credibly pegged to the U.S. dollar since the country got an autonomous position in 1986. The authorities employ several monetary policy instruments and capital restrictions to maintain this peg.

The report discusses the (macro-)economic advantages and disadvantages of official dollarization for Aruba. The key question is: are the economic advantages of a transition to formal dollarization greater than the disadvantages, given Aruba's current exchange rate regime? The report concludes that under current circumstances maintaining a fixed exchange rate is a better option for Aruba than official dollarization.