International Economics: IB Economics

And the first part of this business leader teases out some of the complexity, and the game theory, associated with the proposed minimum global tax rate. In my experience, it's all very well suggesting what is the 'right' thing to do but Economics tells us that it's incentives that actually moves markets and motivates decision-making.

A big boost for the Cypriot economy, with the news that ExxonMobil has discovered large natural gas deposits. You should be able to think of the possible benefits of this for the supply-side and, by definition, LRAS.

However, the experience of some economies is that natural resources are a curse, not a blessing. In LICs we talk of the 'resource curse', in HICs we talk of 'Dutch disease' - you might think about what this means and why it happens. And then you might reflect upon whether the discovery of natural gas is going to be as beneficial as it might first appear.

Hint: you might think about what's likely to happen to the value of the 'Cypriot' currency in response to this news. But what is the currency of Cyprus? And what are its major industries?

But here's the kicker - exactly as I suggested when the issue was first raised. Game theory suggests that it will be difficult to get universal agreement on a minimum global corporate tax rates because it's in the self-interest of an economy to have the lowest rate, safe in the knowledge that it will attract inward investment. 

Hence, Cyprus has suggested that it could block the adoption of a minimum global corporate tax rate within the EU, and I note that Luxembourg and Ireland have remained silent on the issue. All of these economies have done well out of having low corporate tax rates. Cyprus, though, is the only one that has currently seized the moral low ground.