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This chapter examines the impact of international factors on Japan’s lost decade, with an emphasis on how financial integration with the rest of the world affected the Japanese economy. It considers two primary possible causes of the net foreign asset position: Demographic factors by virtue of their impact on savings and investment, and movements in output per capita if expected investment returns are lower in relatively rich economies. The chapter then shows that these flows have a stabilizing effect in the face of fluctuations in private investment flows and exchange rate swings. It traces Japan’s increased integration with the rest of the world that commenced in the 1980s, which saw the easing of capital controls and the deregulation of financial markets. Over the next two decades, Japan steadily built a reputation as a large net creditor nation. The chapter discusses the link between foreign assets and exchange rates, as well as real appreciation of the yen.

This chapter explores the increased dispersion in net external positions in recent years, particularly among industrial countries. Return differentials between external assets and liabilities can potentially exert significant impacts on the dynamics of net foreign assets. There is some evidence that a shift in returns is connected with a subsequent change in the level of capital flows. The analysis of relative rates of return and capital flows reveals that U.S. residents have consistently earned higher returns on their assets than they pay out on their liabilities. It also shows that the real dollar returns on foreign investment in the United States have on average been negative over the past four years and even more so when expressed in the currencies of most foreign investor countries. Since 2000, capital flows to the United States have shifted toward fixed-rate (and low-yield) debt instruments and away from equities.

This chapter employs a sophisticated new open economy multicountry simulation model to examine different scenarios for global current account adjustment. The analysis indicates that competition-friendly structural policies could play a prominent role in reducing current account imbalances on a sustainable basis if they were linked with a sustained increase in growth and a permanent downward shift in the net foreign asset positions of Europe and Japan. Japan and the euro area are relatively stable in terms of adjustment. US fiscal consolidation would not be obtained without some short-run costs for output growth. Europe and Japan could meaningfully add to the multilateral adjustment process through stronger pursuit of growth-enhancing structural reforms that align with their own national interests. Labor market reforms alone might not significantly contribute to rebalancing.

This concluding chapter gives a summary of the results and conclusions based on the arguments presented in this book on consumption tax. First, consumption tax greatly affects the economy. Its effect differs depending on the product upon which the tax is imposed and the way consumers use money. The government plays a big role in restricting these behaviors. Governments limit the types of financial instruments the private sector can issue, impose change control, restricts ownership of foreign assets, and price control. Generally, taxing consumption is a very complicated issue. Finding its optimality is difficult due to its varied effects on different situations. Studies on taxing consumption have a long way to go due to its complexity.

This chapter examines the rationale for the existence of sovereign wealth funds (SWFs) from a developing country perspective and the implications thereof for the world economy. It first provides an overview of the evolution of foreign exchange reserves in the developing world, the relative importance of the current versus the capital accounts as the source of those assets, and the rise of SWFs as well as some of their categorizations. It then reviews the rapidly growing literature on the determinants of reserve accumulation in developing countries, with particular emphasis on competitiveness versus self-insurance motives for such accumulation, along with some of the literature on optimal reserves. It also considers the motives for the accumulation of foreign exchange assets, highlighting the distinction between the role played by the current and the capital accounts, and between the structural and cyclical determinants of such accounts. The chapter concludes by discussing some political economy issues associated with the nature and management of foreign exchange asset accumulation and the systemic implications of large reserves and SWFs.

This chapter reports a novel theoretical model that connects present international imbalances and the bursting of the global equity bubble in 2000. Budget deficits constitute a welfare-improving policy response to the collapse of the bubble. They also constitute a beggar-thy-neighbor policy that is responsible for the collapse of the bubble. The presented model crudely but effectively encapsulates conventional views of the U.S. current account deficit. The U.S. government recognizes the beneficial role that bubbly firms play in the world economy. The appearance of a bubble in the U.S. stock market in the second half of the 1990s explains much of the decline in U.S. net foreign assets. The collapse of the stock market in 2000 was the result of a coordination failure or change in investor sentiment, and the rapid expansion of public debt since then served to displace inefficient investments in the same way that the bubble did.

This chapter examines the rise of financial sanctions as a tool of U.S. foreign policy and the role of U.S. prosecutors in enforcing sanctions against global banks. It describes how the United States developed its financial sanctions capabilities against terrorist groups, then turned them against state actors such as North Korea, culminating with elaborate sanctions programs against Iran and Russia. It shows how U.S. federal and state prosecutors uncovered large-scale sanctions evasion efforts at numerous global banks that processed U.S. dollar payments. This enforcement campaign led to some of the largest criminal fines ever levied, and global banks such as HSBC and BNP Paribas agreed to implement U.S. sanctions and anti-money laundering controls in their worldwide operations, thus broadening the reach of U.S. policy. Although U.S. enforcement actions faced strong criticism by U.S. allies, banks facing large fines, negative publicity, and potential loss of access to essential U.S. dollar payment infrastructure complied with U.S. demands. Unlike other cases, U.S. sanctions did not lead to multilateral reforms, instead triggering efforts by sanctioned states and bystanders to reduce their dependence on the U.S. dollar and U.S. payment systems.

This chapter analyzes how the articulation of corporate sovereignty to capitalist value enabled corporations to transact business and enter into legal proceedings in multiple jurisdictions. It describes the coalescence of the pockmarked international regulatory structure for transnational corporations that emerged during the mid-20th century, and considers the ways legal frameworks of personhood were applied to corporations extraterritorially. The chapter also investigates the regulation of foreign corporations that emerged within the complex of territorial sovereignty, and examines the conflict of laws that concern trade disputes, nationalization of foreign corporate assets, and liabilities of corporations under public international law.