Why is certainty in economics so difficult

Unfortunately, due to the inescapable fact that economic phenomena always involve subjective and unobservable elements that take place within the human minds of the economic agents under study, such a precise definition is never entirely possible in economics.

This inevitably leads to ambiguities of interpretation and the fudging of factors that can't be readily fit into a mathematical or econometric model. Such ambiguity and fudging is exactly what the practice of mathematical economic purports to avoid in its quest to provide hard, precise answers to the questions of decision-makers and policymakers. At best, this sharply limits the level of certainty that can be placed on the conclusions thereby generated and, at worst, sophisticated mathematics can be used to cloak fundamentally misleading results and conclusions.

As a result, economists, and those who rely on them as experts and authorities, tend to gloss over these issues in the interest of confidence and certitude in pushing their preferred economic explanations and policy prescriptions. Introduction to Econometrics.

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Visit the source of this article and learn more! Before You Go! Publication Date :. The global economic crisis of the last two years has stemmed, in part, from the inability of financial institutions to effectively judge the riskiness of their investments. As Knight saw it, an ever-changing world brings new opportunities for businesses to make profits, but also means we have imperfect knowledge of future events.

Therefore, according to Knight, risk applies to situations where we do not know the outcome of a given situation, but can accurately measure the odds. Uncertainty, on the other hand, applies to situations where we cannot know all the information we need in order to set accurate odds in the first place. But the economic outlook for airlines 30 years from now involves so many unknown factors as to be incalculable.

Tax administrations in Africa are reporting that they are finding such tools to be very valuable in drafting new domestic legislation. Other initiatives to coordinate and facilitate legislation drafting include the CIAT Manual on Tax Collection and Recovery that serves as a basis for proposing regulatory reforms and as a reference guide on collection and recovery, based on the experiences of tax administrations in Latin America, or the CIAT Model Code of Conduct, adaptable to particular circumstances and country-specific legislative requirements.

However, the technical solutions the tools provide can only be effective if the new legislation is enacted swiftly. This requires political support for the changes to be implemented, support which is not always granted for a variety of reasons. More work needs to be done to obtain that political support and raise political awareness of the importance of these issues.

The G20 should cooperate with regional initiatives to increase its advocacy work so that these tools which provide a common, yet sufficiently flexible, framework for tax certainty that would be applicable in a broad range of countries have the political support to be swiftly enacted. Align domestic rules with international standards and bilateral treaties to increase simplicity and transparency for both MNES and governments. Aligning domestic rules with international standards and bilateral treaties includes for example drafting permanent establishment rules in line with the revised wording of Article 5 of the OECD Model Double Taxation Convention.

Other tools assisting developing countries in drafting legislations that respond to their needs while adhering to international standards include the Tax Code Model and the Model Agreement on the Exchange of Tax Information developed by CIAT.

The first one offers a standard for an efficient and coordinated legislation while the second promotes and facilitates the exchange of tax information among the tax administrations of different countries upon request, spontaneous or automatic as well as provisions for joint tax audits.

Countries will also need to consider introducing new provisions in their Double Tax Agreements to address treaty shopping and other forms of treaty abuse as well as introducing domestic anti-abuse legislation where appropriate. This will align both their bilateral treaties and domestic legislation to international standards.

The G20 should support such regional initiatives that align bilateral treaties and domestic legislation to international good practices, with a view on implementing international agreements that seek to improve tax certainty. The authors are solely responsible for the content and their views do not necessarily represent the views or recommendations of their related institutions.

Women across the world are disproportionately affected by the COVID pandemic, reversing gains in gender equality made in recent decades. Women-led businesses have been more negatively impacted economically, especially in sectors hardest hit by the pandemic.

Public—private sector schemes that accelerate technology adoption, innovation and digital skills training for women entrepreneurs and strengthen financing and fiscal assistance for women-led businesses should be actively supported and encouraged.

In the last three years, green hydrogen has been gaining significant momentum. Hydrogen will become a key component of decarbonisation strategies, enabling low-carbon energy storage and transportation.

Producing cost-competitive hydrogen is difficult because of insufficient technology and manufacturing readiness levels, lack of scale and lack of political support. Economies of scale for hydrogen production could be achieved by introducing hydrogen in global industries which are major CO2 emitters. This policy brief evaluates pathways and suggests enabling policy mechanisms for decarbonizing the steel industry and for the deployment of green hydrogen at scale.