The Tax Research glossary seeks to explain the terms used on this blog that refer to more technical aspects of economics, accounting and tax. It recognises that understanding these terms is critical to understanding the economic issues that affect us all the time.
Like the rest of the Tax Research blog, this glossary is written by Richard Murphy unless there is a note to the contrary. It is normative approach and reflects post-Keynesian, heterodox economic opinion with a bias towards modern monetary theory. The fact that many items in that sentence are hyperlinked shows that they are explained in the glossary.
The copyright notices pertaining to the Tax Research blog apply to this glossary.
The glossary is designed to achieve three goals:
- It seeks to provide a short, hopefully straightforward, definition of what a term might mean.
- It then seeks, when appropriate, to explain what the term means within the context in which it is used. This is meant to elaborate the definition to add to understanding.
- It then critiques the term, explaining, if appropriate, what the weaknesses inherent in the term or the situation it describes are. The aim here is to empower the reader to understand the issues behind the nonsense that most professions create around their activity to provide them with a mystique that they rarely deserve and which often hides what they are really up to.
The glossary is not complete. It will grow over time. If you think there are entries that need adding please let me know by emailing email@example.com. Please also feel free to suggest edits. The best way to do this is to copy an entry into Word and then send me a track-changed document indicating the changes that you suggest.
Because of the way in which it is coded this glossary automatically cross refers entries within itself and to the blog that it supports and within the glossary itself but if you think a link is missing please let me know.
Finally, if you like this glossary then you might like to buy me a coffee. It has required the support of a fair few to write it. You can do so here.
- OECD Global Forum
- OECD transfer pricing guidelines
- Offshore banking
- Offshore Financial Centre
- Open market operations
- Organisation for Economic Cooperation and Development
- Overton window
OECD Global Forum
The OECD Global Forum is part of the work of the OECD's Centre for Tax Policy and Administration, but with particular emphasis on negotiation, application and interpretation of tax treaties, transfer pricing and effective exchange of information between tax administrations.
OECD transfer pricing guidelines
Offshore Financial Centre
Although most tax havens or secrecy jurisdictions (see separate entries) like to call themselves Offshore Finance Centres (OFCs) the terms are not synonymous.
Tax havens offer low or minimal rates of tax to non-residents.
This does not however necessarily mean that they also host a range of financial services providers.
An OFC offers low tax rates and hosts a functional financial services centre, usually including branches or subsidiaries of major international banks as well as the offices of accountants and lawyers to service offshore clients.
States and microstates that host tax havens and OFCs dislike both terms, preferring to call themselves International Finance Centres (see separate entry for discussion of this term).
See also ‘secrecy providers'.
Open market operations
To achieve this goal the agency undertaking the activity buys or sells the bonds (or, in the case of the UK, the gilts) issued by the government of the jurisdiction in the open market. As such, open market operations are trades in bonds already in issue, rather than in newly issued bonds or gilts.
The aim of these trades is to influence the money supply and, therefore, the interest rate on central bank reserve accounts by either increasing that supply (which reduces interest rates and stimulates economic activity) or reducing it (which does the opposite).
The sums involved are quite considerable. From 2010 to 2021, the UK's Debt Management Office, on average, owned more than £115 billion of gilts so that it could engage in open market operations. The range of balances held was, however, smaller than this implies, with a maximum of £127 billion in 2010 and a low of £107 billion in 2020.
Although these gilts are owned by a UK government agency that is under the direct control of HM Treasury, it would seem that they are included in the UK national debt by the Office for National Statistics, which makes little accounting sense.
Blog commentator Clive Parry has offered this more detailed explanation:
Open market operations are conducted by the Bank of England to add or drain Reserves (the BoE is the “bankers' bank” and Reserves are the money held by commercial banks in their bank accounts at the Bank of England). This is done in order to maintain interbank interest rates at or close to desired, policy levels. This is typically done by borrowing/lending money overnight in the open market (hence the name) against gilt collateral (Repo); lending money adds reserves and prevents overnight interest rates going too high, borrowing money drains reserves and prevents overnight interest rates falling too low.
Whilst most open market operations are conducted just overnight it is often the case that the Central Bank will forecast a shortage/excess of Reserves will persist for a longer period. In this case Term Repos (borrowing or lending cash against gilt collateral for longer periods – 1 week to 1 month, perhaps – will be conducted. Occasionally, outright purchases or sales of gilts (in the secondary market) will be used to add or drain reserves on a semi-permanent basis.
In recent years, outright purchases of gilts have been huge. This is called Quantitative Easing (QE) but in essence it is merely an extension of traditional open market operations and has the effect of adding huge quantities of Reserves into the system and keeping interest rates across the entire maturity spectrum very low. Because of the size and novel nature of this intervention the Government gave specific authorisation and, through the Asset Purchase Facility (APF) all the profits/losses/interest on the portfolio of gilts purchased is borne by HMT. As such, they should not be considered as either part of the National Debt or the Bank of England balance sheet.
In addition to BoE open market operations and QE, the DMO also operates in the gilt market. They are charged with managing the National Debt. This mainly means selling gilts at auction on behalf of HMT but they are also responsible for the efficient operation of the market and in this role they will buy and sell particular gilts to manage overall duration of the debt portfolio and provide liquidity in individual issues as required. This is separate from any activity the BoE is involved in.
Organisation for Economic Cooperation and Development
The OECD says that it brings together the governments of countries committed to democracy and the market economy from around the world.
Established in 1961 it has developed a particular role with regard to tax-related issues where it has established most of the rules with regard to taxation of transnational corporations, to systems for information exchange now in use, the most commonly used models for double tax agreements and Tax Information Exchange Agreements as well as automatic information exchange, and has played a significant role in the attack on tax havens / secrecy jurisdictions. It has, however, been criticised for being a ‘rich country club' and for being too lenient on its own members.
In 2015 its Base Erosion and Profits Shifting programme was considered a significant success for advancing country-by-country reporting and automatic information exchange but since then it has struggled to develop systems to tax the income of tech companies properly and it is now the subject of growing criticism from within the business, NGO, civil society and developing country communities for failing to do so.
The Overton window is named after Joseph Overton, the US think-tank policy specialist who is credited with creating it.
The theory originally suggested policy exists on a spectrum plotted vertically to prevent that there is a left-right orientation to the analysis. The spectrum as originally proposed was as follows:
The idea was, however, inevitably used to describe the left-right spectrum and so became in that context:
Overton suggested that it was the job of think tanks to identify the range in which policies existed and to then promote ideas that then shifted policy in the direction that they wished to promote.
The term is more generally used to describe where the centre of opinion is located on a left-right spectrum, the consensus being that the neoliberal era has shifted it markedly to the right with the ‘Overton window' being located as a result some way from the midpoint in the noted range.
When viewed in this way as a spectrum the term ‘policy' makes little sense and the term compromise might replace both popular and policy. The results is this range:
The centre ground is not ideological in this perspective, but is instead focussed on the management of consensus.
Although the term is often used to describe politics in general it may be more useful to use it as an analytical tool to address particular issues and to consider where public opinion is on that topic. For example, the issue of whether the state should subsidise public schools with tax breaks could be plotted in this way, moving from yes it should through various conditionalities until the point where subsidy should not be supplied is proposed and the possible mechanisms to shift opinion could then be explored. This was the way in which Overton imagined that his idea might be used.