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The Nobel Prize in Economics goes to prosperity researchers

Darren Acemoglu, Simon Johnson and James A. Robinson received this year’s Nobel Prize in Economic Sciences for their contributions to proving the importance of public institutions to a country’s prosperity.

KEY FACTS

  • The prestigious prize, officially known as the Sveriges Riksbank Prize for Economic Sciences in Memory of Alfred Nobel, is the last prize awarded this year and is worth SEK 11 million ($1.1 million).
  • This year’s laureates showed that one of the explanations for differences in countries’ prosperity is the social institutions introduced during European colonization. Inclusive institutions were often introduced in countries that were poor at the time of colonization, which over time led to general prosperity for the population. This is an important reason why former colonies that were once rich are now poor and vice versa.
  • Introducing inclusive institutions would create long-term benefits for everyone, but extractive institutions provide short-term gains for those in power. As long as the political system ensures they retain their control, no one will trust their promises of future economic reforms. According to the laureates, this is the reason why there is no improvement.
  • “Reducing the huge income gaps between countries is one of the greatest challenges of our time. The laureates have demonstrated the importance of public institutions in achieving this,” said Jakob Svensson, Chairman of the Economic Sciences Prize Committee.
  • “Societies with poor rule of law and institutions that exploit the population do not generate growth or change for the better,” the prize’s organizers add on their website.

TANGENT

Darren Acemoglu and Simon Johnson work at MIT, while James Robinson is at the University of Chicago.

Acemoglu and Johnson recently collaborated on a book researching technology through the ages that demonstrates how some technological advances are better at creating jobs and spreading wealth than others.

KEY STORY

The Economics Prize is not one of the original science, literature and peace prizes created by the will of dynamite inventor and businessman Alfred Nobel and first awarded in 1901, but is a later additional prize established and funded by the Central Bank of Sweden in 1968.

Past recipients of the award include a number of influential thinkers such as Milton Friedman, and John Nash – played by actor Russell Crowe in the 2001 film A Beautiful Mind, and former US Federal Reserve Chairman Ben Bernanke.

Last year, Harvard economic historian Claudia Goldin won a prize for her work highlighting the causes of pay and labor market inequality between men and women.

Italy Revives Bank Windfall Tax Debate As Cyprus Considers New Levy

Italy has revived debate over taxing banks’ rising profits after Deputy Prime Minister Matteo Salvini proposed an annual levy of about 5% for three years on the profits of the country’s 10 largest banks.

Salvini cited first-half results from Intesa Sanpaolo and UniCredit, which reported combined profits of nearly €12 billion. The proposed levy would apply to major banking groups and exclude smaller local banks as Italy discusses its 2027 budget.

Cyprus Faces Renewed Pressure On Bank Tax

The proposal comes as Cyprus continues to debate whether banks should face an additional charge on higher profits. Several EU countries, including Spain and Hungary, have already introduced extraordinary taxes or levies on the banking sector, while Cyprus has not adopted a comparable measure.

AKEL has proposed a new solidarity levy on credit institutions, but the bill remains pending before Parliament. The renewed debate in other European countries could put additional attention on the issue in Cyprus.

Europe Has Tested Several Bank Levy Models

EU countries have used different approaches to taxing or charging banks. Lithuania introduced a temporary levy on higher net interest income, Latvia imposed a fee on performing home loans, and Estonia reached an agreement with banks on extraordinary distributions.

The European Commission has examined these measures and found concerns around fairness and market distortion, but no evidence that they caused systemic financial instability in the countries where they were introduced.

Banks across the EU also contribute to deposit guarantee schemes through mandatory payments. Those contributions are separate from taxes but represent an additional financial burden for the sector.

Cyprus Has Proposed Several Measures

AKEL proposed a 5% extraordinary levy on banks’ excess profits for 2024 and 2025 in 2024. The measure was expected to raise about €50 million annually for borrower support and housing programs, but Parliament rejected it on Dec. 12, 2024, in a vote of 25 in favour, 25 against and four abstentions.

In November 2025, AKEL introduced a revised bill covering the 2025 and 2026 tax years. The proposal would impose a 20% charge on increases in net interest income above 40% of the 2022 level.

AKEL argues that higher interest rates have increased borrowing costs for households and small businesses while widening the gap between lending and deposit rates.

ELAM has separately proposed increasing the special tax on banks based on total deposits from 0.0375% to 0.07%. The additional revenue would be directed toward state housing programs.

Banks Warn Of Higher Costs For Customers

The Cyprus Banks Association has argued that additional charges could ultimately affect customers through higher lending rates or lower deposit returns. Local banks already pay corporate tax, a special credit institution tax and contributions based on deposits, as well as payments to the Deposit Guarantee Fund.

Banks also face capital and supervisory requirements that affect their balance sheets and lending capacity, although these obligations are not taxes.

The European Central Bank has said eurozone banks currently have strong profitability, capital and liquidity positions. Average return on equity stood at about 9.8% in the second quarter of 2025.

ECB Warns Against Weakening Bank Capital

The ECB has also warned that windfall taxes need to be designed carefully. If additional charges significantly reduce the profits banks retain as capital, they could weaken financial resilience, limit lending capacity and affect competition.

Italy’s proposal has therefore renewed a broader European debate that is also relevant to Cyprus. Policymakers must weigh additional public revenue against the potential effects on bank capital, lending conditions and financial stability.

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