Fiscal policies and growth constraints and opportunities
Download
1 / 21

Fiscal Policies and Growth: Constraints and Opportunities - PowerPoint PPT Presentation


  • 126 Views
  • Uploaded on

Fiscal Policies and Growth: Constraints and Opportunities. Carlo Cottarelli and Michael Keen “Ascent after Decline”: Workshop World Bank, Nove mber 19, 2010. The Macroeconomic Dimension. The state of the world’s public finances.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' Fiscal Policies and Growth: Constraints and Opportunities' - armen


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Fiscal policies and growth constraints and opportunities

Fiscal Policies and Growth: Constraints and Opportunities

Carlo Cottarelli and Michael Keen

“Ascent after Decline”: Workshop

World Bank, November 19, 2010



The state of the world s public finances
The state of the world’s public finances


Advanced economies entered crisis with worst non war fiscal outlook
Advanced economies entered crisis with worst (non-war) fiscal outlook

General Government Gross Debt for G-7 Economies, 1950-2007

(In percent of GDP)


With pressures from aging on top of that
With pressures from aging on top of that fiscal outlook

Old Age Dependency Ratio

  • Pension reforms contain cost to 1 percent of GDP

  • Health care costs increase by average 3.5 points by 2030


Pre crisis outlook for emerging e conomies better
Pre-crisis fiscal outlookoutlook for emerging economies better

General Government Debt in Emerging Economies, 1998-2007

(In percent of GDP)


Fiscal legacy of crisis most marked in advanced economies reflecting lasting impact on gdp
Fiscal legacy of crisis most marked in advanced economies---reflecting lasting impact on GDP

General Government Balance

General Government Debt


Deficits debt and growth
Deficits economies---reflecting lasting impact on GDP, debt and growth


In advanced economies fiscal positions are unsustainable
In advanced economies, fiscal economies---reflecting lasting impact on GDPpositions are unsustainable


What debt target for stabilization? economies---reflecting lasting impact on GDP

Higher public debt associated with:

  • Higher real interest rates—perhaps 1.75 percentage points over 2008-15 for advanced economies

  • Lower growth (through reduced investment and labor productivity)—perhaps 0.5 points per year


So need to do more than return to pre crisis
So economies---reflecting lasting impact on GDPneedtodo more thanreturnto pre-crisis

6

4

2

0

Cyclically Adjusted

Primary Balance

Primary

Balance

-

2

-

4

-

6

OverallBalance

-

8

-

10

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2030

  • Required adjustment is roughly:

  • 8.5 percent GDP in advanced economies

  • 3 percent in emerging


Impact of fiscal adjustment on growth
Impact of fiscal adjustment on growth economies---reflecting lasting impact on GDP

  • Prospects for expansionary contractions limited:

  • Recent WEO work

  • Low interest rates

  • Evidence that adjustment on spending side is:

  • Associated with more durable consolidation

  • Less contractionary


The microeconomic dimension
THE MICROECONOMIC DIMENSION economies---reflecting lasting impact on GDP


Spending better
Spending better economies---reflecting lasting impact on GDP


Welfare reform
Welfare reform economies---reflecting lasting impact on GDP

  • Pensions—Argue for raising retirement age by 2 years: stabilizes spending at 2010; best for growth

  • Health care—supply and demand side measures

  • ‘Better targeting’?

  • Incentive effects of means-testing

  • Wage subsidies

  • Tagging by correlates with participation responsiveness; increase UK workforce by 1 percent.


Infrastructure and innovation
Infrastructure and innovation economies---reflecting lasting impact on GDP

  • Literature gives good reason to suppose strong positive output effect from public capital....

  • ...but little guidance on specifics

  • Institutions matter

  • Likely needs:

  • Climate change—adaptation not costly in most advanced, but likely to be in some emerging

  • Fundamental R&D—energy research, geoengineering?


Eliminating wasteful subsidies
Eliminating wasteful subsidies economies---reflecting lasting impact on GDP

  • Petroleum subsidies—cost around 0.3 percent global GDP in 2010

  • Exemptions and special treatment—importance of tax expenditure analysis

  • Subsidies to renewables—don’t let spending substitute for proper carbon pricing


Taxing smarter
Taxing smarter economies---reflecting lasting impact on GDP


In search of immobile tax bases
In search of immobile tax bases economies---reflecting lasting impact on GDP

  • VAT:

  • Potential in Japan (and US?)

  • Large scope in most advanced economies to eliminate exemptions and reduced rates—could raise £11 bn in UK even after compensation

  • Property tax


Green taxes
Green taxes economies---reflecting lasting impact on GDP

  • Revenue potential is:

  • Significant but not transformational in advanced—about $100 bn per year in U.S

  • More in some emerging—If internationally traded

  • But requires that permits not be given away

  • Not much money in other environmental taxes

  • Though potential in congestion pricing


Investment and finance
Investment and finance economies---reflecting lasting impact on GDP

  • Giving an allowance for notional cost of equity (an ‘ACE’) would

  • Eliminate corporate-level disincentives to invest

  • Reduce debt bias

  • Financial sector

  • Pre-financing resolution/Corrective tax

  • ‘Financial Activities Tax’—a fix for the VAT

  • Gains from enhanced international cooperation


ad