IMF Staff Country Reports

Israel: Selected Issues

May 1, 2018

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Israel: Selected Issues, (USA: International Monetary Fund, 2018) accessed October 9, 2024

Summary

This Selected Issues paper analyzes the macro-fiscal implications of an increase in infrastructure spending, considering Israel’s dual economy character. The efficiency of investment is key to ensuring growth benefits are achieved and to containing increases in the public debt ratio. Selecting projects with low rates of return, managing public investment inefficiently, or raising investment faster than absorptive capacity, can lead to weaker growth benefits and higher debt ratios that reduce the room to sustain increased public investment. Growth benefits will likely be insufficient to prevent a significant increase in debt ratios, indicating a need for revenue measures, where reductions in tax benefits are preferable. Allowing the public debt ratio to rise as much as 10 percentage points appears too high as Israel faces wider uncertainties than most advanced economies and it should also preserve fiscal space to facilitate structural reforms for long-term growth. Given Israel’s very low civilian spending, the government should consider financing most of the additional investment with additional revenues. Israel’s sizable foregone revenue from various tax benefits—around 5 percent of GDP per year—suggests significant scope for revenue gains. Our analysis also suggests that reducing tax benefits is least detrimental to growth, which in turn would be most positive for debt dynamics.

Subject: Expenditure, Income, Labor, National accounts, Poverty, Public investment and public-private partnerships (PPP), Public investment spending

Keywords: CR, Employment, Employment gap, Gender wage gap, Global, Haredi, Haredi man, High-tech sector, IMF staff, Income, Infrastructure investment, Investment growth, Investment scale up, ISCR, Public investment and public-private partnerships (PPP), Public investment spending, Work incentive, Work practice

Publication Details

  • Pages:

    40

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Country Report No. 2018/112

  • Stock No:

    1ISREA2018002

  • ISBN:

    9781484353387

  • ISSN:

    1934-7685