Fiscal Monitor

Back To Work: How Fiscal Policy Can Help

October 2014

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With the recovery uneven, uncertainties still widespread, and social tensions rising, fiscal policy must find ways to put public finances on a firmer footing while at the same time supporting long-term growth. Specifics of course vary across country groups. In advanced economies, weak recovery and low inflation call for a delicate balance between support for growth and debt sustainability. Emerging markets should take advantage of their still favorable positions to rebuild policy buffers. And low-income countries should decisively strengthen fiscal governance to make productive use of their natural and financial resources. But in all cases fiscal policy must, maybe more than in the past, incorporate measures aimed at increasing productivity, employment, and long term growth.

Fiscal Monitor, October 2014

Contents

Front Matter

Chapter 1: Recent Fiscal Developments and Outlook
With the recovery uneven, uncertainties still widespread, and social tensions rising, fiscal policy must find ways to put public finances on a firmer footing while at the same time supporting long-term growth. Specifics of course vary across country groups. In advanced economies, weak recovery and low inflation call for a delicate balance between support for growth and debt sustainability. Emerging markets should take advantage of their still favorable positions to rebuild policy buffers. And low-income countries should decisively strengthen fiscal governance to make productive use of their natural and financial resources. But in all cases fiscal policy must, maybe more than in the past, incorporate measures aimed at increasing productivity, employment, and long term growth.

  • Advanced Economies: Proceeding with Consolidation while Supporting Employment and Growth
  • Emerging Market and Middle-Income Economies: Contingent Risks on the Rise
  • Low-Income Developing Countries: Time to Seize the Positive Momentum
  • References
Boxes
1.1 Lowflation and Debt in the Euro Area
1.2 The Fiscal Implications of International Bond Issuance by Low-Income Developing Countries
Figures
1.1 Fiscal Trends in Advanced Economies
1.2 Historical Fiscal Adjustment Episodes in Advanced Economies
1.3 Fiscal Trends in Emerging Market and Middle-Income Economies
1.4 Fiscal Trends in Low-Income Developing Countries
Tables
1.1a Fiscal Balances, 2008−15: Overall Balance
1.1b Fiscal Balances, 2008−15: Cyclically Adjusted Balance
1.2 General Government Debt, 2008–15
1.3 Selected Advanced Economies: Gross Financing Needs, 2014–16
1.4 Selected Advanced Economies: Financial Sector Support
1.5 Selected Emerging Market and Middle-Income Economies: Gross Financing Needs, 2014–15

Chapter 2: Can Fiscal Policies Do More for Jobs?
At a time when job creation tops the policy agenda globally, this issue of the Fiscal Monitor explores if and how fiscal policy can do more for jobs. It finds that while fiscal policy cannot substitute for comprehensive reforms, it can support job creation in a number of ways. First, deficit reduction can be designed and timed to minimize negative effects on employment. Second, fiscal policy can facilitate structural reforms in the labor market by offsetting their potential short term costs. And third, targeted fiscal measures, including labor tax cuts, can help tackle challenges in specific segments of the labor market, such as youth and older workers.

  • Does the Composition of Fiscal Consolidation Affect Labor Market Outcomes?
  • Can Fiscal Policy Support Job-Friendly Labor Reforms?
  • Targeted Fiscal Measures I—Cutting Labor Taxes
  • Targeted Fiscal Measures II—Pension Reform to Increase Old-Age Employment
  • Appendix 2.1. Methodology for Estimating the Impact of Fiscal Consolidation on Employment
  • References
Boxes
2.1 Targeted Employer Social Security Contribution Cuts: Lessons from Experiences in Advanced Economies
2.2 Do Old Workers Crowd Out the Youth?
Figures
2.1 Average Unemployment Rate by Country Group
2.2 Advanced Economies: Impact of Expenditure- and Revenue-Based Consolidations on Employment
2.3 Advanced Economies: Impact of Expenditure- and Revenue-Based Consolidations on Different Unemployment Segments
2.4 Advanced Economies: Impact of Expenditure- and Revenue-Based Consolidations Following Protracted Recessions on Employment
2.5 Developing Economies: Impact of Expenditure- and Revenue-Based Consolidations on Employment
2.6 Labor Reforms Trends among OECD Countries, 1985–2011
2.7 Direct Fiscal Costs of Labor Market Reforms
2.8 Fiscal Costs of Measures Compensating Redistributive Effects of Labor Reforms
2.9 Implications of a Two-Handed Approach to Reforms
2.10 Relationship between the Tax Wedge and Employment Rate
2.11 Social Assistance Coverage and Social Spending
2.12 Low Social Security Coverage: Tax Wedge and Employment
2.13 OECD Countries: Impact of Cuts in Employer Social Security Contributions
2.14 OECD Countries: Employment Impact of One Percentage Point Employer SSC Cut across Different Degrees of Labor Market Regulation
2.15 European Union: Frequency of Employer Social Security Contribution Cuts by Group, 2000–13
2.16 Impact on Employment Growth of a Cut in Employer Social Security Contributions
2.17 Change in Life Expectancy at Age 60 and Effective Retirement Ages for Men
2.18 Labor Force Participation Rates by Gender, Ages 60–64
2.19 Statutory versus Effective Retirement Ages for Men, 2012
2.20 Pension Replacement Rates for Average Worker versus Retirement Age Gap for Men, 2012
2.21 Average Wage Earners: Replacement Rates for Mandatory and Voluntary Public and Private Pension Schemes
2.22 Select Advanced Economies: Probability of Exiting the Labor Market
2.23 Implicit Tax Rate and Men’s Effective Retirement Age, 2009

Methodological and Statistical Appendix

  • Data and Conventions
  • Fiscal Policy Assumptions
  • Definition and Coverage of Fiscal Data
  • Table A. Advanced Economies: Definition and Coverage of Fiscal Monitor Data
  • Table B. Emerging Market and Middle-Income Economies: Definition And Coverage of Fiscal Monitor Data
  • Table C. Low-Income Developing Countries: Definition and Coverage of Fiscal Monitor Data
Statistical Tables
1. Advanced Economies: General Government Overall Balance
2. Advanced Economies: General Government Primary Balance
3. Advanced Economies: General Government Cyclically Adjusted Balance
4. Advanced Economies: General Government Cyclically Adjusted Primary Balance
5. Advanced Economies: General Government Revenue
6. Advanced Economies: General Government Expenditure
7. Advanced Economies: General Government Gross Debt
8. Advanced Economies: General Government Net Debt
9. Emerging Market and Middle-Income Economies: General Government Overall Balance
10. Emerging Market and Middle-Income Economies: General Government Primary Balance
11. Emerging Market and Middle-Income Economies: General Government Cyclically Adjusted Balance
12. Emerging Market and Middle-Income Economies: General Government Cyclically Adjusted Primary Balance
13. Emerging Market and Middle-Income Economies: General Government Revenue
14. Emerging Market and Middle-Income Economies: General Government Expenditure
15. Emerging Market and Middle-Income Economies: General Government Gross Debt
16. Emerging Market and Middle-Income Economies: General Government Net Debt
17. Low-Income Developing Countries: General Government Overall Balance
18. Low-Income Developing Countries: General Government Primary Balance
19. Low-Income Developing Countries: General Government Revenue
20. Low-Income Developing Countries: General Government Expenditure
21. Low-Income Developing Countries: General Government Gross Debt
22. Low-Income Developing Countries: General Government Net Debt
23a. Advanced Economies: Structural Fiscal Indicators
23b. Emerging Market and Middle-Income Economies: Structural Fiscal Indicators
24a. Advanced Economies: Illustrative Adjustment Needs Based on Long-Term Debt Targets
24b. Advanced Economies: Illustrative Adjustment Needs Based on Medium-Term Structural Balance Targets
25. Emerging Market Economies: Illustrative Adjustment Needs Based on Long-Term Debt Targets

Back Matter

  • IMF Executive Board Discussion Summary
  • Acronyms
  • Country Abbreviations
  • Glossary