IMF Fiscal Monitor: Achieving More with Less, April 2017

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Fiscal Monitor

IMF Fiscal Monitor: Achieving More with Less, April 2017

April 2017

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Summary
Introduction
Chapter 1

Chapter 2
Methodological & Statistical Appendix
Back Matter

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Summary

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Fiscal policy has recently gained prominence, both in public debate and in governments’ policy. A reassessment of fiscal policy is taking place, stressing its greater role in fostering sustainable and inclusive growth and smoothing the economic cycle. At the same time, the high uncertainty surrounding the outlook and high levels of public debt require a better understanding and managing of fiscal risks. Therefore, fiscal policy has the difficult task of achieving more and better in a more constrained environment. This issue of the Fiscal Monitor shows how the evolution of the debate on fiscal policy can shed new light on fiscal developments and help frame policy recommendations to countries.

Introduction

Chapter 1 : A Greater Role for Fiscal Policy

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The global economy is undergoing major transformations, including a productivity slowdown, technological change, and global economic integration. This creates new demands for public policies to facilitate these transformations, while cushioning the effect on those negatively affected. Fiscal policy has a greater role to play in fostering sustainable and inclusive growth. At the same time, the high degree of uncertainty surrounding the outlook as well as stretched government balance sheets require a better understanding and management of risks. Fiscal policy therefore has the difficult task of achieving more and better in a more constrained environment.

Open Chapter 1 Full Table of Contents

Introduction
Recent Fiscal Developments and Outlook
Can Fiscal Policy Do More and How?
References

Boxes
	1.1	The Destination-Based Cash Flow Tax—A Primer
	1.2	What Are the Budgetary Costs and Gains of Structural Reforms?
	1.3	Making Growth More Inclusive in China
	1.4	Can Countries Sustain Higher Levels of Public Debt?
	1.5	Can Fiscal Rules Lower Sovereign Borrowing Costs in Countries with a Weak Track Record of Fiscal Performance?
Annex
	1.1	Defining and Measuring Fiscal Space
Figures
	1.1	Mentions of Fiscal Issues in the Economic Press, 2014–16
	1.2	Potential GDP Per Capita Growth, 1990–2016
	1.3	Change in Disposable Income Inequality for Selected Countries, 1985–2015
	1.4	Fiscal Trends in Advanced Economies
	1.5	Fiscal Trends in Emerging Market and Middle-Income Economies
	1.6	Fiscal Trends in Low-Income Developing Countries
	1.7	Global Economic Policy Uncertainty Index, 2007–16
	1.8	Fiscal Risk Management Strategy
	1.9	Toward a New Role for Fiscal Policy
	1.10	Relationship between the Tax Wedge and Employment Rate in Advanced Economies
	1.11	Measures of Infrastructure Access, 2015
	1.12	Global Poverty Trends
	1.13	Per Capita Real Market Income in Advanced Economies, 1980–2012
	1.14	Benefit Generosity and Unemployment Risk in Advanced Economies, 2006–13
	1.15	Net Present Value of Future Pension Obligations in Advanced Economies, 2015–50
	1.16	World Distribution of Tax-to-GDP Ratio, 2016
	1.17	Secondary Education Spending per Student, 2015
	1.2.1	Impact of Labor Tax Wedge Cut on Public-Debt-to-GDP Ratio
	1.2.2	Net Medium-Term Fiscal Benefit of Job Protection Reforms under Weak Economic Conditions
	1.3.1	Redistributive Effect of Fiscal Policy in Selected Advanced and Emerging Market Economies, 2009
	1.4.1	Interest–Growth Rate Differentials in Advanced Economies, 1990–2016
	1.5.1	Impact of Fiscal Rules on Government’s Borrowing Costs in Countries with Weak Track Records of Fiscal Performance
Tables
	1.1a	General Government Fiscal Balance, 2010–18: Overall Balance
	1.1b	General Government Fiscal Balance, 2010–18: Cyclically Adjusted Primary Balance
	1.2	General Government Debt, 2010–18
	Annex Table 1.1.1	Advanced Economies: Selected Potential Indicators of Fiscal Space
	Annex Table 1.1.2	Emerging Market and Developing Economies: Selected Indicators of Fiscal Space

Chapter 2 : Upgrading the Tax System to Boost Productivity

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A top challenge facing policymakers today is how to raise total factor productivity, the key driver of living standards over the long term. Tackling this challenge calls for the use of all policy levers, and in particular growth-friendly fiscal policies. This chapter makes the case that upgrading a country’s tax system is important to boosting productivity because it can reduce distortions that prevent resources from going to where they are most productive. The chapter offers several key findings to support the overall message that how governments tax matters for productivity. Improving the design of tax policies helps remove the distortions that are holding more productive firms back, generating a positive impact on aggregate productivity and growth.

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Introduction
Countries Are Not Using Their Resources Efficiently
Upgrading the Tax System Helps Chip Away at Resource Misallocation
Conclusion
References

Boxes
	2.1	What Is the Effective Marginal Tax Rate?
	2.2	Colombia: Labor Tax Reform and the Shift from Informal to Formal Employment
	2.3	Mozambique: Differential Tax Treatment across Firms
Annexes
	2.1	Conceptual Framework
	2.2	Calculation of Resource Allocation Efficiency Using Firm-Level Data
	2.3	A Simple Example of Distortive Taxes and Resource Misallocation
	2.4	Estimates of the Effective Marginal Tax Rate
	2.5	Taxation and Resource Allocation Efficiency within Industries
	2.6	Firm-Level Productivity, Informality, and the Tax System
	2.7	Tax Compliance Costs and Firm Productivity
	2.8	Antiavoidance Legislation and Investment by Multinational Firms
Figures
	2.1	Total Factor Productivity Growth, 1990–2016
	2.2	Distribution of Firm-Level Revenue Productivities
	2.3	Resource Allocation Efficiency
	2.4	Gains in Total Factor Productivity from Narrowing Dispersion of Firm Revenue Productivities within Industries
	2.5	Estimated Annual Real GDP Growth Effects from Reducing Resource Misallocation
	2.6	Tax Disparity and Investment in Machinery
	2.7	Developing Countries: Improvements in Resource Allocation Efficiency from Reducing Tax Disparity to Benchmark
	2.8	Effective Marginal Tax Rates by Source of Financing
	2.9	Advanced Economies: Improvements in Resource Allocation Efficiency in R&D-Intensive Industries from Reducing Debt Bias to Benchmark
	2.10	Developing Countries: Productivity of Informal Firms
	2.11	Developing Countries: Effect of Corporate Income Tax and Tax Administration Features on the Share of Sales Reported for Tax Purposes by Small Firms
	2.12	Developing Countries: Employment by Firm Age
	2.13	Firm-Level Total Factor Productivity by Size
	2.14	Tax Administration Quality Index and Labor Productivity of Small and Young Firms
	2.15	Developing Countries: Firm-Level Total Factor Productivity by Ownership
	2.2.1	Informal Employment, 2007–16
	2.3.1	Distribution of ISPC Taxpayers, 2015 Compared with 2010
	Annex Figure 2.3.1	Capital Allocation with Distortive Taxes
	Annex Figure 2.3.2	Share of Total Capital: Distortive versus Nondistortive Taxes
	Annex Figure 2.8.1	Countries with Transfer-Pricing Regulations
	Annex Figure 2.8.2	Estimated Effect of Transfer-Pricing Regulations on Investment, Taking into Account Intangible Assets
Tables
	2.2.1	Payroll Taxes
	2.3.1	Mozambique: Effective Marginal Tax Rate under Different Investment Incentives
	Annex Table 2.2.1	Number of Observations
	Annex Table 2.5.1	Developing Countries: Resource Allocation Efficiency and Disparity in Effective Marginal Tax Rates across Asset Types
	Annex Table 2.5.2	Advanced Economies: Resource Allocation Efficiency and Corporate Debt Bias
	Annex Table 2.5.3	Developing Countries: Resource Allocation Efficiency and Preferential Taxes for Small Firms
	Annex Table 2.6.1	Firm-Level Productivity and Informality
	Annex Table 2.6.2	Aggregate Total Factor Productivity and Informality
	Annex Table 2.6.3	Firm-Level Informality, Tax Rates, and Tax Administration
	Annex Table 2.6.4	Country-Level Informality, Tax Rates, and Tax Administration
	Annex Table 2.7.1	Developing Countries: Tax Compliance Costs and Labor Productivity
	Annex Table 2.8.1	Transfer-Pricing Regulations and Multinational Investments
	Annex Table 2.8.2	Transfer-Pricing Regulations and Investments in the Case of Complex Multinational Companies

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Fiscal Monitor

Fiscal Monitor

IMF Fiscal Monitor: Achieving More with Less, April 2017

Reports and Related Links:

Summary

Introduction

Chapter 1 : A Greater Role for Fiscal Policy

Chapter 2 : Upgrading the Tax System to Boost Productivity

Methodological & Statistical Appendix

Back Matter

Videos