{
  "title": "IMF Survey : Strong and Equitable Growth: Fiscal Policy Can Make a Difference",
  "publication": "IMF News, June 30, 2015",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sopol063015a",
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  "summary": "Amid a recovery from the financial crisis that continues to disappoint and growing fear that the global economy is entering a prolonged period of mediocre growth, a new IMF <a href="http://www.imf.org/external/np/pp/eng/2015/042015.",
  "publishDate": "2015-06-30",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Publication: IMF Survey ; authors Jeff Danforth, Eva Jenkner, and Rossen Rozenov; IMF Fiscal Affairs Department; June 30, 2015.\n- Central finding: Fiscal policy can lift potential growth, especially when complemented by supportive structural reforms and attention to equity.\n- Evidence base: Nine country case studies (Australia, Chile, Germany, Ireland, Malaysia, the Netherlands, Poland, Tanzania, and Uganda) and an analysis of growth accelerations (defined as increases of at least 1 percentage point in five-year average growth following fiscal reforms) across 112 countries."
    },
    {
      "heading": "Key empirical findings",
      "content": "- Average growth increased substantially during the decade following reforms in most countries studied: by about ¾ percentage point on average in advanced economies (excluding Ireland) and by even more in emerging markets and low-income countries.\n- Analysis of growth acceleration episodes in 112 countries finds that such accelerations occurred significantly more often when countries had implemented fiscal reforms.\n- Examples from country cases:\n  - Germany increased its labor force participation by 8 percentage points between 2000 and 2013 through active labor market programs and other labor market reforms.\n  - Between 1985 and 1995, Malaysia more than doubled its existing infrastructure capacity in most sectors—and annual growth surged to close to 8 percent.\n  - Tanzania increased its education spending significantly over 1998–2005, from 1.8 percent of GDP to 3.5 percent of GDP, including measures targeted to less-developed regions; the reforms helped boost enrollment rates and spur sustained economic growth.\n  - Ireland saw investment surge after it streamlined and reduced its corporate income tax structure."
    },
    {
      "heading": "Anatomy of successful fiscal reforms (four main channels)",
      "content": "- Employment\n  - Cutting labor taxes, especially when they are high, increases take-home pay and incentives to work.\n  - Improving design of social benefit programs and active labor market programs can strengthen work incentives and assist job seekers.\n  - Targeted measures to support labor market participation for women, youth, older workers, and low-skilled workers are important (example: India applies a lower effective tax rate on women’s labor income; most advanced economies subsidize hiring of unemployed youth).\n- Investment\n  - Tax policies influence private investment decisions; taxing all capital income can jeopardize investment by reducing returns.\n  - Focusing capital income taxation on returns beyond a normal, risk-free rate of return can stimulate private investment and reduce debt-financing bias.\n  - Favor incentives that directly reduce cost of capital (investment tax credits) over open-ended profit-based incentives (tax holidays) which erode the tax base.\n  - Public investment in infrastructure can yield significant returns; attention to quality and efficiency is critical.\n- Human capital\n  - Fiscal policy ensures access to education and health, especially for disadvantaged groups, accelerating accumulation of human capital.\n  - Priority measures: increase investment in primary education, provide a basic health care package, reduce user charges for poor households.\n- Innovation\n  - Targeted tax incentives (tax credits and deductions) can promote R&D investment and productivity, especially in R&D-intensive industries such as pharmaceuticals and telecommunications."
    },
    {
      "heading": "How to pay for growth-friendly reforms",
      "content": "- Revenue-side measures (preferred):\n  - Broaden the tax base by eliminating tax exemptions and preferential tax rates for certain types of income.\n  - Shift tax composition from direct taxes to indirect and property taxes.\n  - Improve revenue administration.\n  - Introduce environmental taxes to price negative externalities (can generate fiscal resources while boosting environmentally sustainable growth).\n  - Examples: Poland reduced the share of direct taxes in overall revenue and generated increased investment and employment; Chile simplified taxpayer forms and streamlined filing and payment procedures to improve enforcement and tax collection.\n- Expenditure-side measures:\n  - Improve targeting and increase efficiency of spending.\n  - Lower the government wage bill while protecting quality of public services (examples: Germany, Ireland, Malaysia, and the Netherlands).\n  - Eliminate generalized subsidies (such as energy subsidies) that disproportionately benefit higher-income groups in favor of targeted measures.\n- Budget-neutral options:\n  - Countries with little room to increase revenue or trim expenditure can change the composition of taxes and spending to boost growth."
    },
    {
      "heading": "Design and implementation: the “how” matters",
      "content": "- Packaged reforms: Inclusion of fiscal measures in a package with complementary structural reforms increases the likelihood of success; in most studied countries, fiscal reforms were implemented together with structural reforms and macroeconomic policies.\n  - Example complementarities: strengthened work incentives combined with labor market reforms (streamlined hiring and firing procedures, changes in wage bargaining, minimum wage cuts); reducing government debt and deficits to create room for corporate tax decreases combined with deregulation and privatization.\n- Social dialogue and public support:\n  - Social dialogue with stakeholders enhances implementation and sustainability of politically difficult reforms (examples: the Wassenaar agreement in the Netherlands in 1982; the tripartite agreement in Ireland in 1987).\n  - Strategies to foster support include effective communication emphasizing benefits or costs of the status quo, and inclusion of compensatory measures for those expected to be worse off.\n- Balancing efficiency and equity:\n  - Reforms that increase efficiency may have adverse distributional consequences; trade-offs can be avoided by pairing measures.\n  - Example: Increasing the share of consumption taxes may hurt lower-income households, but if proceeds finance higher health and education spending from which these households benefit, they may be better off overall.\n\nIMF Survey : Strong and Equitable Growth: Fiscal Policy Can Make a Difference, June 30, 2015.\n\n---\n\n Content in this bundle\n\n- 042015 (PDF){rel=\"external\" type=\"application/pdf\"}\n- 042015pdf (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- https://www.imf.org/en/News/country-focus\n- PRESS CENTER\n- Policy\n- Blog: Fiscal policy and structural reform\n- Blog: Fiscal policy and growth\n- April 2015 Fiscal Monitor\n- public investment in infrastructure\n- environmental taxes\n- energy\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sopol063015a"
    }
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    "Published: June 30, 2015",
    "Publication: IMF Survey ; authors Jeff Danforth, Eva Jenkner, and Rossen Rozenov; IMF Fiscal Affairs Department; June 30, 2015.",
    "Central finding: Fiscal policy can lift potential growth, especially when complemented by supportive structural reforms and attention to equity.",
    "Evidence base: Nine country case studies (Australia, Chile, Germany, Ireland, Malaysia, the Netherlands, Poland, Tanzania, and Uganda) and an analysis of growth accelerations (defined as increases of at least 1 percentage point in five-year average growth following fiscal reforms) across 112 countries.",
    "Average growth increased substantially during the decade following reforms in most countries studied: by about ¾ percentage point on average in advanced economies (excluding Ireland) and by even more in emerging markets and low-income countries.",
    "Analysis of growth acceleration episodes in 112 countries finds that such accelerations occurred significantly more often when countries had implemented fiscal reforms.",
    "Examples from country cases:",
    "Employment",
    "Investment",
    "Human capital",
    "Innovation",
    "Revenue-side measures (preferred):",
    "Expenditure-side measures:",
    "Budget-neutral options:",
    "Packaged reforms: Inclusion of fiscal measures in a package with complementary structural reforms increases the likelihood of success; in most studied countries, fiscal reforms were implemented together with structural reforms and macroeconomic policies.",
    "Social dialogue and public support:",
    "Balancing efficiency and equity:",
    "[042015 (PDF)](/external/np/pp/eng/2015/042015.pdf){rel=\"external\" type=\"application/pdf\"}",
    "[042015pdf (PDF)](/-/media/websites/imf/imported/external/np/pp/eng/2015/_042015pdf.pdf){rel=\"external\" type=\"application/pdf\"}",
    "[https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[Policy](https://www.imf.org/en/news/search)",
    "[Blog: Fiscal policy and structural reform](http://blog-imfdirect.imf.org/2015/03/27/fiscal-policy-and-structural-reform/)",
    "[Blog: Fiscal policy and growth](http://blog-imfdirect.imf.org/2015/04/15/measure-to-measure-the-effect-of-fiscal-policy-on-growth-and-stability/)",
    "[April 2015 Fiscal Monitor](http://www.imf.org/external/pubs/ft/survey/so/2015/NEW041515A.htm)",
    "[public investment in infrastructure](http://www.imf.org/external/pubs/ft/weo/2015/01/index.htm)",
    "[environmental taxes](http://blog-imfdirect.imf.org/2014/09/17/carbon-pricing-good-for-you-good-for-the-planet/)",
    "[energy](http://blog-imfdirect.imf.org/2015/05/18/global-energy-subsidies-are-big-about-us5-trillion-big/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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