Posted on June 25, 2014 by iMFdirect
By Michael Keen
It’s hard to pick up a newspaper these days (or, more likely for readers of blogs, to skim one online) without finding another story about some multinational corporation managing, as if by magic, to pay little corporate tax. What lets them do this, of course, are the tax rules that countries themselves set. A new paper takes a closer look at this issue, which is at the heart of the IMF’s mandate: the way tax rules spill over national boundaries, and what this means for macroeconomic performance and economic development. These effects, the paper argues, are pretty powerful and need to be discussed on a global level.
Follow the money
Take, for instance, international capital movements. Though tax is not the only explanation, the foreign direct investment (FDI) positions shown in Table 1 are hard to understand without also knowing that tax arrangements in several of these countries make them attractive conduits through which to route investments. In its share of the world’s FDI, for example, the Netherlands leads the world; and tiny Mauritius is home to FDI 25 times the size of its economy.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Finance, Financial regulation, growth, IMF, International Monetary Fund, Investment, Reform | Tagged: corporate income tax, Cyprus, foreign direct investment, Hong Kong SAR, Luxembourg, Mauritius, Netherlands, spillover, tax, Tax Treaties | Leave a comment »
Posted on June 9, 2014 by iMFdirect
By Sanjeev Gupta and Enrique Flores
(Versions in Español)
The Finance Minister answers her mobile. On the line is the Minister of Energy, who informs her that the country has struck oil and that he expects revenues from its sale to start flowing into the budget in the coming four years. While excited by the prospects of higher revenues—indeed the average resource-rich country gets more than 15 percent of GDP in resource revenues—she starts to ponder how to use these revenues for her country’s development. She is aware that only in rare cases have natural resources served as a catalyst for development; too often they have led to economic instability, corruption, and conflict or what has been termed as “the resource curse.”
Filed under: Economic research, Finance, Financial regulation, Fiscal policy, growth, IMF, International Monetary Fund, Investment, Reform | Tagged: Alaska, budget, energy, income, income distribution, macroeconomics, natural resources, Nigeria, oil, resource wealth, subsidies, wealth | Leave a comment »
Posted on June 4, 2014 by iMFdirect
By Jesus Gonzalez-Garcia and Francesco Grigoli
(Version in Español)
Government ownership of banks is still common around the world, despite the large number of privatizations that took place over the past four decades as governments reduced their role in the economy. On average, state-owned banks hold 21 percent of the assets of the banking system worldwide. In Latin American and Caribbean countries, the public banks’ share is about 15 percent, with some of them showing very large shares, for instance, Argentina, Brazil, Uruguay, and Costa Rica are all over 40 percent (see Figure 1).
State-owned banks play an important role in the financial system. They fulfill functions that are not performed by private banks, provide financing for projects that benefit the rest of the economy, and provide countercyclical lending (lending more when the economy is weak). But public banks usually respond to the needs of governments owing to the state’s obvious involvement in their administration. As a result, government’s participation in the banking system may weaken fiscal discipline by allowing the public sector to access financing that they would not obtain from other sources.
In our recent study, we use a panel dataset for 123 countries to test whether a larger presence of state-owned banks in the banking system is associated with more credit to the public sector, larger fiscal deficits, higher public debt ratios, and the crowding out of credit to the private sector.
Filed under: Economic outlook, Economic research, Emerging Markets, Español, Finance, Fiscal policy, Government, International Monetary Fund, Latin America, Public debt | Tagged: Argentina, bank credit, banking, big banks, Caribbean, Latin America, public sector, Uruguay | Leave a comment »
Posted on May 29, 2014 by iMFdirect
By Holger van Eden
Most economists would agree that institutions in general are incredibly important in helping to shape countries’ overall economic and fiscal outcomes. But which institutions really matter, and to what extent, is less clear.
A team of staff at the IMF recently completed a study, along with detailed country evaluations, that explores the G-20 countries’ efforts to strengthen their budget institutions in the wake of the global financial crisis, and evaluates their impact on fiscal policy. We ask whether strong budget institutions helped these countries to cope with the substantial fiscal consolidation needs that arose after the Great Recession. The evidence suggests that these institutions have indeed been important.
Budget institutions matter
In the study we identify 12 institutions (see figure1) that are commonly viewed as important for the effectiveness of fiscal policy. To be clear, the term “institution” is used in a broad sense—it encompasses processes, procedures, systems, legal frameworks, and organizational entities which contribute to the budget process.
Filed under: Advanced Economies, Emerging Markets, Europe, Finance, Financial Crisis, Fiscal policy, International Monetary Fund, Reform | Tagged: budget institution, budget preparation, fiscal reporting, G-20 | Leave a comment »
Posted on May 28, 2014 by iMFdirect
By Chris Papageorgiou, Lisa Kolovich, and Sean Nolan
(Version in Español)
Low-income countries have spent a lot of time thinking about how they can achieve faster growth, and we have done some research to help them. We found that pursuing export diversification is a gateway to higher growth for these economies. Using a newly constructed diversification toolkit, our empirical analysis shows that both the range and quality of the goods a country produces has a direct impact on growth
Low-income countries have historically depended on a narrow range of primary products and few export markets for the bulk of their export earnings.
But export diversification is associated with higher per capita incomes, lower output volatility, and higher economic stability—relationships that can be tracked using our new publically available dataset, which gives researchers and policymakers access to measures of export diversification and product quality for 178 countries from 1962-2010.
We have looked at two measures of export diversification and their impact on economic growth. One measure captures diversification into new product lines, the other development of a more balanced mix of existing products. Analysis using these measures shows that export diversification in low-income countries is indeed among the most effective drivers of economic growth.
Filed under: Africa, Asia, Economic outlook, Economic research, Finance, Globalization, growth, International Monetary Fund, Investment, LICs, Low-income countries | Tagged: agriculture, Asia-Pacific, China, economic diversification, European Union, export diversification, infrastructure, investment, Kenya, low income countries, manufacturing, South Asia, Sub-Saharan Africa, Tanzania, Uganda, Vietnam | Leave a comment »
Posted on May 21, 2014 by iMFdirect
By Serkan Arslanalp and Yingyuan Chen
As the financial market turbulence of May 2013 demonstrated, the timing and management of the U.S. Fed exit from unconventional monetary policy is critical. Our analysis in the latest Global Financial Stability Report suggests that if the U.S. exit is bumpy (Figure 1), although this is a tail risk and not our prediction, the result could lead to a faster rise in U.S long-term Treasury rates that impacts other bond markets. This could have implications not only for emerging markets, as widely discussed, but, also for other advanced economies.
Indeed, historical episodes show that sharp rises in US treasury rates lead to increases in government bond yields across other major advanced economies.
Filed under: Advanced Economies, Finance, Financial regulation, growth, International Monetary Fund | Tagged: banks, IMF, interest rates, International Monetary Fund, U.S. Treasury, United States | 2 Comments »