Posted on November 6, 2013 by iMFdirect
By Michael Keen
(Version in Español, Français and 中文)
Last night, when you went to bed, you left $40 on the kitchen table. When you woke up this morning, you found only $30—and a note from the government saying, “Thank you very much, we took $10 as a tax payment.” This is, of course, extremely irritating. To an economist, however, it’s close to an ideal form of taxation, since there is nothing you can now do to reduce, avoid, or evade it—the holy grail of what economists call a non-distorting tax.
(This doesn’t mean that you won’t react in some way. Being worse off, you may now work a bit more, or save a bit less. But any other tax raising $1 would make you even worse off, because it would change relative prices (a tax on your earnings would make working less attractive, for instance), and so take your choices even further from those you would make in the absence of taxation.)
Filed under: Economic Crisis, Economic outlook, Economic research, Finance, Fiscal policy, IMF, International Monetary Fund, Politics, Public debt | Tagged: capital levy, debt, Fiscal Monitor, tax cuts, tax policy, taxation | Leave a comment »
Posted on October 29, 2013 by iMFdirect
By Steven Barnett
(Version in 中文)
Less growth in China today will mean higher income in the future. So rather than worry, we should welcome the slowdown in China’s economy. Why? Because by favoring structural reforms over short-term stimulus, China’s leadership is illustrating their commitment to move to a more balanced and sustainable growth model.
Filed under: Asia, Economic outlook, Economic research, Emerging Markets, Finance, growth, IMF, International Monetary Fund, Public debt | Tagged: China, consumption, government finances, IMF, iMFdirect, investment, reform, sustainable growth, United States | 3 Comments »
Posted on October 16, 2013 by iMFdirect
By Alejandro Werner
(Version in Español & Português)
For many Latin American and Caribbean economies, clouds have appeared on the economic horizon. As the global growth momentum shifts from the emerging to the advanced economies, the strength of domestic economic policies will be crucial for how countries can cope with the combination of lower commodity prices and tighter external financing conditions.
Lower commodity prices have already started to affect the region’s commodity exporters. Even though prices remain high by historical standards, countries can no longer count on the tailwind from ever-improving terms of trade, which had propelled economic activity over the past decade.
Meanwhile, longer-term U.S. interest rates have started to rise, with knock-on effects for emerging markets. Across all of the financially integrated economies of Latin America, bond yields have increased, equity prices have fallen, and currencies have depreciated since May, when the U.S. Fed first mentioned the possibility of tapering its bond purchases later this year. Financial conditions remain fairly benign for now, but the strong tailwind from ultra-low external financing costs may also be gone for good.
Filed under: Economic outlook, Economic research, Emerging Markets, Español, Finance, IMF, International Monetary Fund, Languages, Latin America, Public debt | Tagged: fiscal balances, infrastructure, lending, Regional Economic Outlook: Western Hemisphere | Leave a comment »
Posted on October 15, 2013 by iMFdirect
By Michael Keen
(Version in Español)
Benjamin Franklin famously said these are the only things that we can be sure will happen to us. Certainly taxation has been much to the fore of public debate in the last few years. The latest Fiscal Monitor takes a close look at where tax systems now stand, and where they might, and should be headed. Can we tax better, could we—if we wanted to—raise more revenue, and how does fairness come into it?
A better way to tax
The IMF’s broad advice on the revenue side of consolidation is straightforward.
- Before raising rates, broaden bases by scaling back exemptions and special treatments, and thereby getting more people and entities to pay taxes;
- Rely more on taxing consumption rather than labor;
- Strengthen property taxes; and
- Seize opportunities to raise revenue while correcting environmental and other distortions by, not least, carbon pricing (to address climate and other pollution challenges).
Filed under: Advanced Economies, Economic research, Emerging Markets, Fiscal policy, IMF, International Monetary Fund, Low-income countries, Public debt | Tagged: fiscal adjustment, Fiscal Monitor, pension, property taxes, tax, tax reform | 1 Comment »
Posted on October 9, 2013 by iMFdirect
By Martine Guerguil
(Versions in 中文, Français, 日本語, Русский, and Español)
Five years into the crisis, the fiscal landscape remains challenging. On the positive side, deficit-cutting efforts and the first signs of recovery reduced the fiscal stress felt in many advanced economies; but debt ratios often remain at historical peaks. At the same time, slowing growth and rising borrowing costs, combined with unabated demands for improved public services, puts pressure on government budgets in emerging market economies.
So we created an index of ‘fiscal difficulty’ that shows the biggest challenge ahead for advanced economies is to maintain budget surpluses until debt ratios return to lower levels. We expect this will take several years.
Filed under: Advanced Economies, Economic outlook, Economic research, Emerging Markets, Employment, Finance, growth, International Monetary Fund, Low-income countries, Public debt | Tagged: Asia, budget, debt, deficit, emerging market, Fiscal Monitor, Middle East and North Africa, tax | 1 Comment »
Posted on October 9, 2013 by iMFdirect
By José Viñals
(Versions in 中文, Français, 日本語, Русский, and Español)
The global financial system faces several major transitions along the road to greater financial stability. These transitions will be challenging because they are accompanied by substantial risks.
So what are these transitions?
- The first one is the transition in the United States from a prolonged period of monetary accommodation towards a normalization of monetary conditions. Will this transition be smooth or bumpy?
- Second, emerging markets face a transition to more volatile external conditions and higher risk premiums. What needs to be done to keep emerging markets resilient?
- Third, the euro area is moving to a stronger union and stronger financial systems. This report focuses on the close links between the corporate and banking sectors. What are the implications of the corporate debt overhang for bank health?
- Fourth, Japan is moving towards the new policy regime of Abenomics. The stakes are high. Will Japan’s policies be comprehensive enough to ensure stability?
- And finally, there is the global transition to a safer financial system, where much remains to be done.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Employment, growth, International Monetary Fund, Low-income countries, Public debt | Tagged: banking, emerging market, euro area, financial regulatory reform, GFSR, Global Financial Stability Report, Japan, José Viñals, monetary policy, United States | Leave a comment »
Posted on October 7, 2013 by iMFdirect
By Kalpana Kochhar and Roberto Perrelli
(Version in Español and عربي)
After a decade of high growth and a swift rebound after the collapse of U.S. investment bank Lehman Brothers, emerging markets are seeing slowing growth. Their average growth is now 1½ percentage points lower than in 2010 and 2011. This is a widespread phenomenon: growth has been slowing in roughly three out of four emerging markets. This share is remarkably high; in the past, such synchronized and persistent slowdowns typically have only occurred during acute crises.
Our analysis attributes the slowdown in part to cyclical forces, including softer external demand and in part to structural bottlenecks, for example in infrastructure, labor markets, power sector. And this has happened in spite of supportive domestic macroeconomic policies, (still) favorable terms of trade, and easy financing conditions, which only began to tighten recently. However, a non-trivial portion of the slowdown remains unexplained, suggesting that other factors common to emerging markets are at play.
Filed under: Economic Crisis, Economic outlook, Economic research, Emerging Markets, Employment, Financial Crisis, growth, International Monetary Fund, Public debt | Tagged: emerging market, interest rates, macroeconomics, policy, Program of Seminars, trade | 5 Comments »
Posted on September 30, 2013 by iMFdirect
By: John Simon
The winds may fell the massive oak, but bamboo, bent even to the ground, will spring upright after the passage of the storm.
- Japanese Proverb
Capital flows to emerging market economies are a source of particular and enduring concern to many policymakers. As seen in the 1997-98 Asian crisis, surging inflows can fuel excessive credit growth, expanded current account deficits, appreciated exchange rates and a loss of competitiveness—followed by painful adjustment when the inflows reverse. Countries often fight these buffeting winds with tight controls on exchange rates, capital flow management and aggressive interest rate movements. While these sometimes work, and are sometimes the best response to a crisis, all too often countries can find themselves felled by the wind like the massive oak.
In the most recent World Economic Outlook we discuss an approach to dealing with volatile international capital flows that emphasizes the soft and flexible response to capital flows rather than the hard and oak-like. Instead of trying to resist foreign inflows, countries can bend. We find that the countries that proved to be more resilient to the turbulent gusts of international capital flows were not necessarily those that controlled the inflows, but those where foreign inflows were balanced by offsetting resident outflows.
Filed under: Advanced Economies, Economic research, Emerging Markets, Finance, growth, IMF, International Monetary Fund, Public debt | Tagged: capital flows, foreign exchange, WEO, World Economic Outlook | Leave a comment »
Posted on September 25, 2013 by iMFdirect
By Helge Berger and Justin Tyson
Sooner or later, and one way or the other, government debt in advanced economies will have to come down from the record levels reached in the wake of the global economic and euro area crises. There is no magic number for how much sovereign debt an economy can shoulder. And, as bringing down debt by cutting government spending or raising taxes comes at the risk of reducing growth and employment in the short term, there are arguments to not proceed too hastily. But eventually debt will have to be put back on a downward path in many countries. This will help rebuild fiscal buffers and cope with the costs of aging. So, what should governments do?
Our new analysis takes a closer look at the historical record and key trade-offs. The bottom line: it is possible to reduce debt when growth is low. Ultimately perseverance should pay off.
Filed under: Economic research, Employment, Finance, Financial Crisis, Financial regulation, Fiscal policy, growth, IMF, International Monetary Fund, Public debt | Tagged: debt, euro, Europe, fiscal consolidation, GDP, government budgets, government debt | Leave a comment »
Posted on August 8, 2013 by iMFdirect
By Murtaza Syed
(Version in 中文)
Anticipation of the U.S. Federal Reserve’s exit from quantitative easing has dominated headlines in recent weeks. Half a world away, less conspicuously, but no less importantly, China, the globe’s second largest economy, is designing its own policy adjustments: firstly, unwinding the fiscal and monetary stimulus that helped shield it from the Great Recession and lifted global growth (but which also created some vulnerabilities), and secondly transitioning out of a growth model that has generated spectacular growth over the last three decades, but which is now running out of fuel.
Managed well, these twin adjustments would allow China to prolong its economic miracle in a sustainable way, with a significant positive impact for the rest of the world.
Filed under: Asia, Economic Crisis, Emerging Markets, Employment, Finance, Financial Crisis, Fiscal policy, growth, IMF, International Monetary Fund, Public debt | Tagged: China, credit, interest rate-growth differential, investment, Labor, Murtaza Syed, reform | 5 Comments »