Economic Policy Reforms

1813-2723 (online)
1813-2715 (print)
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OECD’s annual report highlighting developments in structural policies in OECD countries. Closely related to the OECD Economic Outlook and OECD Economic Surveys, each issue of Economic Policy Reforms gives an overview of structural policy developments in OECD countries followed by a set of indicators that reflect structural policy evolution. A set of Country Notes summarises priorities suggested by the indicators with actions taken and recommendations suggested. The Country Notes section also includes a set of indicators tables and graphs for each country. Each issue also has several thematic studies.

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Economic Policy Reforms 2011

Economic Policy Reforms 2011

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07 Apr 2011
9789264092587 (PDF) ;9789264092570(print)

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The global recovery from the deepest recession since the Great Depression is under way, but it remains overly dependent on macroeconomic policy stimulus and has not yet managed to significantly reduce high and persistent unemployment in many countries. Going for Growth 2011 highlights the structural reforms needed to restore long-term growth in the wake of the crisis. For each OECD country and, for the first time, six key emerging economies (Brazil, China, India, Indonesia, Russia and South Africa), five reform priorities are identified that would be most effective in delivering sustained growth over the next decade. The analysis shows that many of these reforms could also assist much-needed fiscal consolidation and contribute to reducing global current account imbalances.

The internationally comparable indicators provided here enable countries to assess their economic performance and structural policies in a wide range of areas.

In addition, this issue contains three analytical chapters covering housing policies, the efficiency of health care systems and the links between structural policies and current account imbalances.

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  • The Many Dividends from Structural Reform
    The global recovery has been underway for some time now, but it remains uneven. Emerging market economies are growing strongly, while growth in OECD economies has been insufficient to significantly reduce unemployment from its post-crisis peak with all of the attendant human and social costs. Global payment imbalances are widening again. How sustainable post recession global growth will be? Policy driven recovery has still not been fully replaced by self sustained, job rich growth, especially in advanced economies. At the same time policy space is reaching its limits, in both the fiscal and monetary policy domains. Monetary policies have been stretched to their limits, and public budgets are in need of consolidation – and indeed most OECD governments are tightening fiscal policy in 2011 and beyond. In addition, the recovery takes place against the background of permanent scars from the recession that, while difficult to assess precisely, are associated with output losses in most advanced economies that are likely to persist for several years.
  • Executive Summary
    The global recovery from the deepest recession since the Great Depression has been underway for some time now, but it remains overly dependent on macroeconomic policy stimulus and has so far been insufficient to address high and persistent unemployment in many countries. With fiscal stimulus bound to be gradually withdrawn to address unsustainable public debt dynamics and little if any further support to be expected from monetary policy, the main challenge facing OECD governments today is turning a policydriven recovery into self-sustained growth. Speeding up the structural reform process, which outside the financial regulation area has slowed during the global recession, could make a decisive contribution in this regard. In a context of crisis recovery, priority may be given to reforms that are most conducive to short-term growth and help the unemployed and those outside the labour force to remain in contact with the labour market.
  • An Overview of Going for Growth Priorities in 2011
    This initial chapter of Going for Growth identifies five structural reform priorities for each OECD country, for the European Union as a whole, and for the BRIICS – Brazil, China, India, Indonesia, Russia and South Africa. The recommendations are aimed at addressing variations in labour productivity and labour use across these countries. Moderate and high income (mainly European) OECD countries need to improve their labour use mainly by reforming their benefit and job protection systems and labour taxes. The relatively wealthy Asian member countries face a more balanced set of challenges, with a greater focus on labour productivity. The reform challenges for lower income OECD countries and the BRIICS relate to their education systems and product market regulation, as well as labour informality. The chapter also reports the number of reform priorities that would directly and quickly improve the fiscal balance, and also estimates for most OECD countries the potential cost savings that could be reaped by implementing best practice in their national education and health care systems. It turns out that implementing many of the Going for Growth priorities could not only enhance living standards but also contribute to more balanced fiscal positions, as well as to lower global current account imbalances.
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  • Expand / Collapse Hide / Show all Abstracts Country Notes

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    • Australia
      Australia has weathered well the global financial crisis, with its per capita GDP rising to the average of the upper half of OECD countries. However, productivity has lagged. Efforts have been made recently to improve educational outcomes, with reforms in the upper secondary and vocational sectors. Still, weaknesses remain and further actions are needed in the following areas.
    • Austria
      Austria’s GDP per capita is below the average of the upper half of OECD countries but its relative position has slightly improved since the mid-2000s, reflecting rising labour productivity before the 2009 recession. In 2009, progress has been made to strengthen early education (kindergarten) and alleviate premature streaming of pupils in secondary schools. However, weaknesses remain and there is need for reform in the following areas.
    • Belgium
      The GDP-per-capita gap vis-à-vis best performing countries has narrowed slightly in recent years, but continues to reflect a low level of labour utilisation. There has been some progress in raising the low employment rates of older workers, though little has been done in terms of addressing geographical labour market mismatches. Weaknesses remain and reforms are needed in the following areas.
    • Brazil
      The GDP per capita gap with OECD countries is now diminishing but remains large and is largely due to comparatively weak labour productivity performance reflecting in part fairly low investment rates. Beyond the recent efforts to combat inequality through the extension of anti-poverty programmes, further actions are needed in the following areas to sustain overall economic performance.
    • Canada
      A small gap in GDP per capita relative to the upper half of OECD countries persists, entirely the result of relatively low labour productivity. This performance shortfall could be addressed by making further progress in the priority areas below. In other fields, the federal government is pursuing a free-trade agreement with the European Union, and provinces are making headway in pricing carbon emissions.
    • Chile
      Chile has one of the largest GDP per capita gaps with respect to the upper half of OECD countries, primarily reflecting lower labour productivity. Convergence has slowed over the past decade, mainly owing to weak productivity growth. This performance shortfall could be addressed by implementing further reforms in the areas below. Female labour participation and schooling outcomes are also likely be partly stimulated by the recent expansion of kindergarten places provided effective quality controls are put in place.
    • China
      GDP per capita has soared over the past five years, rising by close to 50% cumulatively, thereby substantially narrowing the wide gap with OECD countries. As employment rates remain quite high the difference in income per capita essentially reflects lower productivity. A broad range of reforms have occurred in recent years, supporting rapid productivity gains, though progress in the following areas would help to ensure that this continues.
    • Czech Republic
      Several years of strong growth prior to the crisis have steadily narrowed the gaps in GDP per capita and labour productivity vis-à-vis the upper half of OECD countries, yet both remain considerable, notably the productivity gap. Progress has been achieved in improving the business environment by greater use of information technologies, but further actions are needed in the following areas.
    • Denmark
      The income gap vis-à-vis the upper half of OECD countries has widened over the past decade, with rising labour utilisation more than offset by lower productivity growth. Employment rates are high but working hours remain low. Reforms over the past few years have notably focused on raising labour supply, and on fostering green growth including through policies to reduce greenhouse gases emissions. However more needs to be done in the areas below.
    • Estonia
      There has been rapid catch-up in the wake of EU entry, but the large gap in GDP per capita vis-à-vis the upper half of OECD countries has widened again recently. This gap in living standards reflects a productivity shortfall, while labour utilisation is relatively high. To reach a higher trend productivity growth rate, structural reforms in the areas below are needed.
    • European Union
      There is a substantial income gap relative to the upper half of the OECD as productivity and labour utilisation levels remain below the top performers. Progress has been made in financial sector reform, notably in the area of macro prudential regulation. Structural reforms in the following areas are needed to limit the medium and longterm effects of the crisis on potential output.
    • Finland
      The GDP per capita gap vis-à-vis the upper half of OECD countries narrowed until 2008 but widened again during the recession. This gap mainly reflects lower labour productivity, but labour resource utilisation is also below the best performing countries. Recent reforms have sought to strengthen labour force participation, stem the increase in long-term unemployment and improve the efficiency of public service provision. Additional reforms are still needed in the following areas.
    • France
      The income gap relative to the upper half of OECD countries has widened since the early nineties due to weak employment outcomes, especially for youth and older workers, as well as relatively short annual hours worked. The government has enacted reforms in recent years to strengthen innovation and reduce tax disincentives to investment, but additional measures are still needed, especially in the areas below.
    • Germany
      The GDP per capita gap relative to the upper half of OECD countries has narrowed somewhat since the mid- 2000s, but a labour utilisation gap remains. Reforms of the short-time work scheme during the crisis have prevented excessive layoffs. Work incentives are also being strengthened in 2011 by phasing out the temporary supplementary benefit paid to certain long-term unemployed. However, further structural reforms are still needed in the following areas.
    • Greece
      The income gap vis-à-vis the best performing countries, which had declined in recent years, is likely to increase again as a result of the major ongoing economic crisis. Structural reforms underway in the product and labour markets are vital to reducing the sizeable productivity shortfall and enhancing labour utilisation.
    • Hungary
      GDP per capita has converged towards the OECD average but the gap remains substantial because of large shortfalls in labour productivity and, to a lesser extent, labour utilisation. Progress has been made to raise labour supply through reductions in the tax wedge on labour income and incentives to retire early, but more needs to be done in the following areas, notably in order to raise productivity growth.
    • Iceland
      The shortfall in GDP per capita gap relative to the upper half of OECD countries shrank in the mid-2000s but has since widened as a result of the crisis. This income gap reflects relatively low labour productivity partially offset by one of the highest rates of labour resource utilisation in the OECD. While bank regulation and supervision has been recently reformed, structural reforms in the following areas are needed in order to return to sustained economic growth.
    • India
      India continues to achieve one of the highest rates of GDP per capita growth in the world. Nevertheless, the income gap with OECD countries remains large, primarily reflecting low levels of labour productivity, calling for further reforms to support rapid and inclusive growth. Incremental reforms of administrative regulation introduced by governments at all levels have led to some improvement in the operating environment for business. However, more fundamental reforms are needed in the following areas.
    • Indonesia
      Per capita incomes are converging towards OECD levels, but the gap remains very large mainly owing to a labour productivity shortfall. Further actions in the areas below would help to reduce this gap. In other areas, efforts have been made recently in climate-change mitigation policies by committing to greenhouse gas emissionreduction targets.
    • Ireland
      Ireland has experienced a severe set-back in living standards. Unemployment has risen steeply and labour force participation declined, resulting in a labour utilisation gap relative to the upper half of OECD countries. While the government is launching reforms aimed at improving macroprudential regulation, efforts in the areas below should be pursued to raise long-term growth prospects and avoid a structural deterioration in the labour market.
    • Israel
      GDP per capita has moved towards the upper half of the OECD distribution since the mid-2000s but a major gap remains, reflecting a shortfall in productivity. Notable attention has been paid recently to transport infrastructure and concentration in the financial sector. However, further structural reforms are needed in the following areas.
    • Italy
      GDP per capita and productivity have continued to decline relative to the upper half of OECD countries. Moves to improve the efficiency of public administration through results-oriented management and simplification of legislation have continued though significant impacts cannot yet be seen. Further reforms are needed in the areas below.
    • Japan
      The income gap relative to the upper half of OECD countries has been persistent over the last decade, reflecting a large productivity shortfall. The government has announced a Growth Strategy aimed at boosting incomes, notably in the environment, health care and tourism sectors, but it needs also to focus more on the following regulatory reforms to boost demand and productivity growth.
    • Korea
      The GDP per capita gap with the upper half of OECD countries continues to narrow while the labour utilisation rate remains the highest in the OECD. The remaining income gap is due to shortfalls in productivity, especially in services. This can be largely addressed by implementing further reforms in the areas below. Also, crisis-related measures to assist small and medium-sized enterprises should be scaled back to avoid supporting non-viable firms.
    • Luxembourg
      GDP per capita is the highest in the OECD despite a fall during the recession. Labour productivity has stalled as the result of labour hoarding and going forward the growth path is likely to be weaker than over recent decades. Major reforms of the school system undertaken in recent years will improve education prospects for residents, but reforms are needed in other areas discussed below.
    • Mexico
      Mexico has one of the largest GDP per capita gaps with respect to the richest 50% of OECD countries, which is almost entirely due to a persistent gap in labour productivity. Mexico is bringing its competition law in line with international best practice, but further actions in the following areas are needed to address the productivity shortfall.
    • Netherlands
      GDP per capita is at par with the average of the upper half of OECD countries, due to a combination of high hourly productivity and employment offset by a low number of hours worked per employee. In 2009, the government introduced a number of policy measures to increase activation and hours worked, but in order to improve economic performance other reforms are necessary in the following areas.
    • New Zealand
      A large gap in GDP per capita persists relative to the upper half of OECD countries, which is entirely due to low labour productivity. There has been progress on negotiating regional free trade agreements, reducing tax distortions and pricing carbon emissions, but reforms in the following areas are still needed.
    • Norway
      Norway has maintained its productivity lead (including in the non-petroleum sector) over most OECD countries, and labour utilisation is also high. Structural reform in the following areas would contribute to further increase economic performance.
    • Poland
      While GDP per capita has been catching up quickly over the last decade, the shortfall relative to the upper half of the OECD countries remains large primarily due to a labour productivity gap. The government has taken measures to attract foreign direct investment with a view to modernising the economy and increasing capital intensity. A number of other reforms need to be implemented, particularly in the following areas.
    • Portugal
      GDP per capita relative to the upper half of OECD countries has declined over the past decade, with only a modest reversal during the recent crisis. This decline has been mainly accounted for by labour utilisation, but lower productivity alone explains the large gap in income levels. Some efforts have recently been made to accelerate pension reform implementation and to make public administration more efficient. Further reforms in the following areas are still needed to improve economic performance.
    • Russia
      The income gap with OECD countries narrowed rapidly until 2008, but remained large and widened in 2009, as Russia was relatively hard-hit by the economic and financial crisis. This income gap is almost entirely attributable to a labour productivity shortfall, making productivity-enhancing reforms a priority.
    • Slovak Republic
      The rapid convergence in GDP per capita relative to the upper half of OECD countries observed since 2000 stopped in 2009 but productivity convergence continued. Substantial gaps in labour utilisation and productivity remain. The 2009 recovery plan introduced flexible work time accounts enabling firms to better adapt to the economic cycle. To improve longer-term economic performance further actions are needed in the following areas.
    • Slovenia
      The income gap relative to the upper half of OECD countries narrowed significantly prior to the crisis, before starting to widen again. This gap is largely explained by a shortfall in labour productivity. The recent introduction of a one-stop shop for companies to reduce the burden of setting up a business, as well as personal and corporate income tax reforms, should boost performance. Further reforms are still needed in the areas below.
    • South Africa
      The GDP per capita gap with the upper half of OECD countries has failed to narrow since the transition to majority rule, although there has been some convergence in the last few years. Compared with other non-OECD countries, an unusually large part of the gap is explained by low labour utilisation. A large expansion of social grants has been important in alleviating poverty, but structural reforms would help speed up convergence to OECD income levels.
    • Spain
      Convergence in GDP per capita has stalled, although performance compares more favourably on the basis of current international prices. Productivity growth has increased recently, in part reflecting the downsizing of residential construction, where productivity is low, whereas labour utilisation has dropped. In the housing market, enforcement of rental contracts has improved and the tax treatment of rental and owner-occupied housing has been equalised. Progress has been made notably in the labour market area, but further reforms are needed in the following fields.
    • Sweden
      The income gap vis-à-vis leading OECD economies has widened somewhat in recent years, reflecting a productivity slowdown. Employment rates are high, but average hours worked are low. Reforms of the benefit dependency scheme and labour taxation have helped support labour force participation and employment, and efforts to mitigate greenhouse gas emissions have been made. Further reforms are required, in the areas below.
    • Switzerland
      The decline in real GDP per capita vis-á-vis the best performing OECD countries has stopped due to a relative increase in labour utilisation while the gap in productivity remains. Actions have been taken in several areas, notably regarding the prudential supervision of systemically important banks, including through stricter capital and liquidity requirements. Reforms in the following areas are still needed to improve trend economic growth.
    • Turkey
      The income gap vis-à-vis the upper half of OECD countries narrowed in the 2000s but remains very large, reflecting both low labour productivity and utilisation levels. Strong catch-up until the 2009 crisis reflected mainly productivity gains, while labour utilisation remained very low. A new draft Commercial Code has been prepared and should be adopted to improve financial transparency and facilitate financing investment. Structural reforms in the areas below are needed to improve overall economic performances.
    • United Kingdom
      Relative employment rates remain slightly below the average of the upper half of OECD countries and have slipped somewhat during the last few years. Labour productivity has converged to some extent but is still below average, leaving a significant gap in GDP per capita. Government spending on R&D has increased recently, but more needs to be done in the following areas to improve living standards further.
    • United States
      GDP per capita continues to be among the highest in the OECD, mainly reflecting high labour productivity. A surge in labour productivity during the recent recession has increased the performance of US workers relative to the OECD average, but relative labour utilisation has declined. Health care and financial sector reforms have recently been enacted, but more needs to be done in the following areas.
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  • Structural Policy Indicators
  • Housing and the Economy: Policies for Renovation
    This chapter compares a number of housing policies for a range of OECD countries and concludes that badly-designed policies can have substantial negative effects on the economy, for instance by increasing the level and volatility of real house prices and preventing people from moving easily to follow employment opportunities. Some of these policies played an important role in triggering the recent financial and economic crisis and could also slow down the recovery. The chapter makes some recommendations for efficient and equitable housing policies that can also contribute to macroeconomic stability and growth.
  • Tackling Current Account Imbalances: Is there a Role for Structural Policies?
    This chapter presents new OECD empirical analysis which points to some potential for structural reforms to reduce global imbalances by influencing saving and investment rates. For example, social welfare and financial market reforms could curb the current account surpluses of several emerging countries including China. Likewise, growth-enhancing product market reform could reduce the surpluses of some advanced economies such as Japan and Germany by boosting capital spending. The OECD scenario analysis outlined here shows that a package of fiscal consolidation and structural reforms in the main world economies could possibly reduce current global imbalances by about a third.
  • A New Look at OECD Health Care Systems: Typology, Efficiency and Policies
    Rising health care spending is putting pressure on government budgets. Governments will have to make their health care systems more efficient if they are to maintain quality of care without putting further stress on public finances. The OECD has assembled new comparative data on health policies and health care system efficiency for its member countries. These show that all countries surveyed can improve the effectiveness of their health care spending. If all countries were to become as efficient as the best performers, life expectancy at birth could be raised by more than two years on average across the OECD, without increasing health care spending. There is no single type of health care system that performs systematically better in delivering cost-effective health care, as both market-based and more centralised command-and-control systems have strengths and weaknesses. It seems to be less the type of system that matters, but rather how it is managed. Policy makers should aim for policy coherence by adopting best practices from other health care systems and tailoring them to their own circumstances. Nevertheless, the international comparison highlights a number of sources of potential efficiency gains, such as from improving to co-ordination of the bodies involved in health care management, strengthening gate-keeping, increasing out-of-pocket payments, enhancing information on quality and prices, reforming provider payment schemes or adjusting regulations concerning hospital workforce and equipment. By improving the efficiency of the health care system, public spending savings would be large, approaching 2% of GDP on average across the OECD.
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