Browse by: "2011"

This paper assesses some welfare consequences of climate change mitigation policies. In the same vein as Becker, Philipson and Soares (2005), a simple index of economic progress weighs in the monetary cost induced by mitigation policies as well as the health benefits arising from the reduction in local air pollution. The shadow price of pollution is calculated indirectly through its impact on life expectancy. Taking into account the health benefits of mitigation policies significantly reduces their monetary cost in China and India, as well as in countries with large fossil-based energy-producing sectors (Australia, Canada and the United States).

This paper aims at providing an estimate of the resource envelope required in order to achieve the Millennium Development Goals (MDGs) on the global level. As widely acknowledged by previous contributors to this literature, modelling the cost of achieving the MDGs poses many data and methodological challenges.

Like previous contributions, this paper relies on a very simple growth model to relate development financing — private or public — to growth in order to estimate how much it would cost to halve poverty across developing countries. The virtue of this model is precisely its simplicity but the trade-off is that it does not claim to take account of the effects of increases in development financing, tax revenues, public expenditure and transfers on the general equilibrium of the economy to which it is applied. For instance, increasing the supply of schooling does not necessarily guarantee that it will be met with an equivalent increase in the demand for education. The model used in this paper simply provides orders of magnitude that are helpful to size up the challenges that meeting MDGs entails for low- and middle-income countries.

Similarly, when measuring the amount of transfers or government expenditure that it would take to achieve the poverty, education and health MDGs across countries, this paper acknowledges that the link between inputs and outcomes is often weak and that absorption and delivery issues can represent significant challenges in developing countries. From this perspective, the orders of magnitude presented cannot be taken to be precise estimates, especially at the country level, of how much public expenditure would be needed to increase in order to achieve specific MDGs. The importance of framing the corresponding debate in the larger framework of the quality of public policy and institutions is, indeed, a key take-away from the MDG costing exercise undertaken in this paper.

The Czech fiscal position is generally sound and policy making is prudent. However, the fiscal framework was not strong enough to contain spending in the upturn and it would benefit from independent budget oversight. An anchor for the fiscal policy would be helpful, in the form of an explicit debt target coupled with corresponding spending ceilings and deficit targets.

The ongoing fiscal consolidation, spending pressures and an already relatively high average tax burden necessitate public sector efficiency improvements. There is scope for improvement in the management of government spending, mainly by enhancing transparency, introducing performance-oriented budget indicators at both central and local levels, improving the management of state-owned enterprises and developing the procurement practices of the public sector.

Legislated increases in the retirement age will improve pension system sustainability. A new defined contribution tier is being introduced which should help to diversify future retirement income. At the same time, there is uncertainty about the number of participants who will decide to divert their contribution to the new tier and hence about the implications for revenues in the existing defined benefit pension tier. Also, attention should be taken regarding administrative costs of the new tier, since these can have a significant impact on future replacement rates and therefore public support for it. With more emphasis on private savings, the financial literacy of the population also needs to be stepped up.

In healthcare the authorities plan to continue improving the multi-insurer model through incremental reforms such as limiting pharmaceutical costs and improving provider-payment system. The potential for efficiency improvement in healthcare network planning and better care management should be explored, while ensuring that insurers and health providers are given the correct incentives.

This working paper relates to the 2011 Economic Survey of the Czech Republic, www.oecd.org/eco/surveys/czech.

The paper explores issues with assessing wellbeing in OECD countries based on self-reported life satisfaction surveys in a pooled regression over time and countries, at the country level and the OECD average. The results, which are in line with previous studies of subjective wellbeing, show that, apart from income, the state of health, not being unemployed, and social relationships are particularly important for wellbeing with only some differences across countries. The results also show that cultural differences are not major drivers of differences in life satisfaction. Correlations between the rankings of measures of life satisfaction and other indicators of wellbeing such as the Human Development Index and Better Life Index are also relatively high. Measures of subjective wellbeing can play an important part in informing policy makers of progress with wellbeing in general, or what seems to matter for wellbeing—health, being employed and social contacts-- beyond income.

The management of government debt and assets has important implications for fiscal positions. Debt managers aim to secure non-interrupted funding at lowest medium-term costs subject to risks. Massive crisis-related increases in government debt in most OECD countries and increased risks on the asset side of government balance sheets may imply attaching a larger weight to avoiding risk than prior to the crisis, suggesting to extend debt maturities, possibly above pre-crisis levels. There are a number of trade-offs. Choices on the debt maturity structure interact with unconventional monetary policies. By driving down longer-term yields, the latter increase incentives to extend debt maturities which could counteract the initial monetary policy goal. High debt raises the temptation for eroding it via inflation, but the effectiveness of such policy seems to be limited and might be costly in the long run. Moreover, debt management needs to contribute to ensuring appropriate liquidity and functioning of government bond markets. Building financial assets can be appropriate for some purposes, such as prefunding future temporary spending or transferring wealth to future generations, but the risks are that accumulated funds might be used for current spending or tax reductions. In addition, assets might do little to hedge risks associated with debt servicing costs. Non-financial asset sales can help improve the fiscal situation, but purely revenue-driven privatisations without appropriate regulatory provisions addressing potential market failures should be avoided. Successful balance sheet management requires transparent, accurate and comprehensive measures of not only current but also future assets and liabilities.

During the last decade, the volume of international trade has increased significantly as international economic integration has deepened, especially in emerging countries, and national industrial structures have become increasingly aligned with international trade in intermediate goods. The OECD STAN Bilateral Trade Database by Industry and End-use Category (BTDIxE) presents international trade in goods flows broken down both by industry sectors and by end-use categories, allowing insights into the patterns of trade in intermediate goods between countries to track global production networks and supply chains as well as helping to address other trade-related policy issues such as trade in value added and tasks.

This study addresses issues of digital divide among households and individuals by using micro-data analysis of ICT usage patterns. The analysis includes data from 18 European countries, Korea and Canada. Inequalities in computer and Internet use are analysed in a two-step approach. First, the paper tries to better quantify and understand the factors that separate the ‘haves’ and the ‘have-nots’. Second, it tries to explain observed differences in the frequency and type of Internet use as a result of the socio-economic characteristics of households and individuals.

The differential between the interest rate paid to service government debt and the growth rate of the economy is a key concept in assessing fiscal sustainability. Among OECD economies, this differential was unusually low for much of the last decade compared with the 1980s and the first half of the 1990s. This paper investigates the reasons behind this profile using panel estimation on 23 OECD economies. The results suggest that the fall is partly explained by lower inflation volatility associated with the adoption of monetary policy regimes which credibly target low inflation, which might be expected to continue. However, the low differential is also partly explained by factors which are likely to be reversed in the future, including very low policy rates, the “global savings glut” and the effect which the European Monetary Union had in reducing long-term interest differentials in the pre-crisis period. The differential is also likely to rise in the future because the number of countries which have debt-to-GDP ratios above a threshold at which there appears to be an effect on sovereign risk premia has risen sharply. Moreover, debt is projected to increasingly rise above this threshold in most of these countries.

Imports are often perceived as a threat to employment. However, access to imported intermediate inputs can be essential to stimulate innovation and generate employment. We investigate this question based on a unique dataset of Ecuadorian manufacturing firms, their final products and intermediate inputs. Using fixed effects instrumental variable estimation we find that firms' importing activities lead to product innovation, increase firms' product scope, reduce production costs and create employment. These impacts arise not only for producers in high-tech industries but also for firms in more traditional sectors. Employment effects are much stronger several years after the country's economic crisis.

The financial crisis has resulted in a substantial increase in unemployment in the OECD. This paper shows that this increase has reversed the reduction in structural unemployment which has been estimated to have occurred in most OECD countries since the late 1990s. Structural unemployment is defined as a time-varying NAIRU derived from the information contained in a reduced Phillips curve equation (linking inflation to the unemployment gap) by means of a Kalman filter. The overall limited revisions in historical NAIRU estimated in 2008 after such a large labour market shock support the robustness of the OECD approach. This approach is therefore extended to almost all OECD countries. Alternative specifications of the Phillips curve are proposed for some specific groups of countries.

In the 16 years since the OECD began conducting Economic Surveys of the Russian Federation, a great many policy recommendations relating to structural reform and framework conditions have been made. This paper, expanding on Annex 1.A1 in the 2011 OECD Economic Survey of the Russian Federation, provides a summary tabulation of the state of implementation of a large number of these past Survey recommendations.

Using plant-level data from the Annual Survey of Industries (ASI) for the fiscal years from 1998-99 through 2007-08, this study provides plant-level cross-state/time-series evidence of the impact of employment protection legislation (EPL) on total factor productivity (TFP) and labour productivity in India. Identification of the effect of EPL follows from a difference-in-differences estimator inspired by Rajan and Zingales (1998) that takes advantage of the state-level variation in labour regulation and heterogeneous industry characteristics. The fundamental identification assumption is that EPL is more likely to restrict firms operating in industries with higher labour intensity and/or higher sales volatility. Our results show that firms in labour intensive or more volatile industries benefited the most from labour reforms in their states. Our point estimates indicate that, on average, firms in labour intensive industries and in flexible labour markets have TFP residuals 14% higher than those registered for their counterparts in states with more stringent labour laws. However, no important differences are identified among plants in industries with low labour intensity when comparing states with high and low levels of EPL reform. Similarly, the TFP of plants in volatile industries and in states that experienced more pro-employer reforms is 11% higher than that of firms in volatile industries and in more restrictive states; however, the TFP residuals of plants in industries with low labour intensity are 11% lower in high EPL reform states than in states with lower levels of EPL reform. In sum, the evidence presented here suggests that the high labour costs and rigidities imposed through Indian federal labour laws are lessened by labour market reforms at the state level.

The European Union Treaty of Lisbon brought a new dimension to cohesion – the territorial dimension, which has become one of the most frequently discussed aspects for achieving cohesion and, at the same time, one of the challenges for EU policies. The ‘territorial dimension’ determines many socio-economic problems and presents challenges for the European Social Fund (ESF), which has to enhance its flexibility and highlight the capacity and needs of specific territories at national, regional and local levels at the programming and implementation stages. While our understanding of the national and regional levels has advanced, the dynamics with the local level need further consideration, chiefly in the context of Europe 2020 strategy, and regarding the territorial dimension of the European Social Fund and mechanisms of territorialisation.

This paper discusses the conceptualisation of territoriality and the different levels of applicability in regional development approaches. The paper draws on OECD and other organisations research and analysis; particularly the work of the OECD Local Economic and Employment Development Programme (LEED). The paper argues that the local level is emerging as the key spatial dimension where EU development instruments apply and therefore a systemic local approach may be needed when designing national and regional cohesion policies and instruments. The paper is divided into 5 sections discussing: 1) The importance of an integrated spatial approach to development; 2) The success of the local approach to development: complexity, integration and the policy mix; 3) Integrating territorial mechanisms for job creation, employability and inclusive growth; 4) Fostering education policies for qualification and skills rich ecosystems; and 5) The way forward.

This document describes economic baseline projections to 2050 for several world regions. It describes how socio-economic drivers are used to create a consistent projection of economic activity for the coming decades, applying the general framework of “conditional convergence”. This economic baseline is created using the ENV-Linkages model version 3. This baseline is used for modelling analysis with the ENVLinkages model as carried out for the OECD Environmental Outlook to 2050 (to be released in Spring 2012). Specific attention is given in this paper to projections for the energy system as part of the economy, to allow detailed links between economic activity and environmental pressures, including emissions of greenhouse gases (GHGs).

Overall, the education system fares well by international comparison. Slovenia has one of the highest shares of the population aged 25 to 64 to have completed at least upper secondary education, and ranks high in international educational achievement tests. Nevertheless, in some areas, reforms could significantly improve performance and equip the labour force with the skills most in demand in a rapidly changing economy. In particular, low student-teacher ratios, small class sizes, and a high share of non-teaching staff suggest that there is room for improving spending efficiency. Rationalising teaching and non-teaching staff would also free up valuable public resources that could be redirected towards underfunded aspects of the education system. Low enrolment rates in short vocational education programmes and in certain higher education fields, such as science and engineering, contribute to a skill deficit in some occupations, underlining the need to make such programmes more attractive. At the tertiary level, completion rates and spending per student are low by international standards, and students take too long to complete their studies. The combination of low student fees and access to generous financial support, coupled with the preferential treatment of student work until recently, creates “fake students”; it also provides genuine students with an incentive to remain in the tertiary education system too long. Introducing universal tuition fees along with loans with income-contingent repayment would help to address such issues. This Working Paper relates to the 2011 Economic Survey of Slovenia (www.oecd.org/eco/surveys/Slovenia).

This paper looks at commodity stocks, their role in price determination for storable commodities, and past efforts of international stockholding arrangements with economic provisions in stabilising world prices. Low stocks to use ratios of recent years were one of a number of contributory factors to the grain price spike in 2007-08, the paper finds. However, the experience with past international commodity agreements (ICAs) with price band provisions and stockholding obligations suggests that they had only limited success in reducing the volatility of the prices they set out to stabilise, as well as being prone to many other operational problems. The paper also suggests that as a possible response to apparently inadequate private storage, public sector storage would be costly, ineffective in countering price spikes once stocks are fully exhausted, and would crowd out private storage. Some market-based approaches to countering food price volatility are also examined as alternatives to commodity storage.

Using a computable general equilibrium, this paper quantifies the GDP and employment effects of an illustrative greenhouse gas emissions reduction policy. The paper first analyses the direct negative economic effects of the emissions restrictions on GDP and examines labour sectoral reallocations in a framework where labour markets are perfectly flexible. The model is then modified to incorporate labour market imperfections in OECD countries that could generate unemployment, namely, short-run rigidities in real wage adjustment. It is shown that imperfect wage adjustment increases the cost of mitigation policy since unemployment increases in the short-run, but that the carbon tax revenue generated can be recycled so as offset some or all of this effect, notably when it is used to reduce wage-taxes. Thus, taking realistic labour market imperfections into account in a CGE model affects the GDP costs of mitigation policy in two ways: first by introducing extra costs due to the increased unemployment that such policy may entail; second by creating the possibility of a double dividend effect when carbon taxes are recycled so as to reduce distorting taxes on labour income..

This paper analyses the impact of unemployment insurance and severance pay on the duration of nonemployment and transitions from non-employment to formal salaried employment, informal salaried employment and self-employment. It makes use of panel data from the Pesquisa Mensal de Emgrego, a monthly survey for six large cities in Brazil, for the period 2002M3 to 2010M10. The impact of income support to job losers is identified by means of a difference-in-differences approach that exploits eligibility conditions for income support in combination with proportional hazard models that take account of the spell-based nature of the data. A key aspect of the analysis is that it attempts to assess the role of moral hazard while controlling for the role of liquidity effects. The aggregate results indicate that income support has an important impact on the duration of non-employment. This largely appears to be driven by liquidity effects, while the role of moral hazard is limited. By contrast, the analysis by destination state suggests that moral hazard effects dominate liquidity effects associated with income support. The apparent inconsistency between the two sets of results is due to the fact that the aggregate analysis only accounts for moral hazard effects that increase the duration of nonemployment, while the analysis by destination state captures both moral hazard effects in the form of reduced work incentives per se and those in the form of increased incentives to work informally during the period of benefit receipt. In practice, the latter effect may reflect the tendency for firms to employ benefit recipients informally until their benefits expire.

This paper analyses the contribution to and engagement in global supply chains of Asian emerging economies by measuring several globalisation indicators based on the harmonised input-output and bilateral trade databases developed by the OECD. It focuses on major structural changes in the Asian trade network from the perspective of integration and fragmentation in global supply chains. It shows that greater fragmentation and higher dependence on supplies of intermediate goods and services from neighbouring countries have gone hand-in-hand and led to deepening economic integration between ASEAN and East Asia. ASEAN policy makers, therefore, need to consider their integration strategies from the perspective of the whole East Asian region and not just among ASEAN countries themselves.

This paper discusses the ways to quantify the local content that can be delivered through the internet. Several indicators are proposed; for each indicator the paper discusses available data, presents strengths of a given measure and outlines its potential drawbacks.