The Israeli economy was performing well before the COVID-19 shock but the pandemic is threatening to reverse some of Israel’s recent economic achievements, raise poverty and exacerbate wide productivity disparities between its vibrant high-tech sector and lagging sheltered sectors. Lockdown measures and high uncertainty have led to a sharp contraction in output and reduced employment. In this environment, macroeconomic policy needs to remain supportive and flexible to adapt to the evolving health situation. Enhancing training and job search support is crucial to help laid-off workers transition to new jobs quickly and avoid long-lasting negative economic effects. Structural reforms and additional public investment to improve educational outcomes, boost infrastructure and foster product market competition are key to strengthening the recovery. Reducing wide differences in resources between municipalities will promote equal opportunities for everyone. Tax reforms to further strengthen in-work benefits, cut inefficient tax expenditures, reduce distortions created by the business and property tax system and better align taxes with environmental externalities will make the recovery more inclusive and sustainable, while generating additional revenues.

SPECIAL FEATURES: REDUCING MUNICIPAL DISPARITIES; TAXATION