Browse by: "2011"

Improvements in the macroeconomic policy framework over the past two decades and prudent regulation of the financial system have contributed to reduce output volatility in Mexico relative to other OECD countries. The sharp recession in 2008-09 illustrated that output volatility has nonetheless remained high. The fiscal rule has helped to balance the federal budget and keep the level of government debt low, while strengthening fiscal credibility, but it could be improved further to provide a stronger buffer against shocks. Although output contracted sharply in early 2009, actual and expected inflation remained above target, in part because rigidities in product and labour markets limit price flexibility. This constrained the monetary policy response. The banking system withstood the recession of 2008-09 well, but the contraction in bank credit was sharper than in other OECD countries, in part related to a boom-and-bust cycle in consumer credit that preceded the recession. While in other OECD countries the services sector stabilises output, in Mexico it contributes to output volatility. The volatility partly reflects the dominance of services with strong links to manufacturing, while modern and more stable consumer-related services remain underdeveloped. Output volatility could be further reduced by amending the fiscal rule to accumulate larger buffers of financial assets during economic upswings or periods of high oil prices, and by taking measures to enhance the flexibility of prices. Mexico should also adopt internationally-accepted statistical conventions for its budget accounts to make them more easily comparable with those in other countries. There would be merit in moving towards macro-prudential regulation and supervision to reduce the pro-cyclicality of the financial system. Finally, entry barriers to services should be lowered to boost the development of a modern consumer-related services sector.

The transition to a greener economy supported by international environmental commitments and national policies will entail structural changes in consumption patterns and industry structures, resulting in a reallocation of resources in and between countries. Slovakia will need to build an effective framework for green growth to maximise its chances of exploiting cleaner sources of growth and to seize the opportunities to develop new green industries, jobs, and technologies. This requires addressing environmental externalities (for example by extending environmental taxation and removing subsidies) and improving the adaptive capacities of the economy through eco innovation. Reforms to support innovation and R&D spending, such as making existing R&D public support more efficient, strengthening the protection of property rights and developing the venture capital market, are needed. Also, administrative entry barriers in the product market should be reduced, competition in energy markets fostered, and the tertiary education system reformed. This paper relates to the 2010 OECD Economic Review of the Slovak Republic (www.oecd.org/eco/surveys/slovakia).

Ireland is recovering from an extremely large banking crisis born of over-exuberant property lending. The government has taken a wide range of measures to tackle the crisis over the past 3 years. Larger bad property loans have been transferred to a government controlled “bad bank”, NAMA, and the associated heavy losses fully recognised by the banks. NAMA needs to focus on maximising tax payer returns from disposing of this asset portfolio. The banking system was recapitalised in mid 2011 following stringent bank “stress tests”, which proved to be a crucial turning point in the crisis by helping to draw a line under losses. Restructuring of the domestic banking system around two core pillar banks is underway but the domestic banking system is still too large. Selling down the banks’ large portfolio of foreign assets will help to downsize the banks. It will assist in reducing reliance on Eurosystem liquidity while minimising the squeeze on domestic credit. As confidence in the financial system is regained, the authorities should further restrict the government guarantee of bank liabilities. Revamped bank regulation and supervision should utilise a wider set of indicators and rules beyond standard capital ratios and pay greater attention to macro-financial linkages.

A major challenge in the measurement of well-being and progress is to link indicators of high-level societal outcomes with specific policy interventions. This is important not only for better informing the public, but also to provide the means for policy makers and advisors to assess the impacts of their policies and programmes and to increase their effectiveness and cost-efficiency. This paper looks at four major areas of social policies– health status, literacy and learning, economic security, and economic inequality– with the aim of understanding how to link broad outcome measures of progress in these areas, on the one hand, and the policies bearing on them, on the other. Emphasis is given to the powerful benefits to be derived from coupling longitudinal, multivariate data and powerful statistical methods with recently developed analytical tools such as micro-simulation. The paper also emphasises the need for “principled” summary indicators, i.e. indicators embedded within coherent data systems, and the importance of internationally comparable data based on common concepts and definitions.

This paper presents the Development Policy Evaluation Model (DEVPEM), a new simulation model which captures four critical aspects of rural economies in developing countries: (1) the role of the household as both a producer and a consumer of food crops; (2) high transaction costs of participating in markets; (3) market linkages among heterogeneous rural producers and consumers; (4) the imperfect convertibility of land from one use to another. The results of simulations for six country models show that no untargeted agricultural policy intervention is pro-poor within the rural economy. While agricultural policy instruments are less efficient at raising rural incomes than direct payments, the degree of inefficiency of some market interventions, notably input subsidies, is not inevitably as high as observed in developed OECD countries.

This paper provides technical documentation of the Development Policy Evaluation Model (DEVPEM model). It contains a discussion of the theoretical building blocks of the model; an overview of the data sources used for the simulations; and explanations of how household groups are categorized and how the model is calibrated. Finally it describes the design of the agricultural policy simulations that are examined in the accompanying policy paper.

With slow growth and high inequality Mexico needs investments in infrastructure, education and social policies. Mexico has increased spending in all of these areas. This was easily financed thanks to fiscal reforms in 2007 and 2009 as well as high oil prices in recent years. Oil revenues, which account for around one third of budgetary receipts, are highly volatile, especially due to price movements, and the prospects for production are uncertain, even though less so than in previous years. Mexico has the lowest tax revenues as a share of GDP in the OECD and much of Latin America, even when oil-related revenues are included. The government should improve the efficiency of its public spending. Mexico spends significant sums on energy subsidies, which are in large part captured by higher-income groups. Moreover, these subsidies are not in line with Mexico’s ambitious goals to reduce greenhouse gas (GHG) emissions. These subsidies should be gradually withdrawn in line with the government’s goals. Extending cash benefits to the poor instead would be much more efficient to fight poverty and help citizens and the economy as a whole to buffer income shocks. Agricultural spending should be re-structured to finance more investment in public goods and less support for producers, which has proven ineffective in increasing agricultural productivity. Broadening the tax base by withdrawing some of the most distortive tax expenditures would make an important contribution to strengthen revenues. This would also help make the tax system simpler, thus reducing compliance costs as well as opportunities for tax avoidance and evasion. Efforts to enhance tax enforcement should continue.

Following recommendations from the Stiglitz-Sen-Fitoussi Commission (2009), this paper proposes the use of a new methodology to measure the joint distribution of households. income, consumption and wealth. Based on a multidimensional extension of the Atkinson generalized mean framework, the paper justifies the application of this methodology based on a set of standard and acknowledged properties, proving that this is the sole methodology satisfying them all simultaneously. The derived multidimensional index has an intuitive structure, which allows evaluating the overall material conditions of households under different perspectives and with varying sensitivity to distributionnal issues. Under its general form, the index encompasses a class of sub-indices that impose various restrictions on its parameters; the paper discusses the extent to which different restrictions on parameters affect the multidimensional assessments of various population groups, and provides some empirical illustrations using those different specifications. The question addressed by the multidimensional measure presented here is whether the joint consideration of household income, consumption and wealth modifies substantially the picture of material living standards of different individuals and groups relative to the one provided by income alone. Based on the dataset used here, the paper provides strong evidence on the importance of such a multidimensional assessment.

With 17% of the working-age population in 2010 being foreign-born, Austria has one of the largest shares of working-age immigrants in the OECD. As in other European OECD countries, the migration landscape in Austria has been shaped by the recruitment of low-educated labour migrants prior to the first oil shock and subsequent family migration. Even more important were the fall of the Iron Curtain in the late 1980s and the conflicts in the former Yugoslavia, which triggered large-scale migration movements to Austria. More than three quarters of all migrants of working-age currently residing in Austria have arrived since the former event, with most entering between 1988 and 1995.

Over the last two decades almost all OECD countries have made major structural changes to their tax systems. In the case of the personal and corporate income tax regimes reforms have generally been rate reducing and base broadening, following the lead given by the United Kingdom in 1984 and the United States in 1986. In some countries, including Australia and New Zealand, reforms have been profound and sometimes implemented over a very short period of time. In others, including most of Europe, Japan and many other Asian countries, reform has been a gradual process of adaptation.

The tax burden on labour and its evolution over time are issues that feature prominently in the political debate. Averaged across the OECD, personal income taxes, social security contributions and payroll taxes together account for more than 51% of total government revenues in 2008 (OECD, 2010). With tax burdens differentiated by earnings level and family situation, they serve a central role as redistribution policies. Importantly, by shaping both work incentives and the cost of labour, the level and structure of these taxes are major influences on the functioning of labour markets...

Innovation is the cornerstone of sustained economic growth and prosperity. In a globalised world, innovation is a key driver of competitiveness between businesses and it plays a critical role in the rapid growth of emerging economies. At the same time, the global financial crisis has increased the relevance of a better understanding of the role that innovation can play in restoring sustainable growth while giving focus to the issue of constrained public resources and effective public expenditure. Especially in the current context of a global financial and economic downturn, it is particularly important that tax policies continue to provide efficient incentives to fostering innovation...

This paper focuses on the tax impediments faced by small and medium-sized enterprises in Italy. The fact that small businesses are characterized by financing constraints and have less access to bank loans is often emphasized as an argument in favour of a special tax treatment for small enterprises. On the one hand, however, the evidence that SMEs suffer severe financing constraints is not overwhelming; on the other hand, tax relief for SMEs is not necessarily the best response to financial market imperfections.

This study evaluates the regional tax incentives for business investment in Italy and addresses the following questions: (i) how much additional investment was stimulated by the government intervention; (ii) has the public financing displaced (part of) the private financing; (iii) to what extent would the outcomes on firm performance have not been achieved without the public support? The methodology consists of applying the matching approach and selects a sample of firms composed of both recipients and non-recipients such that for each subsidised firm a comparable unsubsidised counterpart is found, which is similar in every respect except for the tax benefit. An empirical model of firm’s investment behaviour has then been estimated in order to obtain the tax-price elasticity and to test the sensitivity of investment decisions to the availability of internal funds by taking into account the dynamic structure underlying capital accumulation. This new approach to evaluate tax expenditures allows us to deal with the problem of the endogeneity of firms' participation decisions as well as to account for the different channels through which tax incentives operate. Finally, the impact of the investment tax credit on TFP levels is identified by modelling the productivity dynamics at the firm level.

This paper considers how tax policy and administration impact on an economy’s competitiveness and reviews various measures of ‘tax competitiveness’.

This paper discusses the objectives of tax reform and explores the most important environmental factors that influence the reform process, focusing on the circumstances that explain when these objectives and environmental factors may become an obstacle to the design and implementation of tax policies. The second part of this paper discusses strategies that might help policy makers to successfully implement fundamental tax reforms.

This paper uses data derived from tax returns to analyse trends in the share of pre-tax personal income going to top income recipients. These data provide a more reliable source of information on top incomes than household surveys and allow a perspective of almost a century. Since the early 1980s there has been a recovery in the share of top incomes, especially in the share of the top percentile group. The increase started earlier and has been greater in the US than elsewhere. Strong upward trends can also be seen in other English-speaking countries, but such trends are more muted in Continental European countries. The differences in trends between countries may reflect measurement issues to some degree.

An important feature of the increased share is that it is mostly attributable to higher employment and business income, not capital income, and reflects such factors as the incentive effects of cuts in (top) marginal tax rates and the fact that the remuneration of top executives and finance professionals has become increasingly related to ‘performance’, particularly through the use of stock and stock options.

The policy implications of these trends depend in part on income mobility; and the limited data available suggest that there is significant mobility and that its scale has decreased only slightly over time. They also depend on the likely behavioural response to increased taxation of top incomes, where the empirical literature suggests that taxable income elasticities in some countries can be large. The paper considers the pros and cons of possible reforms in the light of such evidence.

In 23 of the 34 OECD member countries, it is compulsory for employers and/ or employees to make additional payments, in addition to taxes and social security contributions, which increase the overall burden on labour income. These non-tax compulsory payments, which are typically paid to privatelymanaged funds, will either increase the employer’s labour costs or reduce the employee’s net take-home pay in a similar way to taxes, although they do not necessarily have the same behavioural impact. This paper discusses the different non-tax compulsory payments levied in OECD member countries and calculates “compulsory payment indicators”, which combine non-tax compulsory payments and taxes into an overall indicator of the burden of compulsory government regulation on labour income. The analysis shows that especially employers have to pay non-tax compulsory payments and that they have a considerable impact on the “tax wedge” rankings that are published in the OECD’s Taxing Wages Report.

The OECD’s Taxing Wages (TW) Report1 provides details of taxes paid on wages in the 34 OECD member countries. In particular, it covers the personal income tax and social security contributions paid by employees and their employers, as well as cash benefits received by families. The Report calculates the average and marginal tax burden on labour income for taxpayers at different income levels and with different family characteristics (single taxpayers and married couples with or without children). The aim of this paper is to explore the possible consequences of broadening the TW model by introducing consumption taxes, and so include the taxes that workers pay when they spend their wages in addition to the taxes that are paid when they earn them. This has been done by using micro data from Household Budget Surveys provided by several OECD countries and Eurostat, to simulate consumption taxes for families with similar characteristics to the eight types defined in Taxing Wages.