Transcript Tax - OECD

Fiscal Space,
Fiscal Legitimacy
and Development
G20 Workshop on Fiscal Space for
Growth and Social Policy
19-20 June 2008
Buenos Aires
Javier Santiso
Director & Chief Development Economist,
OECD Development Centre
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1
Introduction
2
Fiscal Space and Growth
3
Fiscal Legitimacy and Development
2
The Development Centre Bridging OECD and Emerging Economies
OECD members
Non-OECD members
2008 - 23 members
2008 - 10 members
Chile
Israel
South
Africa
Brazil
India
Thailand
Egypt
Romania
Vietnam
Colombia
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LEO
Latin American Economic Outlook impact
Activities:
•11 seminars organized on topics related to Latin America
•50 presentations at international conferences
•235 press articles published in 18 countries
•17.500 members of LEO’s newsletter
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Partnership OECD Centre for Tax Policy & Administration
Mission:
Enlargement Initiative
•Providing Technical Expertise to the
Committee on Fiscal Affairs by examining all
aspects of taxation.
Latin American Revenue Statistics Project:
•Covers international and domestic tax
issues, direct/indirect taxes, tax policy and
tax administration.
•An initiative to extend the OECD Revenue
Statistics methodology to a number of Latin
American countries.
•Provide annual comparisons on tax levels
and tax structures in member countries.
•Recent work on environmental policy and
taxation, taxation and growth.
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1
Introduction
2
Fiscal Space and Growth
3
Fiscal Legitimacy and Development
6
Growth
Understanding Fiscal Space
Fiscal Space
The four pillars of Fiscal Space
“The capacity of a government to provide
financial resources for a desired purpose,
subject to the constraint that the fiscal position
is sustainable, both over the medium and longterm.”
Heller, P. Introduction to “Fiscal Policy: Fiscal Elements of Growth
and Development”. Proceedings of G-20 Workshop. Istanbul,
Turkey, July 2007.
“The
gap between the current level of
expenditure and the maximum level of
expenditures a government can undertake
without impairing its solvency”
Source: Fiscal Policy: Fiscal Elements of Growth and Development”.
Proceedings of G-20 Workshop. Istanbul, Turkey, July 2007.
Development Committee of the World bank-IMF Board on Fiscal
Policy and Growth, 2006.
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Growth
Tax structure and channels of growth
Taxation
Income taxes and
Social Security
Companies
Profits
Special
tax
Taxes on Property
and Wealth
Consumption Taxes
Households
SSC
employer
SSC
employee
Capital
Income tax
Labour
income tax
General taxes
(e.g. VAT)
Taxes on specific
goods and services
Property
State tax
Wealth
Tax
Affected drivers of growth:
Employment, Human Capital Formation
Source: Heady, C. “Tax Policy for Growth.” In Fiscal Policy: Fiscal Elements of Growth and Development”. Proceedings of G-20
Workshop. Istanbul, Turkey, July 2007.
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Growth
Tax structure is a creator of fiscal space
Tax structure in LAC and OECD(2006)
% of GDP
16
14
12
10
8
6
4
2
-
Taxes on goods and Taxes on income,
services
profits and capital
gains
Social security
contributions
LAC
Taxes on property
Taxes on payroll
and workforce
Other taxes
OECD
Source: Latin American Revenue Statistics (LARS), 2008. OECD Development Centre, Paris. Based on data from ECLAC and OECD.
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Tax Policy and Growth: Implications
Growth
Corporate taxes and Investment
Income taxes
Individual Income taxes in
OECD and LAC
Corporate income taxes in
OECD and LAC
12
2005, % of GDP
10
2005, % of GDP
12
10
8
8
6
6
4
4
2
2
LAC
OECD
LAC
Source: Latin American Revenue Statistics, 2008. OECD
Development Centre, Paris.
•Cutting corporate taxes may
promote productivity growth
and investment.
OECD
•Reforming top marginal tax schedules may
improve incentives: it could also increase
inequality.
•Reforming labour/SSC taxes is more important for
productivity in labour-intensive economies.
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Growth
Does the tax structure matter for growth?
Tax “negative effect” of tax on growth declines as you move from :
Corporate income tax

Personal income tax
Questions :
•To what extent do different tax
provisions affect investment and
productivity?

Consumption taxes

Property tax
•Is there a trade off among efficiency,
equity, and simplicity?
•Does the industry/firm structure matter
for the impact of taxes?
Source: Arnold, J., A. Johansson, C. Heady, B. Brys and L. Vartia.
“Tax and Economic Growth”. OECD Centre for Tax Policy
Administration /Economics Department Working Paper, 2008
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1
Introduction
2
Fiscal Space and Growth
3
Fiscal Legitimacy and Development
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Legitimacy
Latin America’s fiscal stance has improved
Difference in Primary Spending between electoral
and non-electoral years
Investment banks' recommendations during
presidential elections
(Window:-9 months before and +9 months after the election)
1990-1996
2000-2006
5
before 2006
0.4
4
0.3
3
0.2
2
0.1
1
0
-0.1
0
-1
since 2006
Argentina
Brazil
Chile
Colombia Mexico
Peru
Uruguay Venezuela
-0.2
-0.3
-2
-3
Source: OECD Development Centre, Based on Nieto and Santiso (2008).
Note: Difference calculated for each period between primary spending in electionyear and average on primary spending of the last three non-election years prior to
election.
-0.4
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
Source: Latin American Economic Outlook 2009 (forthcoming).
Information based on investments banks' publications, 2008
Note: countries analysed are Argentina, Brazil, Chile, Colombia, Ecuador,
Mexico, Peru, Uruguay and Venezuela during the period July 1997- February
2008, covering 15 presidential elections before 2006 and 8 presidential elections
since 2006 (non overlapping elections).
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Legitimacy
However, fiscal recipes remain low
Tax revenue for selected countries
(Central Government, % GDP, 2006)
Source: Latin American Economic Revenue Statistics, 2008. OECD Development Centre, Paris. Based on ECLAC’s ILPES Database and
OECD Revenue Statistics Database.
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Legitimacy
Fiscal Progressivity is not a matter of DNA
Inequality before and after taxes and transfers
60
Gini coefficient
50
4746
4948
5048
5149
5654
57
52
47
40
35
48
37
49
38
30
20
10
Portugal
Italy
Spain
Colombia
Brazil
Mexico
Argentina
Peru
Chile
0
Source: Latin American Economic Outlook 2008. OECD Development Centre, 2007. Based on data by Goñi,
López, and Servén (2006).
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Legitimacy
Fiscal Legitimacy is low
% of citizens who trust
tax revenue is well spent
(2003-05)
Firms’ assessment of the
neutrality/composition of government
decisions/spending (2003-2006)
35
30
25
20
15
10
5
0
4 Fairer/
3 Wiser
Ecuador
Peru
Guatemala
Mexico
Bolivia
Costa Rica
Panama
Brazil
Paraguay
Colombia
Nicaragua
Argentina
Honduras
El Salvador
Venezuela
Uruguay
Chile
2
1 Unfair/
Wasteful
Latin
America
Neutrality
OECD
Composition
Source: “Latin American Economic Outlook 2008”. OECD Development Centre, 2007. Based on Latinobarómetro (2003, 2005) and World Bank
Institute, Governance Indicators Database. Based on World Economic Forum, Global Competitiveness Report, 2003-2006.
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More than quantity, is the quality of spending
Legitimacy
Education Expenditures and Performance
600
Slovak Republic
Poland
500
(PISA 2003)
Mathematics Score
550
Norway
United States
Spain
450
Thailand
Uruguay
400
Mexico
Indonesia
Tunisia
Brazil
350
300
-
5,000
10,000
15,000
20,000
25,000
30,000
Annual expenditure on educational institutions per student (2001)
in equivalent US dollars converted using PPPs, by level of education, based on full-time equivalents
Source: OECD Development Centre, 2007. Based on PISA (2003) and OECD Education at a Glance (2005)
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Legitimacy
Equity matters: Spending is often regressive
Source: Latin American Economic Outlook, 2008. OECD Development Centre, 2007. Based on ECLAC’s Panorama Social, 2007.
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Conclusions Growth, Fiscal Policy and Development
1.
Fiscal Space is not one-dimensional.
2.
Improving the social contract between citizens (and firms) and
the state – fiscal legitimacy – will also broaden fiscal space.
3.
Best practices can be identified to promote growth, equity and
the quality of public services.
4.
Fiscal policy must improve the quality (and the quantity) of
revenues and expenditures.
5.
Tax administration matters: weak administration limits the
ability to:
- raise revenue
- achieve a balanced tax structure
- engage citizens in a tax-paying democracy
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