Transcript Labour Market

Jaromír Šindel
ECES
The Puzzles of Central and Eastern Europe Transformation and Integration
Fiscal Policy and Euro
ECES, Prague
• Fiscal Economic Policy
– Time inconsistency, rules better than discretion,
cyclical adjusted government balance,...
• Maastricht and SGP – dreams and facts
– Fiscal consolidation under Maastricht criteria,
SGP reality, reform of SGP
The Puzzles of Central and Eastern Europe Transformation and Integration
Topics
• CEEC and Fiscal Policy, euro linkage
ECES, Prague
– Fiscal reforms, fiscal consolidation, implication
for sustainable development and economic
growth, Tax Competitiveness
EFFICIENCY
The Puzzles of Central and Eastern Europe Transformation and Integration
Understand to Fiscal Policy
non-efficient tax system
Source: www.energystar.com, own layout.
ECES, Prague
non-efficient spending
Structural and cyclical governmetn budget
Automatic stabilizers automatically increase deficit during
cyclical downturns by taxes based on incomes, especially
when progressive or payments for unemployed workers
(during downturns, automatic stabilizers moderate the
business cycle)
Source: Prof. E. Dolan, Lecture at VSE Prague, 2005.
ECES, Prague
Gap of about 2%
between cyclical and
structural deficit during
recessions shows effect
of automatic stabilizers
The Puzzles of Central and Eastern Europe Transformation and Integration
Fiscal Economic Policy
Time inconsistency
Inconsistency between
short-time and long-time
effect of fiscal policy.
For example durign
good times, government
decreases taxes, more
generally makes
structural changes in
fiscal policy.
ECES, Prague
Source: Prof. E. Dolan, Lecture at VSE Prague, 2005.
The Puzzles of Central and Eastern Europe Transformation and Integration
Fiscal Economic Policy
Time inconsistency and election year
• Time inconsistency
and the effect of
structural changes
in fiscal policy is
stronger during
election year.
ECES, Prague
Source: Prof. E. Dolan, Lecture at VSE Prague, 2005.
The Puzzles of Central and Eastern Europe Transformation and Integration
Fiscal Economic Policy
Savings in the USA, 1970-2003 (% GDP)
Ricardian equivalence?
ECES, Prague
Source: OECD Economic Studies No. 38, 2004/1
The Puzzles of Central and Eastern Europe Transformation and Integration
Ricardian Equivalence in the USA
• There is many measures of fiscal policy
sustainability. We use the unchanging level of
debt in GDP term. So:
• Because
B  D
and
D
d
Y
, using derivation
formula for change of d we get
• In term of GDP
D  Y 

d    d
Y Y 
D D  Y  D  Y

Y
Y2
and because
B

we get d   g   d .
Y
.
 Y 
    g   
Y 
budget is b  d  g    .
Source: Obsfeld, Rogoff (2004)
ECES, Prague
• Our goal is d  0 , so the level of unchanged
b
debt is d  g    . Then desired balance of fiscal
The Puzzles of Central and Eastern Europe Transformation and Integration
Sustainable Fiscal Policy
Fiscal Policy in Europe
• Question of currency union
• Maastricht Treaty was not enough for
Germany – Stability and Growth Pact was
established. Troubles?
• If there are troubles with fiscal rules, how to
cope with them?
• Benefits outweigh costs if …
– Markets are highly integrated
• Goods markets, Financial markets, Labor markets
– Shocks to currency union members are symmetrical (UK
- oil)
– Labor markets are flexible
– Flexible fiscal policy for fiscal transfers (to cope with
shocks)
call for flexible and sustainable fiscal policy
The Puzzles of Central and Eastern Europe Transformation and Integration
Review of the OCA theory
• Question of OCA endogenity
– Convergence to OCA and higher flexibility follow
integration process
ECES, Prague
Source: Prof. E. Dolan, Lecture at VSE Prague, 2005.
ECES, Prague
• Free rider effect of countries with high debt
and higher deficits of government balance,
becouse there is common currency and
interest rate.
• Fiscal imbalance in currency union can
increase price level. Central bank have
tighten monetary policy through higher
common interest rate.
• And because you want to avoid increase in
interest rate, there is call for fiscal rules.
The Puzzles of Central and Eastern Europe Transformation and Integration
Why Rules in Eurozone?
Optimal Mix of Monetary and Fiscal Policy in Currency Union is not Feasible
Optimal Mix of Monetary & Fiscal Policy is not Feasible due to Free Rider Problem
Source: Prof. E. Dolan, Lecture at VSE Prague, 2005.
ECES, Prague
• Optimum is
sustainable fiscal
policy and moderate
monetary policy.
• But free rider
problem with fiscal
policy in monetary
union.
• Some countries
have unsustainable
fiscal policy and
tigher monetary
policy is need.
The Puzzles of Central and Eastern Europe Transformation and Integration
Why Rules in Eurozone?
Debt and Deficit in Eurozone and EU Member Countries
ECES, Prague
Source: Prof. E. Dolan, Lecture at VSE Prague, 2005.
The Puzzles of Central and Eastern Europe Transformation and Integration
Rules in Eurozone and Reality
• Fiscal Policy and Tax Burden
– structure of tax burden, tax burden according to
economic function
• Changes and Reforms
• Tax Competitiveness
The Puzzles of Central and Eastern Europe Transformation and Integration
Fiscal Policy - Changes, Reforms?
ECES, Prague
Tax to GDP ratio in EU countries and the US and Japan (in %, ranked by 2003 level)
ECES, Prague
Source: Eurostat. Structures of the taxation systems in the European Union
The Puzzles of Central and Eastern Europe Transformation and Integration
Tax Burden
Structure of tax revenues by major type of taxes (2003, in % of total tax burdens)
ECES, Prague
Source: Eurostat. Structures of the taxation systems in the European Union
The Puzzles of Central and Eastern Europe Transformation and Integration
Tax Burden
Taxes on labour – empl. and non-employed (pension and social benefits), consum.
and capital - capital and business income and stocks (in % of GDP, 2003)
ECES, Prague
Source: Eurostat. Structures of the taxation systems in the European Union
The Puzzles of Central and Eastern Europe Transformation and Integration
Tax Burden accord. to ec. function
and capital (capital and business income and stocks) (in % of total taxation, 2003)
ECES, Prague
Source: Eurostat. Structures of the taxation systems in the European Union
The Puzzles of Central and Eastern Europe Transformation and Integration
Tax
Burden
accord.
to
ec.
function
Shares of tax revenues raised on labour (empl. and non-employed), consumption
changes in the total tax-to-GDP ratio (1995-2003, diff. in p.p. of GDP)
ECES, Prague
Note:*LT: 2000-2003
Source: Eurostat. Structures of the taxation systems in the European Union
The Puzzles of Central and Eastern Europe Transformation and Integration
Tax
Burden
accord.
to
ec.
function
Contribution of taxes on labour, capital and consumption (in % of GDP) to the
ECES, Prague
Source: Eurostat. Structures of the taxation systems in the European Union
The Puzzles of Central and Eastern Europe Transformation and Integration
Tax
Burden
accord.
to
ec.
function
Development of implicit tax rates for the Member States (1995 - 2003, in %)
Trend developments of ITRC in the old and new Member States (1995-2003, in %)
ECES, Prague
Source: Eurostat. Structures of the taxation systems in the European Union
The Puzzles of Central and Eastern Europe Transformation and Integration
Tax Burden accord. to Consumption
Implicit tax rates on consumption in the EU (1995-2003 changes in the rate in p.p.)
ECES, Prague
Note: LT, PL, SK: no data available
Source: Eurostat. Structures of the taxation systems in the European Union
The Puzzles of Central and Eastern Europe Transformation and Integration
Tax Burden accord. to Consumption
Decomposition of the implicit tax rate on labour force in EU (2003, in %)
ECES, Prague
Source: Eurostat. Structures of the taxation systems in the European Union
The Puzzles of Central and Eastern Europe Transformation and Integration
Tax Burden accord. to Labour
Effective top statutory tax rate on corporate income (2005, in %)
ECES, Prague
NOTE: Only the 'basic' (non targeted) top rate is presented here. Existing surcharges and averages of local taxes are included.
The rate for Estonia refers only to distributed profits; as from 2000 the tax rate on retained earnings is zero. The rate for Italy
includes 'IRAP'(rate 4.25%) a local tax levied on a tax base broader than corporate income.
Source: Eurostat. Structures of the taxation systems in the European Union
The Puzzles of Central and Eastern Europe Transformation and Integration
Tax Competitiveness
Top statutory personal income tax rate (2005, in %)
ECES, Prague
Note: Without surcharges - DK, FI, SE: state taxes plus municipality taxes
Source: Eurostat. Structures of the taxation systems in the European Union
The Puzzles of Central and Eastern Europe Transformation and Integration
Tax Competitiveness
Develop. of effective top statutory tax rate on corporate income (1995-2005 in %)
ECES, Prague
Source: Eurostat. Structures of the taxation systems in the European Union
The Puzzles of Central and Eastern Europe Transformation and Integration
Tax Competitiveness
Evolution by major type of taxes (1995-2003, differences in % points of GDP)
ECES, Prague
Note: data for EE, CY and HU are not available for 1995.
Source: Eurostat. Structures of the taxation systems in the European Union
The Puzzles of Central and Eastern Europe Transformation and Integration
Tax Competitiveness