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Social protest, housing, regulation

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Social protest, housing, regulation

  1. 1. Social Protest, Housing, Regulation, and more … Dr. Michael Sarel, Head of Kohelet Economics Forum December 2014
  2. 2. Compared with the US, the Euro area and the OECD, the prices in Israel in most consumption sections, are not very high (as of 2011) 129 120 119 109 103 103 99 97 94 60 80 100 120 140 160 Communication (22) Transport (20) Food and non-alcoholic beverages (3) Clothing and footwear (16) Household furnishings, equipment and maintenance (18) Miscellaneous goods and services (26) Housing, water, electricity, gas and other fuels (17) Health (19) Education (24) Israel United States Euro area (17 countries) OECD - Total Source: OECD, 2011 Standard of living
  3. 3. In the food section, Israel is expensive in all categories except for one 116 84 103 60 80 100 120 140 160 Non-alcoholic beverages (12) Milk, cheese and eggs (8) Oils and fats (9) Alcoholic beverages (14) Other food (11) Bread and cereals (5) Fish (7) Meat (6) Food and non- alcoholic beverages (3) Food (4) Alcoholic beverages, tobacco and narcotics (13) Fruits, vegetables, potatoes (10) Israel United States Euro area (17 countries) OECD - Total Source: OECD, 2011 Standard of living
  4. 4. Price Level and Income per Capita Level -2 -1.5 -1 -0.5 0 0.5 1 1.5 5 6 7 8 9 10 11 12
  5. 5. 10.3% 9.7% 8.7% 7.4% 8.9% 8.0% 7.0% 6.9% 6.2% 6.6% 6.7% 6.6% 6.8% 6.6% 6.6% 6.1% 6.0% 5.9% 5.8% 5.6% 5.9% 5.9% 5.8% 5.8% 5.8% 6.0% 6.5% 6.2% 6.3% 6.3% 5.7% 58% 59% 60% 61% 62% 63% 64% 65% 66% 5% 6% 7% 8% 9% 10% 11% 12% 13% 5 Unemployment and Participation rates Ages 15+ Source: CBS Participation rates (RHS)
  6. 6. 6 Employment Rate Ages 15+, 2013 Source: OECD 59.8% 55.2% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80%
  7. 7. Israel, as percent of weighted average of G-8 advanced economies, 1995-2011 50% 60% 70% 80% 90% 100% income per person productivity per person productivity per worker productivity per hour worked Source: PWT 8.0 database, Michael Sarel’s calculations 7
  8. 8. Competitiveness (e.g. where can the next improvements in productivity come from?) 0 20 40 60 80 100 120 140 160 180 0 10 20 30 40 50 60 70 Rank in “doing Business” measures, Israel & high-income OECD countries (lower numbers indicate a better rank) Ease of Doing Business Rank (lef axis) Getting Credit Paying Taxes Protecting Minority Investors Enforcing Contracts
  9. 9. 0.46 0.54 0.49 0.34 0.39 0.38 0.36 0.2 0.25 0.3 0.35 0.4 0.45 0.5 0.55 0.6 9 Gini index for inequality* 1988-2010 Source: National Insurance Institute of Israel, CBS *Concatenated series which correct for changes to the settings and definitions, except the data for 2012. Economic income inequality Net income inequality
  10. 10. 69.7% 59.7% 50.3% 20.3% 23.0% 23.1% 9.9% 17.2% 26.6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 2009 2034 2059 Ultra-Orthodox Jews Arabs Jews, excluding Ultra-Othodox Macroeconomic background Adverse Demographic Dynamics Unprecedented demographic changes, expected to occur in the coming decades, pose complicated challenges.
  11. 11. 0 1 2 3 4 5 6 7 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 11 Budget Deficit Targets (as percent of GDP) Targets 2009 Targets 2013 Targets 2014
  12. 12. 12 Prosperity-Promoting Policies Market-friendly vs. government-controlled economy Flexible labor markets vs. excessive regulation and “workers’ rights” Professional, long-term considerations vs. political, populist, short-term approach The role of public education
  13. 13. 80 90 100 110 120 130 140 150 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Figure 1. Real Apartment Prices (In terms of the Consumer Price Index, excluding housing) Index (1994 = 100); data refer to January of each year
  14. 14. 10.9 11.7 12.0 12.0 12.4 12.8 13.0 13.1 9 10 11 12 13 14 2006 2007 2008 2009 2010 2011 2012 2013 Figure 2. Per capita housing services share of GDP (in thousands of shekels per capita, chained data, 2010 prices)
  15. 15. 80 85 90 95 100 105 110 115 120 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Figure 4. The ratio between apartment prices (the value of the property) and rental prices (the value of housing services) Index (1999 = 100); data refer to January of each year
  16. 16. 68.8 84.1 78.7 79.1 78.4 73.8 69.8 68.6 63.1 54.1 38.6 0 10 20 30 40 50 60 70 80 90 All households 10st decile 9st decile 8st decile 7st decile 6st decile 5st decile 4st decile 3st decile 2st decile 1st decile Figure 5. Percentage of households living in own apartments
  17. 17. 974 2,035 1,406 1,233 1,090 947 815 774 618 497 331 0 500 1000 1500 2000 2500 All households 10st decile 9st decile 8st decile 7st decile 6st decile 5st decile 4st decile 3st decile 2st decile 1st decile Figure 7. Value of an owned apartment (in thousands of shekels) – the average for all households in each decile
  18. 18. The 0% VAT proposed policy From a political economy perspective – almost impossible to terminate it in the future Imposes a huge fiscal cost – at least 50 billion NIS in the first 20 years There is no such thing as a free lunch – the plan will necessarily result in higher tax rates and/or lower level of public services  higher burden on the population Creates new distortions in the tax system  high probability of additional VAT exemptions  higher tax rates  negative impact on growth Requires a cumbersome and expensive system of price controls Even with such a system, some (or even most) of the benefit will go to homebuilders The rest of the benefit will go to high-income households
  19. 19. In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause - it is seen. The others unfold in succession - they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference - the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, - at the risk of a small present evil. That Which is Seen, and That Which is Not Seen Frederic Bastiat, 1850 The zero-VAT plan is not intended for economists Yair Lapid, 2014

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