Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Fiscal space and the composition of public finances - Jean-Marc Fournier, OECD

69 views

Published on

This presentation was made by Jean-Marc Fournier, OECD, at the 9th Annual Meeting of the OECD network of Parliamentary Budget Officials and Independent Fiscal Institutions held in Edinburgh, Scotland, on 6-7 April 2017.

Published in: Government & Nonprofit
  • Be the first to comment

  • Be the first to like this

Fiscal space and the composition of public finances - Jean-Marc Fournier, OECD

  1. 1. 6 April 2017 The effect of the size and mix of public spending on growth and inequality http://www.oecd.org/eco/the-effect-of-the-size-and-mix-of-public-spending-on- growth-and-inequality.htm ECOSCOPE blog: oecdecoscope.wordpress.com
  2. 2. Quality of Public Finance workstream 2 Public finance database • A public spending and revenue breakdown designed for economic analysis • Combination of national account data with OECD databases on social expenditure and government revenue to broaden the coverage. The effect of public spending size and mix on growth and inequality • New empirical estimates on the effect of public spending size, effectiveness and mix on growth and inequality • Illustrative simulations combining growth and inequality effects. The effect of taxation on growth and inequality • Work in progress: • Laffer curve estimates to build a link between tax rates and tax revenues. • Investigation of the effect of taxes on growth and inequality (in progress).
  3. 3. 3 1. Public finance database
  4. 4. Social benefits and transfers in kind (D62_D631XX) Wages (D1) Intermediate consumption (P2) Subsidies (TSUB) Investment (IGAA) Interest payments (YPEPG) Inventory changes Capital transfers Other primary expen- ditures 1 1 1 8 9 11 10 10 10 2 2 2 8 9 11 10 10 10 Sickness anddisability (1001) 5 5 5 8 9 11 10 10 10 Family andchildren (1004) 7 7 7 8 9 11 10 10 10 Oldage andsurvivors (1002 + 1003) 4 3 3 8 9 11 10 10 10 Unemployment (1005) 6 3 3 8 9 11 10 10 10 Other social protection (1006-09) 10 3 3 8 9 11 10 10 10 10 3 3 8 9 11 10 10 10 10 3 3 8 9 11 10 10 10 10 3 3 8 9 11 10 10 10 10 3 3 8 9 11 10 10 10 10 3 3 8 9 11 10 10 10 10 3 3 8 9 11 10 10 10 10 3 3 8 9 11 10 10 10 Economic affairs (040) Environment protection (050) Housing andcommunity amenities (060) Recreation, culture andreligion (080) Social protection (100) Public order andsafety (030) Defence (020) General public services (010) Education (090) Health (070) Function Transaction A public spending database for macroeconomic analysis 4Source: Bloch et al. (2016), “Trends in Public Finance: Insights from a New Detailed Dataset”, OECD Economics Department Working Paper, No. 1346.
  5. 5. Changes to the spending and tax mix have gone in the wrong direction between 2007 and 2013 5 Source: OECD Public Finance Dataset, forthcoming.
  6. 6. 6 2. New estimates of the effect of public spending size, effectiveness and mix on growth and inequality
  7. 7. Impact of different instruments on growth and equity 7 Policy Growth Equity Income of the poor Countries with the most room for growth gains Decreasing the size of government Low to moderate government effectiveness + - + BEL, CZE, FRA, GRC, HUN, ITA, POL, PRT, SVN High government effectiveness n.s. - - Increasing government effectiveness + + + FRA, GRC, HUN, ITA, SVN Increasing education outcomes + 0/+ + CHL, GRC, MEX, PRT, TUR Increasing public investment (including R&D) + n.s. + BEL, DEU, GBR, IRL, ISR, ITA, MEX, TUR Pension reform + n.s. + AUT, DEU, FIN, FRA, GRC, ITA, JPN, POL, PRT, SVN Increasing family benefits n.s. + + CHE, ESP, GRC, PRT Decreasing public subsidies + - n.s. BEL, CHE Note: + stands for a positively significant, – for a negatively significant and n.s. for non-significant effect. Source: Fournier and Johansson (2016), “The Effect of the Size and the Mix of Public Spending on Growth and Inequality”, OECD Economics Department Working Papers, No. 1344.
  8. 8. Government effectiveness and growth 8 The adverse effect of government size on potential GDP decreases with government effectiveness GDP gain of one spending point increase of public spending, in per cent Perception of government effectiveness -20 -15 -10 -5 0 5 10 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2
  9. 9. Government effectiveness and growth 9 Size of government and citizens’ perception of their effectiveness AUS AUT BEL CAN CHE CZE DEU DNK ESP EST FIN FRA GBR GRC HUN IRL ISLISR ITA JPN KOR LUX NLD NOR NZL POL PRT SVK SVN SWE USA 30 35 40 45 50 55 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2 2.2 Perception of government effectiveness Size of government (primary spending, % of potential GDP)
  10. 10. Long-term GDP gains from reducing the size of government 10 0 5 10 15 20 25 30 35 Size of governmentPer cent Note: In countries where the size of government is above the average level of countries in the bottom half of the sample, the government size will gradually converge to this level (36% of GDP). The figure reports the effect after 45 years of a reform phased in over 10 years.
  11. 11. Illustrative gains from reducing government size on poor, average and rich households 11 Effect of a reduction in government size on household disposable income Note: In countries where the size of government is above the average level of that of countries in the bottom half of the sample, the government size will gradually converge to this level (36% of GDP). Rich and average households tend to gain from a reduction of government size, while the effect on the poor depends on government’s effectiveness. -30 -20 -10 0 10 20 30 40 Average effects Effects on the poor Effects on the rich Per cent
  12. 12. Decreasing returns to public investment? 12 The effect of public investment on potential GDP decreases with the level of capital stock GDP gain of one spending point increase of public investment, in per cent Public capital stock, per cent of potential GDP The analysis suggests that all OECD countries, except Japan, have room for additional public investment. -15 -10 -5 0 5 10 15 20 40 60 80 100 120
  13. 13. 13 3. The effect of taxation on growth and inequality (in progress)
  14. 14. A first step: Laffer curve estimates that depend on structural features 14 Corporate income tax revenues as a percent of GDP
  15. 15. 15 More information Fournier, J-M. and A Johansson (2016), “The effect of the size and mix of public spending on growth and inequality”, OECD Economics Department Working Papers, No. 1344. Bloch et al. (2016), “Trends in public finance: Insights from a new dataset”, OECD Economics Department Working Papers, No. 1345. Johansson, A. (2016), “Public finance, economic growth and inequality: A survey of the evidence”, OECD Economics Department Working Papers, No. 1346. Fournier, J-M. (2016), “The positive effect of public investment on potential growth”, OECD Economics Department Working Papers, No. 1347. Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
  16. 16. 16 Additional slides
  17. 17. Long-term GDP gains from improving government effectiveness 17 0 5 10 15 20 25 30 35 Effectiveness of governmentPer cent Note: In countries where the effectiveness of government is below the average level of countries in the top half of the sample, government effectiveness will gradually converge to this level. The figure reports the effect after 45 years of a reform phased in over 10 years.
  18. 18. Long-term growth effects of an increase in the education level 18 0 5 10 15 20 25 30 Quantity of education (years of schooling) Quality of education (PISA)Per cent Note: In countries where the mean PISA score or average years of schooling are below the average level of countries in the top half of the sample, educational attainment is assumed to gradually converge to this level. The figure reports the effect after 45 years of a reform phased in over 45 years.
  19. 19. Long-term GDP gains from decreasing pension spending 19 0 5 10 15 20 25 30 Old age and survivors pensionsPer cent Note: In countries where spending to the potential GDP ratio on pensions is above the average level of countries in the bottom half of the sample, spending will gradually decline to this level. The figure reports the effect after 45 years of a reform phased in over 10 years.
  20. 20. Illustrative gains from raising family and child benefits on disposable income 20 Note: In countries where family benefits to potential GDP is below the average ratio of that of countries in the top half of the sample, family benefits will gradually converge to this average ratio. -10 0 10 20 30 40 Average effects Effects on the poor Effects on the rich Per cent
  21. 21. Illustrative gains from decreasing public subsidies 21 Note: In countries where subsidies to potential GDP are above the average ratio of that of countries in the bottom half of the sample, subsidies will gradually decline to this ratio. -10 0 10 20 30 40 Average effects Effects on the poor Effects on the rich Per cent

×