This document discusses key economic challenges over the next 50 years based on analysis using economic models. It identifies six major trends: 1) shifting patterns of economic growth; 2) rising global economic interdependence; 3) increasing global environmental costs; 4) continued increases in earning inequalities; 5) substantial fiscal challenges; and 6) medium-term risks of rising current account imbalances. It examines the consequences of these trends and discusses policies to support growth, limit rises in inequality, and address rising climate change costs on both national and international levels through policies like carbon pricing, education investment, and tax coordination.

1. OECD@100:
POLICIES FOR A
SHIFTING WORLD
Henrik Braconier
OECD Economics Department
New Approaches to Economic Challenges
Seminar on Project C6, 28 April 2014

2. – Illustrate some key economic challenges over
the coming 50 years
– Identify policies to address these challenges
and which trade-offs such policy action can
generate
– To do this, we have used and developed a suite
of models to illustrate trends and interactions,
and to identify risks and tensions
2
Introduction

3. 3
The central scenario: tools

4. 4
Key trends identified
1. Shifting patterns of economic growth
2. Rising global economic interdependence
3. Increasing global environmental costs
4. Continued increases in earning inequalities
5. Substantial fiscal challenges
6. Medium-term risks for rising current-
account imbalances

5. • Ageing will weaken labour supply
• Less room for technological catch-up
• Slowing improvements in educational
attainment
But:
• Increasing importance of fast-growing
economies mitigates the slowdown
Growth 2014-2030: 3.6% 2030-2060: 2.7%
5
Global growth set to slow

6. 6
A shifting balance in the world economy
Share of global GDP (current PPPs)

7. 7
Drivers of growth in GDP per capita
Contribution to growth in GDP per capita, 2000-2060

8. If:
• Global trade expands in line with the shifting
world economy, what happens to
interdependence?
• Global growth becomes even more reliant on
multifactor productivity and knowledge-based
assets, what happens to income equality?
• Global GDP expands by 350%, what are the
environmental consequences in a ‘business as
usual’ scenario?
• Incomes in emerging economies catch-up, what
are the consequences, e.g. in terms of migration?
8
Consequences of global growth patterns

9. If:
• Global trade expands in line with the
shifting world economy, what happens to
interdependence?
• Global growth becomes even more reliant on
multifactor productivity and knowledge-based
assets, what happens to income equality?
• Global GDP expands by 350%, what are the
environmental consequences in a ‘business as
usual’ scenario?
• Incomes in emerging economies catch-up, what
are the consequences, e.g. in terms of migration?
9
Consequences of global growth patterns

10. 10
Global trade integration will rise
Exports as a share of GDP

11. 11
Rising global interdependence
Exports as a share of GDP

12. If:
• Global trade expands in line with the shifting world
economy, what happens to interdependence?
• Global growth becomes even more reliant on
multifactor productivity and knowledge-based
assets, what happens to income equality?
• Global GDP expands by 350%, what are the
environmental consequences in a ‘business as usual’
scenario?
• Incomes in emerging economies catch-up, what are
the consequences, e.g. in terms of migration?
12
Consequences of global growth patterns

13. 13
Gross earning inequality are likely to rise
in the OECD
Gross earning inequality (D9/D1), 2010 and 2060

14. 14
Sources of rising earning inequality
2010-60
Contribution to change in gross earning inequality (D9/D1), 2010-60

15. If:
• Global trade expands in line with the shifting
world economy, what happens to
interdependence?
• Global growth becomes even more reliant on
multifactor productivity and knowledge-based
assets, what happens to income equality?
• Global GDP expands by 350%, what are the
environmental consequences in a ‘business
as usual’ scenario?
• Incomes in emerging economies catch-up, what
are the consequences, e.g. in terms of migration?
15
Consequences of global growth patterns

16. 16
Total greenhouse gas emissions, 2010
and 2060
Million tonnes, CO2 equivalent
48 700 million tonnes
99 500 million tonnes

17. 17
Regional economic (GDP) impact of
climate change 2060, central scenario
as per cent of GDP

18. If:
• Global trade expands in line with the shifting world
economy, what happens to interdependence?
• Global growth becomes even more reliant on
multifactor productivity and knowledge-based assets,
what happens to income equality?
• Global GDP expands by 350%, what are the
environmental consequences in a ‘business as usual’
scenario?
• Incomes in emerging economies catch-up,
what are the consequences, e.g. in terms of
migration?
18
Consequences of global growth patterns

19. 19
Will income convergence lead to a dry-
up of migration towards the OECD?

20. 20
Potential labour force with modelled
migration flows
Per cent deviation from central scenario 2060

21. 21
Policies to support growth
On a national level:
 Technological and managerial skills, combined with market
flexibility, are key to benefit from technological progress.
 Returns to skill will likely rise. Increasing demand for tertiary
education should mainly be met through more tuitions. Limited
public resources should be focused on early schooling and
(possibly) life-long learning.
 Retirement and labour market policies should encourage longer
working lives, while well-functioning labour markets can provide
better employment prospects and encourage immigration.
On an international level:
 The provision of global public goods - such as basic research,
intellectual property right protection rules, competition policies,
and multilateral trade agreements – could be supported by stronger
international coordination.

22. 22
Policies to limit the rise in inequality
On a national level:
 Structural policies that can mitigate inequality in pre-tax earnings (e.g.
employment protection) have limited potential and are often costly in
growth terms.
 Policies that encourage employment will help to mitigate inequality in
disposable incomes.
 Redistributive policies can mitigate inequality in disposable incomes,
but have to be focused in a tight fiscal environment.
 Trade (and investment) integration will make some tax bases more
mobile. To maintain redistributive capacity, a shift towards less mobile
bases (e.g. housing, consumption and resource extraction) would be
beneficial.
On an international level:
 Further global economic integration combined with an increasing
importance of (mobile) intangible factors of production can lead to
excessive tax competition. Additional international tax coordination
could therefore be useful (environmental , corporate income taxes).

23. 23
Addressing rising climate change costs
 Appropriate pricing of carbon is key to discourage
carbon emissions, but requires coordinated
international efforts.
 Further trade and investment integration will make
production-based taxes on emission-intensive activities
less efficient. Border carbon adjustments may therefore
become more attractive.
 Further trade and investment integration may also
improve risk-sharing of hard-to-predict regional climate
damages.

24. THANK YOU!
24