Fiscal Affairs E-Newsletter September 2011http://www.typepad.com/site/blogs/6a00e54ef00595883400e54eff42208834/post/6a00e54ef00595883401543509ff4c970c/edit

Paris Seminar on Health Care Reform

Health care reform will be a key fiscal policy challenge for Europe in coming years. To discuss this topic, FAD and the IMF Office in Europe organized a conference in Paris on June 21, 2011, “Public Health Care Reforms: Challenges and Lessons for Advanced and Emerging Europe.” The event brought together over 60 policymakers and leading academics from 26 countries in Europe. IMF Deputy Managing Director, Mr. Naoyuki Shinohara delivered the keynote address. There was consensus among the participants that to slow the growth in health spending countries would have to tackle inefficiencies in this sector, use tools such as budget caps and market mechanisms to restrain cost growth and  draw lessons from  success stories in Europe (e.g., Estonia, Germany) in formulating reform strategies.

Promoting Fiscal Sustainability through Strengthening Fiscal Institutions and Medium-Term Budget Frameworks (India)

FAD organized a conference, with the National Institute of Public Finance and Policy, New Delhi, on Promoting Fiscal Sustainability, Strengthening Budget Institutions and Medium-Term Budget Frameworks, in New Delhi, India on April 21–22, 2011. It was attended by some 75 senior budget officials and policy makers from the central and state governments of India, Bangladesh, Nepal, Sri Lanka, Bhutan, Afghanistan, and Maldives and representatives of CSOs. The conference was inaugurated by Dr. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister of India. Participants debated the role of key fiscal institutions, such as fiscal responsibility frameworks and fiscal councils, in their respective countries/states.

edited by Paolo Mauro, with a foreword by Carlo Cottarelli; published by Wiley (available in hardback and e-book).

 

This new FAD book analyzes large fiscal adjustment plans in advanced economies, comparing planned or projected reductions in debts and deficits to actual outcomes, and explaining why objectives were met in some cases but missed in others. The analysis is based upon case studies for each of the G7 countries and panel regressions for the European Union countries. An overview reveals pitfalls to avoid and lessons learned for securing successful fiscal adjustment. Read more at PFM blog and watch the book's video.

The June 2011 Fiscal Monitor Update noted that fiscal consolidation was proceeding in many advanced economies. However, it underscored the need for the United States to agree on a credible medium-term fiscal plan and for Japan to adopt a more detailed medium-term adjustment strategy. Rising risks in Greece, Ireland, and Portugal highlighted the need to implement adjustment programs and develop a comprehensive and a consistent approach to crisis management in the euro area. While in many emerging economies fiscal consolidation was proceeding at an appropriate pace, in others, fiscal policy needed to be tightened faster than envisaged to reduce overheating risks.

“Raising the Consumption Tax in Japan: Why, When, How?” by M. Keen, M. Pradhan, K. Kang and R. de Mooij argues that a consumption tax hike should play a part in preventing an exploding public debt ratio. The current 5 percent VAT rate is low and its performance relatively good. A VAT hike is also comparatively superior on equity and efficiency grounds, although complementary measures may be needed to address social concerns. The Japanese tax hike should follow four S’s: it should be implemented Soon and Stepwise, while it should be Sustained and Simple.

 

 “Tax Biases to Debt Finance: Assessing the Problem, Financing Solutions,” by R. de Mooij argues that most countries’ corporate tax systems favor debt over equity finance, creating substantial distortions and vulnerabilities—in fact, probably larger than economists have always thought. New evidence suggests that firm responses have grown over time; and externalities from excessive leverage, especially in the financial sector, are important. The note argues that introducing an allowance for corporate equity is the best way to go, a reform that some countries have already successfully implemented.

 

 “What Happens to Social Spending in IMF-Supported Programs?” by B. Clements, S. Gupta, and M. Nozaki, discussed in the iMFdirect Blog, finds that education and health spending have risen faster during IMF-supported programs than in developing countries as a whole. Controlling for other determinants of social spending, the study finds that in low-income countries, a period of 5 consecutive years with IMF-supported programs would boost education and health spending by about ¾ and 1 percentage point of GDP respectively.

“Taxing Financial Transactions: An Assessment of Administrative Feasibility”, by J. Brondolo considers taxes on financial transactions on exchange-traded, over-the-counter, and forex financial instruments. For each category, the paper examines the underlying tax administration issues involved, collection options, compliance risks that are likely to be encountered, and measures for mitigating these risks.

 

"Democratic Accountability, Deficit Bias and Independent Fiscal Agencies," by X. Debrun takes stock of the theoretical case for independent fiscal institutions ("fiscal councils"), and argues that the usual parallel with the theory of central bank independence is mistaken, and that in a democratic system, these institutions can only credibly reduce the deficit bias if they effectively enhance fiscal transparency.

 

Two recent papers provide guidance on environmental taxes: “International Fuel Tax Assessment: An Application to Chile” by I. Perry and J. Strand estimates the appropriate level of gasoline and diesel fuel taxes to address pollution, congestion, and accident externalities of car and truck use. “Reforming the Tax System to Promote Environmental Objectives: An Application to Mauritius” by I. Perry also evaluates various environmental tax options for Mauritius, with a focus on reforming vehicle taxes in light of externalities, and revenue and equity considerations.

A new video posted on YouTube and IMF.org shows how effective technical assistance can be in helping transform governance and the management of public finances: Supported by technical assistance from the Fiscal Affairs Department, Liberia has had considerable success in improving revenue mobilization and implementing public financial management reforms. In partnership with several donors, FAD will continue to provide considerable technical assistance to Liberia in the coming years.

 

During May - August 2011, FAD provided 45 technical assistance missions to IMF member countries and multi-country organizations.

FAD seeks talented and dedicated professionals with a background in different areas of public finance, to work on macro-fiscal policy issues and to provide technical assistance advice to IMF member countries on public financial management, tax policy reform, revenue administration, and different expenditure policy issues. Vacancies in FAD for staff and long-term expert positions are posted on http://www.imf.org/jobs. FAD also seeks experts who are interested in occasional short-term (2–3 week) assignments; interested candidates may send their CVs to FADexperts@imf.org