IMF Fiscal Affairs e-Newsletter April 2012


April 2012

IMF Fiscal Affairs Department (FAD)

  Useful Links

FAD at a Glance

Contacts in FAD

Previous Newsletter


  Recent Blogs

Fiscal Adjustment: Too Much of a Good Thing?
by Carlo Cottarelli

It's the Years, Not the Mileage: IMF Analysis of Pension Reforms in Advanced Economies
by Benedict Clements

Healing Public Health Care Finances: Budget Reforms that Work
by Benedict Clements

PFM Blog

  Coming Soon

April 2012 Fiscal Monitor. The upcoming Fiscal Monitor examines the scope that policymakers have to calibrate the pace of fiscal adjustment without undermining fiscal sustainability. Strong institutional arrangements can help to implement a gradual but steady pace of adjustment while maintaining market confidence.

On April 18th, the IMF will host in Washington DC the third Fiscal Forum. This year's theme will be Fiscal Policy and the Crisis; Lessons Learnt and the Way Forward. The event will be opened by IMF Managing Director Christine Lagarde and include keynote presentations from Stanley Fischer, Francesco Giavazzi, and Christina Romer.

Fiscal Reform in a Changing MENA (Middle East and North Africa). The panel discussion, organized by FAD and the IMF Middle East and Central Asia Department, will allow an exchange of views among MENA ministers focusing on subsidy and tax reforms in a difficult social and political environment (April 19).

The Economics of Public Health Care Reform in Advanced and Emerging Economies. This new book to be published in April discusses the continuing rise in public health care costs in a large number of advanced and emerging countries, and identifies efficient and equitable policy options based on past reform experiences.


  Publication Updates

   IMF Publications

  IMF Working Papers


  Finance & Development

  IMF Staff
  Discussion Notes


The Challenge of Pension Reform in Advanced and Emerging Economies

Public pension reform will be a key policy challenge in coming decades. A recent paper prepared by FAD covering more than 50 advanced and emerging countries found that public pension spending would increase by an average of 2½ percentage points of GDP by mid-century in advanced and emerging economies. The analysis shows that gradually raising retirement ages is an attractive option for reform because it will not only contain pension spending increases but also boost employment and growth. The paper also finds that, in emerging economies, means-tested social pensions could play a key role in expanding the coverage of pension systems, combined with reforms that ensure the long-term financial viability of the systems.

Cottarelli's Blog "The Austerity Debate: Festina Lente!"

Carlo Cottarelli argues in a new Vox Blog that, in the current situation of advanced economies, "a pragmatic approach—proceed with moderate (fiscal) adjustment, at a steady pace, if markets allow you to do so—is after all the best course of action." Recent research, to be presented in the upcoming Fiscal Monitor, shows that the detrimental growth impact of fiscal consolidations is larger when output is significantly below potential. Moreover, the positive confidence effects that might accompany fiscal tightening in more normal times could be impeded by the current focus of markets on short-term growth developments. Fiscal tightening, however, cannot be postponed all together either—because direct market pressures or the risks posed by record-high debt ratios, market volatility, and investors' increased risk aversion.



FAD In The News

The work of Carlo Cottarelli and Laura Jaramillo on CDS spreads, fiscal consolidation, and growth was discussed in the Economist's article "The perils of prudence" and by Dana Andreicut in the Bruegel's blog "Fiscal tightening and markets."

Carlo Cottarelli discussed in a speech at the Milan Catholic University (Fiscal Policy in Advanced Economies: Fiscal Adjustment, Efficiency and Growth) and a Vox blog (Fiscal adjustment: Too much of a good thing?) whether some of the fiscal consolidation gains from better fiscal fundamentals may be lost through lower growth. His arguments were subsequently picked up by the Wall Street Journal blog (IMF's Cottarelli: Some Governments May Be Trying to Cut Debt Too Quickly).

The recent Staff Discussion Note "Accounting Devices & Fiscal Illusions," by Timothy C. Irwin featured in an article in The Economist titled "Book-Cooking Guide."

Third IMF-Japan Tax Conference for Asian Countries
(Tokyo, February 3)

The Third IMF-Japan High-Level Tax Conference for Asia and Pacific Countries, organized jointly by FAD and Japan's Ministry of Finance, was attended by senior officials from 18 countries in Asia and the Pacific. IMF Deputy Managing Director Shinohara delivered concluding remarks. Issues discussed at the conference included revenue mobilization, natural disasters and taxation, taxation and inequality, tax gap analysis, climate financing, transfer pricing, double taxation treaties, and measures to combat tax fraud.


Conference on Management of Natural Resources
(Kinshasa, March 20–21)

FAD staff played a key role in this conference organized jointly by the authorities of the Democratic Republic of the Congo and the IMF. The conference brought together policy makers from over 20 Sub-Saharan African countries to discuss the macroeconomic management of large resource flows and associated capacity-building needs—with a special focus on fiscal policy challenges including transparency, governance, tax policy, and revenue administration. Speakers, which included FAD Deputy Director Mr. Gupta, emphasized that sustainably scaling up growth-enhancing investment will require increasing absorptive capacity, building public savings in good times, and more effective and balanced revenue systems.


Cottarelli: "Structures, Processes and Governance in Tax Policy-Making" (Saïd Business School, Oxford University, UK, March 8)

In his keynote speech at a conference in the Center for Business Taxation, FAD Director Carlo Cottarelli drew lessons from FAD international experience in technical assistance on tax policy and tax reform. He emphasized that tax reform requires pragmatism ("tax policy advice centers on bridging the gap between what is optimal and what is feasible") as much as "strong institutions, transparency and debate to build public support, and regional coordination to counter harmful tax competition."

3rd Chelliah Lecture: "Some Current VAT Issues (and Some Lessons for the GST in India)"

FAD Deputy Director Michael Keen delivered the 3rd annual Chelliah lecture of the National Institute for Public Finance and Policy in New Delhi. His presentation focused on the gains from eliminating the current cascading tax paid at multiple stages, which the VAT aims to avoid, and how even crudely targeted expenditure is likely to be a better way to help the poor than reduced rates of VAT on some commodities.

Staff Discussion Notes

Accounting Devices & Fiscal Illusions,” by Timothy C. Irwin, examines the devices that governments use to make their deficits and debts seem smaller than they really are, such as recording as revenue assets from the takeover of pension schemes when accounting rules do not treat the future pension rights as liabilities. These devices reduce the deficit or debt in the short term, only to increase them later, and therefore frustrate fiscal monitoring. The Note concludes by looking at changes in government accounting that can prevent, or at least transparently reveal the use of such devices.


Working Papers

"Debt, Taxes, and Banks," by Michael Keen and Ruud de Mooij, finds strong empirical support for the view that the asymmetric corporate tax treatment of debt and equity encourages banks to take on more debt—militating against prudential supervisory efforts to reduce leverage-related risk. Thus, tax reform could contribute to rebalance the funding structure of banks.

"Fiscal Performance, Institutional Design and Decentralization in European Union Countries," by Julio Escolano, Luc Eyraud, Marialuz Moreno Badia, Juliane Sarnes, and Anita Tuladhar. The paper finds that spending decentralization has been associated with sizably better overall fiscal performance in the EU, especially when the transfer dependency of subnational governments is low.

Technical Assistance Activities

During January–February 2012, FAD provided 38 technical assistance missions to IMF member countries and multi-country organizations.

Career Opportunities

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 FAD also seeks experts who are interested in occasional short-term (2–3 week) assignments; interested candidates may send their CVs to


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International Monetary Fund
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Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.