valerie cerra assistant director, imf · 2019. 8. 26. · themes for work on upcoming ig book links...

Policies and Approaches for Achieving Inclusive Prosperity

CONFERENCE ON INCLUSIVE PROSPERITY: RECOUPLING GROWTH, EQUITY AND SOCIAL INTEGRATIONQUEEN’S INTERNATIONAL INSTITUTE ON SOCIAL POLICYKINGSTON, ONTARIOAUGUST 20, 2019

Valerie CerraAssistant Director, IMFThe views expressed are those of the presenter and do not necessarily represent those of the IMF or IMF policy.

IMF | Institute for Capacity Development 2

Agenda:

§ IMF’s work on inclusive growth: Capacity development, country analysis, research

§ Highlight spectrum of policy issues/interventions, with selective results


IMF.org provides links to training and IMF analysis on inclusive growth


IMF has extensive work on inclusive growth, such as several recent books


Inclusive Growth/Prosperity is an Active Field


The IMF, inclusive prosperity, and SDGs

https://www.imf.org/external/pubs/ft/fandd/2019/06/christine-lagarde-future-of-bretton-woods-straight.htm

https://www.una.org.uk/sustainable-development-goals-transforming-our-world

https://www.imf.org/external/pubs/ft/fandd/2019/06/christine-lagarde-future-of-bretton-woods-straight.htm

https://www.una.org.uk/sustainable-development-goals-transforming-our-world


Inclusive Growth is Multi-dimensional:Themes for Work on upcoming IG BookLinks between inclusion and growth

Factor and product markets§ Labor Markets§ Financial Inclusion§ Technology—AI & the future of work§ Product markets and business

environment

Globalization§ Trade § Capital flows, FDI, remittances§ Migration

Government Policies and Services§ Governance/Institutions§ Macro stability, adjustment, and debt§ Fiscal policy - taxation § Fiscal policy – spending and transfers§ Key public services (education and health)§ Political reform/populism

Special cases of disparities§ Gender § Regional disparities within a country § Generational/intertemporal§ Climate (intertemporal/regional)


Growth

Employment, business

opportunities ↑

Resources for redistribution ↑

Inequality, poverty ↓

Tradeoffs? Growth -> Poverty and inequality

Growth

Asymmetric growth in

different sectors Inequality ↑

Asymmetric growth in factor

payments (capital, skills)


Mild inequalitySign of meritocracy: Factors paid their MP

Growth ↑

Inequality, poverty

Poverty traps,underutilitzation of L

Growth ↓Inefficient institutions,

policies

Crime ↑, health outcomes ↓

Tradeoffs? Inequality à Poverty and Growth

9Trust ↓,

collective action ↓,social conflict!


Inequality leads to fragile growth

Source: Ostry, Loungani, Berg (2019)


Austerity reduces income, raising unemployment and inequality



Overcoming fear of redistribution: weak relationship b/w redistribution and growth

Growth and redistribution

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

0 5 10 15 20 25 30

Gro

wth

in th

e ne

xt 1

0 ye

ars

Redistribution

Redistribution & duration of growth

0

10

20

30

40

50

60

0 10 20 30

Dur

atio

n of

gro

wth

spe

ll

Redistribution at the beginning of the spell



Fiscal policy: Powerful Instrument to Reduce InequalityFiscal policy: Powerful tool to reduce inequality

14

Source: IMF Fiscal Monitor’2017


Revenue Side Involves Trade-offsRevenue side sometimes involves trade-offs

On the revenue side of FP, reducing income inequality may come at expense of efficiency§ Income taxes are progressive but inefficient; VAT is more efficient but may increase

inequality

To improve both efficiency and equality:§ Eliminate non means-tested tax expenditures, rely on broad set of taxes and bases§ Correct market externalities§ Simplify tax code and compliance process§ Introduce measures to fight tax evasion and avoidance§ Tax rents

15


More Space for Action at Expenditure SideMore space for action at expenditure side

16

• Efficient public investment• ® Boost returns on private investmentPhysical capital

• Spending on health and educationHuman capital

• Decisions to participate in the labor market for specific groups (e.g. women)Labor supply

• Spending on R&D, product and organizational innovations.

Total factor productivity

• Universal subsidies likely both inefficient and regressive

• Substitute with means-tested transfersSubsidies?

17

Labor Market Regulations: Fine Balance Between Efficiency and Inclusiveness

Micro Flexibility (to reallocate

resources and boost productivity)

Unemployment Insurance (UI)

Employment Protection

Legislation (EPL)

Macro Flexibility(to adjust to macro

shocks)

Minimum Wage

Tax wedge

Collective BargainingSource: Blanchard et al, 2013, IMF

SDN


Providing Adequate Financial Inclusion

§ Legal and regulatory frameworks are extremely important► Contract enforcement, protecting property

§ Macroeconomic stability; competition in banking sector§ Provide information – credit bureaus, collateral registries, ownership

of banks§ Financial literacy § Promote new technologies: P2P, mobile banking, microcredit

► Subject to maintaining financial stability!


Gender Inclusion

§ Eliminate legal restrictions on women’s participation in economic life§ Higher public spending on education, better sanitation facilities§ Childcare support§ Flexible working arrangements§ Impact of tax policies, such as discriminatory taxes and higher

marginal taxes on second earners§ Gender budgeting:

►Fiscal measures should be assessed based on the impact they have on gender inequality


Improving Governance§ Reducing corruption

► Reduce opportunities for corruption

◆ Fewer discretionary regulations; automatized procedures; outsourcing of some gov’t services

◆ Public salaries higher or at a market level

◆ Combined with transparency and meritocracy of hiring and promotion

► Increase cost of corruption

◆ Monetary and non-monetary (reputation, institutions) penalties

► Increase changes of detection

◆ Transparency of government processes (procurement), data dissemination

◆ Independent anti-corruption bureaus

§ Reducing influence of money on public policy

► Campaign finance reform; restriction on lobbying

§ Cross-border agreements

► Anti-money laundering

► Information sharing with tax authorities

► Tax agreements to reduce tax avoidance (transfer pricing,…)


Selected Other Inclusive Prosperity Issues

§ Addressing regional disparities►Public safety nets—support from central govt►Active labor market policies, retraining►Information—Raj Chetty’s work on neighborhoods

§ Reducing and adjusting to climate change►Pricing carbon: carbon tax, emission trading scheme, etc►Boosting sustainable infrastructure; disclosure of climate-related

risks and assets§ Business environment

►Competition and anti-trust policies►Support high tech clusters to facilitate growth of startups and young

firms


Appendix


(1) (2) (3) (4) (5) (6)Market Gini Net Gini Market Gini Net Gini Market Gini Net Gini

Trade Openness -0.0205 -0.00774 -0.0409* -0.0214 -0.0224 -0.00721(0.0168) (0.0137) (0.0244) (0.0207) (0.0214) (0.0172)

Trade Openness*Advanced Economy 0.0541 0.0363(0.0397) (0.0295)

Trade Openness*Latin America and Caribbean 0.00849 -0.00232(0.0298) (0.0256)

Financial Openness 0.00122* 0.000670* 0.000655 0.000291 0.00126* 0.000659(0.000627) (0.000398) (0.000577) (0.000319) (0.000712) (0.000469)

Financial Deepening 0.0349*** 0.0222** 0.0350*** 0.0223** 0.0351*** 0.0221**(0.0128) (0.00862) (0.0132) (0.00881) (0.0129) (0.00873)

Education -0.112 -0.265 -0.104 -0.260 -0.0963 -0.269(0.449) (0.349) (0.441) (0.347) (0.461) (0.353)

Government Spending 0.180 0.260 0.188 0.265 0.177 0.260(0.258) (0.196) (0.263) (0.198) (0.258) (0.195)

Agriculture Employment Share -0.201 -0.192 -0.214 -0.201 -0.205 -0.191(0.133) (0.122) (0.136) (0.124) (0.136) (0.124)

Industry Employment Share -0.0549 0.00460 -0.0324 0.0197 -0.0570 0.00518(0.0802) (0.0608) (0.0862) (0.0661) (0.0769) (0.0581)

Constant 49.03*** 39.88*** 48.27*** 39.37*** 49.11*** 39.85***(5.003) (4.077) (5.060) (4.115) (4.972) (4.074)

Observations 562 562 562 562 562 562R-squared 0.134 0.119 0.144 0.126 0.134 0.119Number of ISO 118 118 118 118 118 118Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1

Panel regressions: Trade effect on inequality is insignificant, but point estimate negative

Source: Beaton, Cebotari, and Komaromi (WP/17/46). Source:Sources: Beaton, Cebotari, and Komaromi (2017); SWIID, Wacziarg and Welch (2008) and IMF staff calculations.

24

Event studies: Trade opening itself is unlikely to be the primary driver of rising aggregate inequality

Source: Beaton, Cebotari, and Komaromi (WP/17/46). Source:Sources: Beaton, Cebotari, and Komaromi (2017);SWIID, Wacziarg and Welch (2008) and IMF staff calculations.


Import shock: negative relative impact on jobs, but positive effects on average wage, profits, and investment

Source: Beaton, Cerra, and Hadzi-Vaskov, manuscript. Orbis, COMTRADE, and IMF staff calculations.


(1) (2) (3)VARIABLESimport growth 0.00882*** -0.0386***

(0.00289) (0.00229)interaction - exporter 0.0185*** 0.0165***

(0.00363) (0.00228)exporter 0.00730*** 0.0280***

(0.000908) (0.000562)Change in export rev share 0.000137***

(1.07e-05)real GDP growth 0.385*** 0.307***

(0.0322) (0.00428)ctry empl growth 0.351*** 0.334***

(0.0349) (0.00751)import price growth 0.0165 1.978***

(0.0323) (0.00917)Constant -0.0197*** -0.145*** 0.199

(0.00372) (0.00235) (0.148)

Observations 797,468 12,829,938 2,230,637R-squared 0.003 0.011 0.003Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1Column (1) excludes missing observations (i.e. dummy=0 only for values 0 or <0), while column (2) treats the missing observations as dummy=0.

employment growth

Import shock correlates with exports, driving job creation

Source: Beaton, Cerra, and Hadzi-Vaskov, manuscript. Orbis, COMTRADE, and IMF staff calculations.


How to Make Globalization Inclusive?

How to make globalization more inclusive?

In theory: transfer from “winners” to “losers”

§ Win-win as globalization is good on average

In practice: how to design the transfer, how large should it be? Who are

winners and losers?

Policy experience:

§ Open up gradually to allow time to adapt

§ Active labor market policies, job training for unemployed

§ Education, infrastructure to increase propensity to adapt

§ Social transfers to temporarily support adaptation

27

valerie cerra assistant director, imf · 2019. 8. 26. · themes for work on upcoming ig book links...

Documents