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Europe’s New Fiscal Rules
Europe’s New Fiscal Rules
Source: Organisation for Economic Co-operation and Development
Europe is putting in place a new system of fiscal rules following the euro area sovereign debt crisis and decades of rising government to debt-to-GDP ratios. These include the so-called “six pack” to upgrade the Stability and Growth Pact to a new Treaty incorporating the “fiscal compact”. Much of the discussion about the new rules has been procedural or theoretical. This paper shows what the rules will mean in practice under a realistic mediumterm scenario developed by the OECD. In the short term, fiscal consolidation will largely be driven by the current wave of Excessive Deficit Procedures. Only once these commitments are fulfilled will the new system of rules come into action. Although the rules are complex, the central pillar of the new fiscal rules will be the requirement to balance budgets in structural terms. These imply a tight fiscal stance over the coming years for many European countries by comparison with the performance achieved in past decades: almost all countries will have to be as disciplined as the few countries that managed to make meaningful progress in tackling high debt levels in the past. A further tightening of budgetary Medium-Term Objectives is likely in 2012, which will in many cases make the required fiscal stance even tighter. Over the very long term, the rules imply very low levels of debt. The requirements can thus not be considered to be a permanent approach. The methodology to calculate the structural balance has a number of weaknesses and discretion will be needed in implementing the rules.
Economic Survey of Canada 2012
Economic Survey of Canada 2012
Source: Organisation for Economic Co-operation and Development
From press release:
Canada has weathered the global economic crisis comparatively well but will have to become more productive to sustain its high standard of living, according to OECD’s latest Economic Survey of Canada.
The report, presented today in Ottawa, notes that a timely fiscal stimulus, low interest rates, a solid banking sector and revenues from natural resources helped Canada return to a stable growth path after the global economic crisis of 2008-09. With rising real estate prices and high household indebtedness now posing new risks, the OECD projects that Canada’s economy will grow by around 2¼ per cent in 2012, and by around 2½ per cent in 2013.
The report identifies sluggish productivity growth as the main long-term challenge facing Canada’s economy. Per capita income has increased in recent years, as more people entered the labour force and oil and other commodity prices soared, pushing up the value of the Canadian dollar. However, the amount of labour, capital and natural resources needed to produce a unit of GDP has remained largely the same over the past few decades.
Canada’s overall productivity has actually fallen since 2002, while it has grown by about 30% over the past 20 years in the United States. At the same time, income has shifted towards the resource-rich western provinces, while the regional economies of Ontario and Quebec are still adapting to increased external competition resulting from the high exchange rate.
Report overview and data available for free download. Full report available for purchase.
Economic Survey of the United States 2012
Economic Survey of the United States 2012
Source: Organisation for Economic Co-operation and Development
From press release:
The United States should do more to foster innovation and provide more equitable access to high-quality education in order to maintain its status as the world’s most vibrant and productive economy, according to OECD’s latest Economic Survey of the United States.
Data from the Survey suggest the United States is losing its cutting edge in innovation. This affects prospects for long-term growth and for maintaining living standards. Productivity in the U.S. is still growing faster than in most other OECD countries but growth has slowed down since the 1970s. Also, U.S. companies are no longer more likely to innovate than companies in other OECD countries.
Particularly worrying is the performance in education, which is essential to provide workers with the skills necessary to become more productive and to adapt to technological change. Attainment in tertiary education stagnated over the past three decades while it grew significantly in almost every other OECD country. Today, 22 out of 30 OECD countries surveyed have more graduates in science and engineering among the 25 to 34 year old workers than the United States.
Report overview and data available for free download. Full report available for purchase.
Growth in health spending grinds to a halt
Growth in health spending grinds to a halt
Source: Organisation for Economic Co-operation and Development
Growth in health spending slowed or fell in real terms in 2010 in almost all OECD countries, reversing a long-term trend of rapid increases, according to OECD Health Data 2012.
Overall health spending grew by nearly 5% per year in real terms in OECD countries over the period 2000-2009, but this was followed by zero growth in 2010. Preliminary figures for a limited number of countries suggest little or no growth in 2011. The halt in total health spending in 2010 was driven by a fall of 0.5% in public spending for health, following an increase of over 5% per year in 2008 and 2009.
While government health spending tended to be maintained at the start of the economic crisis, cuts in spending really began to take effect in 2010. This was particularly the case in the European countries hardest hit by the recession.
In Ireland, cuts in government spending drove total health spending down by 7.6% in 2010, compared with an average yearly growth rate of 8.4% between 2000 and 2009. Similarly, health spending in Iceland fell by 7.5%, as a result of a 9.3% reduction in public spending. In Estonia, following an average growth rate of nearly 7% per year from 2000 to 2009, expenditure on health dropped by 7.3% in 2010, driven by reductions in both public and private spending. In Greece, estimates suggest that total health spending fell by 6.5% in 2010 after a yearly growth rate of more than 6% on average since 2000.
OECD launches updated version of Your Better Life Index
OECD launches updated version of Your Better Life IndexSource: Organisation for Economic Co-operation and Development
The OECD today released a new version of its pioneering Your Better Life Index– an online, interactive index that allows people to measure and compare their lives in a way that goes beyond traditional GDP numbers.
Launched last year, Your Better Life Index (watch video in English) enables people to compare well-being based on 11 topics – housing, income, jobs, community, education, environment, governance, health, life satisfaction, safety and work-life balance. The updated version, launched today as part of the 2012 OECD’s annual Forum and Ministerial Meeting, integrates data on gender and inequality and strengthens existing topics. Visitors to Your Better Life Index will now be able to compare their well-being priorities to those of other users by country, age and gender, and share their results. The updated Index also includes two new countries, Russia and Brazil. The Index is available in French and is embeddable for web sites and blogs.
“Your Better Life Index is an innovative approach toward measuring progress and comparing lives in a way that goes beyond traditional GDP measures,” said OECD Secretary-General, Angel Gurría. “This updated version helps strengthen the robustness of the Index by including data on gender and inequality and by extending it to new countries. We look forward to continue updating Your Better Life Index in the years to come and consolidating it as a reference tool in the promotion of better policies for better lives.”
Some of the key takeaways from the new version of the Index include:
- No matter which countries people live in, they value the most some combination of health, education and life satisfaction.
- Men and women who have used the Index value basically the same things.
- The wealthier you are, the more likely you are to make your voice heard in elections, but not by a huge margin.
- Men work more in the labour market and make more money than women, but women are better in other areas, they live longer, are better educated and in most places they are also happier.
- Inequality isn’t just about money, it affects other topics in Your Better Life Index.
International Transport Forum — Road Safety Annual Report 2011
International Transport Forum — Road Safety Annual Report 2011 (PDF)
Source: Organisation for Economic Co-operation and Development
The IRTAD Annual report 2011 provides an overview of road safety indicators for 2010 in 32 countries, with preliminary data for 2011. The report outlines recent safety measures adopted nationally, with detailed safety data by road user, location and age. This edition highlights contributions to the development of road safety policies by the IRTAD Group in 2011, with detailed reports for all member countries on targets and national strategies, including new strategies being developed for the UN Decade of Action for Road Safety.
Preparing Teachers and Developing School Leaders for the 21st Century
Preparing Teachers and Developing School Leaders for the 21st Century (PDF)
Source: Organisation for Economic Co-operation and Development
nations around the world are undertaking wide-ranging reforms to better prepare children for the higher educational demands of life and work in the 21st century.
What are the skills that young people demand in this rapidly changing world and what competencies do teachers need to effectively teach those skills? What can teacher preparation and continuing professional development do to prepare graduates to teach well in a 21st century classroom? What are the different roles and responsibilities of 21st century school leaders and how do countries succeed in developing these leaders?
to answer these questions we need to rethink many aspects of our education systems: the quality of recruiting systems; the type of education recruits obtain before they start working; how they are monitored and what education and support they get; how their compensation is structured; how to improve performance of struggling teachers and enhance development among the best ones.
Economic Policy Reforms: Going for Growth 2012
Economic Policy Reforms: Going for Growth 2012
Source: Organisation for Economic Co-operation and Development
From press release:
Structural reforms can make the difference as countries seek to rebound from the crisis, boost growth and create jobs, according to the OECD’s latest Going for Growth report.
“The crisis has acted as a catalyst for reforms. While they are sometimes unpopular, painful or both, they are necessary to make longer term growth stronger, more sustainable and more equitable,” said OECD Secretary-General Angel Gurría. “We know that these efforts will pay dividends in the future, which is why governments must keep up the reform momentum,” Mr Gurría said.
Mr. Gurría presented the report in Mexico City with Mexico’s finance minister Jose-Antonio Meade, ahead of the 25-26 February meeting of G20 finance ministers. He said the OECD’s country-specific structural reform recommendations are applicable to all G20 countries as they steer their economies out of the crisis.
Since Going for Growth was launched in 2005, the annual report has identified key reform priorities to boost economic activity and raise living standards in each OECD country. Since 2011, the report also addresses reform potential in Brazil, China, India, Indonesia, Russia and South Africa, and has been a key part of the OECD’s wider contribution to the G20 Framework for Strong, Sustainable and Balanced Growth.
Full report available for purchase.
How are school systems adapting to increasing numbers of immigrant students?
How are school systems adapting to increasing numbers of immigrant students? (PDF)
Source: Organisation for Economic Co-operation and Development
+ On average among OECD countries, the percentage of students with an immigrant background grew by two percentage points between 2000 and 2009.
+ Immigrant students represent more than 5% of the student population in 13 OECD and partner countries and economies that participated in PISA 2009.
+ In most countries, immigrant students lag behind native students in performance; in many countries, the difference is considerable. However, Australia, Belgium, Canada, Germany, New Zealand and Switzerland have been able to narrow, and in some cases close, this performance gap.
Sick on the Job? Myths and Realities about Mental Health and Work
The costs of mental ill-health for the individuals concerned, employers and society at large are enormous. Mental illness is responsible for a very significant loss of potential labour supply, high rates of unemployment, and a high incidence of sickness absence and reduced productivity at work. In particular, mental illness causes too many young people to leave the labour market, or never really enter it, through early moves onto disability benefit. Today, between one-third and one-half of all new disability benefit claims are for reasons of mental ill-health, and among young adults that proportion goes up to over 70%. Indeed, mental ill-health is becoming a key issue for the well-functioning of OECD’s labour markets and social policies and requires a stronger focus on policies addressing mental health and work issues. Despite the very high costs to the individuals and the economy, there is only little awareness about the connection between mental health and work, and the drivers behind the labour market outcomes and the level of inactivity of people with mental ill-health. Understanding these drivers is critical for the development of more effective policies. This report aims to identify the knowledge gaps and begin to narrow them by reviewing evidence on the main challenges and barriers to better integrating people with mental illness in the world of work.
+ Full Document (PDF)
Exploring Determinants of Subjective Wellbeing in OECD Countries; Evidence from the World Value Survey
The paper explores issues with assessing wellbeing in OECD countries based on self-reported life satisfaction surveys in a pooled regression over time and countries, at the country level and the OECD average. The results, which are in line with previous studies of subjective wellbeing, show that, apart from income, the state of health, not being unemployed, and social relationships are particularly important for wellbeing with only some differences across countries. The results also show that cultural differences are not major drivers of differences in life satisfaction. Correlations between the rankings of measures of life satisfaction and other indicators of wellbeing such as the Human Development Index and Better Life Index are also relatively high. Measures of subjective wellbeing can play an important part in informing policy makers of progress with wellbeing in general, or what seems to matter for wellbeing—health, being employed and social contacts– beyond income.
Economic Survey of Israel
Israel’s economy passed through the 2008-09 global downturn in relatively good shape but is now suffering alongside others from the continuing effects of the renewed global crisis, and geopolitical tensions have increased. Annualised quarter-on-quarter real GDP growth was 4.7% in the first quarter but had slowed to 3.4% by the third quarter. Much of the slowdown came from a deceleration in export growth, as world trade slowed significantly. The November 2011 OECD Economic Outlook 90 has real GDP growth at 4.7% in 2011 but less than 3% in 2012. All private expenditure components, domestic and foreign, should contribute to the slowing.
Addressing Challenges in the Energy Sector in Israel
Addressing Challenges in the Energy Sector in Israel
Source: Organisation for Economic Co-operation and Development
Offshore natural-gas discoveries have released Israel from complete reliance on imported primary fuels and are allowing for a cleaner energy mix. Furthermore, additional production will soon come on stream, and there is a reasonable chance of new commercially viable gas finds, and possibly of oil too. The authorities have overhauled the system of royalties and taxes, although how best to use the resulting revenues remains the subject of debate. Concerns about competition in the gas sector have risen following the disruption of imports via the pipeline from Egypt, which has strengthened the market position of the lead consortium developing the offshore fields. Competition concerns in the electricity sector have been longstanding due to sluggish reform away from monopoly provision by the state-owned incumbent. As elsewhere, energy use has important environmental side-effects. A comprehensive plan for reducing greenhouse-gas emissions has been developed recently, which relies primarily on energy-efficiency measures and an increase in the share of renewable-electricity product. This Working Paper relates to the OECD 2011 Economic Survey of Israel (www.oecd.org/eco/surveys/Israel).
+ Full Report (PDF)
Divided We Stand: Why Inequality Keeps Rising
Divided We Stand: Why Inequality Keeps Rising
Source: OECD
In the three decades to the recent economic downturn, wage gaps widened and household income inequality increased in a large majority of OECD countries. This occurred even when countries were going through a period of sustained economic and employment growth. This report analyses the major underlying forces behind these developments. It examines to which extent economic globalisation, skill-biased technological progress and institutional and regulatory reforms have had an impact on the distribution of earnings. The report further provides evidence of how changes in family formation and household structures have altered household earnings and income inequality. And it documents how tax and benefit systems have changed in the ways they redistribute household incomes. The report discusses which policies are most promising to counter increases in inequalities and how the policy mix can be adjusted when public budgets are under strain.
Fiscal Reform for a Stronger Fairer and Cleaner Mexican Economy
Fiscal Reform for a Stronger Fairer and Cleaner Mexican Economy
Source: Organisation for Economic Co-operation and Development
With slow growth and high inequality Mexico needs investments in infrastructure, education and social policies. Mexico has increased spending in all of these areas. This was easily financed thanks to fiscal reforms in 2007 and 2009 as well as high oil prices in recent years. Oil revenues, which account for around one third of budgetary receipts, are highly volatile, especially due to price movements, and the prospects for production are uncertain, even though less so than in previous years. Mexico has the lowest tax revenues as a share of GDP in the OECD and much of Latin America, even when oil-related revenues are included. The government should improve the efficiency of its public spending. Mexico spends significant sums on energy subsidies, which are in large part captured by higher-income groups. Moreover, these subsidies are not in line with Mexico’s ambitious goals to reduce greenhouse gas (GHG) emissions. These subsidies should be gradually withdrawn in line with the government’s goals. Extending cash benefits to the poor instead would be much more efficient to fight poverty and help citizens and the economy as a whole to buffer income shocks. Agricultural spending should be re-structured to finance more investment in public goods and less support for producers, which has proven ineffective in increasing agricultural productivity. Broadening the tax base by withdrawing some of the most distortive tax expenditures would make an important contribution to strengthen revenues. This would also help make the tax system simpler, thus reducing compliance costs as well as opportunities for tax avoidance and evasion. Efforts to enhance tax enforcement should continue.
+ Full Paper (PDF)
Reforms are essential for Brazil to build on recent success, says OECD
Reforms are essential for Brazil to build on recent success, says OECD
Source: Organisation for Economic Co-operation and Development
The Brazilian economy has made a rapid recovery from the global economic crisis, but further reforms are necessary to boost long-term growth, spur investment and further reduce poverty, according to the OECD’s latest Economic Survey of Brazil.
“Sound economic policies have helped Brazil weather the global financial crisis, but even more remarkable is the unprecedented progress being made on social goals including poverty reduction and inequality,” said the OECD Secretary-General, Angel Gurría. “We believe Brazil can achieve still higher, and more inclusive, growth over the medium term, provided policymakers meet the key challenges facing the economy by building momentum for further reforms.”
The report projects that GDP growth will slow to less than 4 percent over the coming two years, which is below trend rates of 4.5 percent annually, but well above the average for OECD countries.
Restraining inflation, currently above the upper end of Brazil’s 2.5-6.5% target range, without exerting upward tension on the exchange rate is the most immediate macroeconomic challenge. The use of various policy measures to smooth exchange rate volatility – including those that temporarily restrain short-term capital inflows – are understandable given the uncertainty facing the global economy, but Brazil should rely more prominently on fiscal consolidation, the report says.
Spending cuts announced earlier this year, combined with the establishment of budget surplus targets for the coming three years, are welcome, and the government should continue in this direction, the OECD said. The Bolsa Familia cash transfer programme has been highly successful in the fight against child poverty, and should be maintained and even extended.
Overview, working papers, data available for free download. Full report available for purchase.
Informality in Mexico
Informality in Mexico
Source: Organisation for Economic Co-operation and Development
Mexico has a relatively large informal sector by OECD standards. While this is in part a symptom of limited development and low productivity, it can also be to some extent its cause, as informal firms stay small to hide their activities and have limited access to productivity-enhancing government services, such a protection of property rights and training. A long-term and broad-based strategy with education at its core is needed for Mexico to reach its productivity potential and fight informality. Lowering the costs of formality, while enhancing its benefits and increasing the cost of non-compliance with labour and tax laws, will be an important part of this strategy. This would include more flexible labour laws, a further reduction in the business regulatory burden and a rethink of the social security package to enhance its attractiveness for low-wage workers and limit costs by making service provision more efficient. This Working Paper related to the 2011 OECD Economic Survey of Mexico. (www.oecd.org/eco/surveys/Mexico)
Greener Growth in the Belgian Federation
Greener Growth in the Belgian Federation
Source: Organisation for Economic Co-operation and Development
The degradation of the environment due to climate change and pollution can harm living standards and damage growth prospects. In Belgium, one of the most densely populated OECD countries, pressure on the environment is particularly strong, and is reinforced by the high energy intensity of the economy and concentrated agriculture. Environmental policy backlogs accumulated over the years highlight the challenges of reducing greenhouse gas emissions and water pollution in a cost-efficient way. To achieve environmental goals at minimum cost across the economy the polluters should face the marginal costs of the externalities they impose, which should be achieved by increasing reliance on environmental taxation. Potential adverse effects on income distribution could then be addressed in the tax benefit system. Moreover, where environmental responsibilities are better dealt with at the regional level, regions should have the most efficient tools, such as taxation powers. Where, due to economies of scale and scope or important cross-regional effects, environmental issues are better dealt with at the national level (for instance in renewable energy sources and transport policies), better co-ordination among regions or a greater role of the federal level should be envisaged. This Working Paper relates to the 2011 OECD Economic Review of Belgium (www.oecd.org/eco/surveys/Belgium).
+ Full Paper (PDF)
Green Growth and Climate Change Policies in New Zealand
Green Growth and Climate Change Policies in New Zealand
Source: Organisation for Economic Co-operation and Development
New Zealand, as a resource-based economy anxious to protect and promote its clean-and-green image, appropriately sees green growth as a natural direction for future development. The country’s environment is of high quality, and depletion of its abundant natural resources is for the most part not a problem. Nevertheless, there are challenges. With little pricing of water resources, water scarcity is being felt increasingly acutely in some dairy-intensive regions prone to drought. Water-quality degradation is linked to leakage from farming by-products. Agricultural activity also gives rise to nearly half the country’s greenhouse gas (GHG) emissions, though electricity consumption and private transport are growing sources of pressure. New Zealand’s GHG intensity of output is the second highest in the OECD (after Australia’s), not surprising for a resource-rich country. Its unique emissions profile, however, makes for costly mitigation: an exceptionally high proportion of electricity generation is already renewable-based (mainly hydro), and no technology to significantly reduce methane from ruminant animals yet exists. New Zealand is a pioneer in implementing an emissions trading scheme (NZ ETS) covering all sectors and gases. Green growth could best be supported by the greater use of market mechanisms among a range of instruments in natural resource management and by strengthening price signals in the NZ ETS.
Has Deregulation Increased Investment in Infrastructure? Firm-Level Evidence from OECD Countries
Has Deregulation Increased Investment in Infrastructure? Firm-Level Evidence from OECD Countries
Source: Organisation for Economic Co-operation and Development
This paper investigates the role played by deregulation on firms’ investment decisions in infrastructure sectors. The analysis covers the period 1980-2006, which was characterised by increased liberalisation and privatisation across OECD countries. We assess the relationship of different dimensions of the regulatory framework, such as the degree of barriers to entry, public ownership, vertical unbundling and the existence of an independent regulator with firm level investment behaviour. We find that the impact of regulation on investment is both sector and firm specific. A reduction in the degree of legal barriers to entry spurs investment in the electricity sector, but only for large firms. In telecommunications, the converse is true with barriers to entry having a negative effect on smaller firms’ investment rates. The existence of an independent regulatory authority spurs investment by telecommunication companies but this effect seems to be driven by large firms alone while it is associated with a reduction in investment levels by smaller companies in the gas sector. In Europe, the degree of vertical integration is positively associated with investment rates in the electricity sector.
+ Full Paper (PDF)
