Participants:
Vitor Gaspar, Director, Fiscal Affairs Department

Abdelhak Senhadji, Deputy Director, Fiscal Affairs Department
Catherine Pattillo, Assistant Director, Fiscal Affairs Department
Wiktor Krzyzanowski, Senior Communications Officer, Communications Department

 

Victor Gasper, Director Fiscal affairs department shared that the Fiscal Monitor is devoted to tackling inequality. It includes a statistical annex that puts together a wealth of indicators on public finances. The data allows an overview of fiscal policy across countries.

 

See Victor Gasper’s exact statement below:

In my introduction, I will start with the current fiscal situation and prospects and then quickly move to tackling inequality.

As you heard yesterday, the economic recovery is gaining pace and is broad based all over the world. It provides a global window for policy action to engage in structural reforms and address longstanding imbalances. Fiscal policy should avoid pro‑cyclicality and address excessive debt. It is also important to build buffers and tax capacity. Buffers and tax capacity are fundamental for fiscal policy to be able to fulfill its role over the length of the business cycle.

On to fiscal developments by country group: The emphasis on advanced economies is still on high levels of public debt, which remain very close to record highs. They are now expected to slowly decline, but, according to our projections, they will still be above 100 percent of GDP on average for advanced economies by 2022.

In emerging markets, fiscal consolidation has come to a standstill, and the average public debt‑to‑GDP ratio is projected to increase towards the end of the forecasting period. In particular cases, where this rise in public debt coincides with the expansion phase of the credit cycle, that is a particular source of concern.

For low‑income developing countries, public debt is low as a percentage of GDP at around 40 percent and is projected to stay close to that level over the forecasting horizon. But at the same time, there has been an increase in the debt service as a percentage of tax revenue. That leads us to emphasize for this group of countries the importance of tax capacity, the importance of building up tax capacity. Tax capacity is crucial to support policies which are necessary for inclusive growth, including spending on public infrastructure, health, and education. In addition, tax capacity, the imposition of taxes at low rates on a broad basis is necessary to ensure that countries have the capacity to serve their public debt and, hence, have unconstrained access to credit markets.

Let me now turn to inequality and to the chapter of the Fiscal Monitor. I will be even more telegraphic.

In the Fiscal Monitor, we document trends in equality around the world. We argue that fiscal policy is powerful in tackling inequality. We go so far as to claim that fiscal policy can make the difference. We engage in three policy debates which are at this point in time very salient in the discussion about fiscal policy: progressive taxation, universal basic income, and public spending on health and education.

We document that global inequality has started declining in the late 1980s. That marked a turning point in the great divergence that took hold since the beginning of the 19th century, since the industrial revolution.

Declining global inequality is due to catching up across countries and, in particular, the fast growth of large populous economies. I am talking here about China and India.

But if one looks at inequality country by country, one does see increases in inequality. Most people live in countries where inequality has increased. Counting countries, we have increases in inequality in about half the countries while in about the other half, we see declines. The reason for the difference is that large countries with large populations ‑‑ China, India, and the U.S. ‑‑ have recorded increases in inequality.

The Fiscal Monitor presents estimates that show that, for advanced economies, redistribution through taxes and transfers reduces inequality by one‑third. Of this reduction in inequality, 75 percent are operated through transfers and 25 percent by taxes. In contrast, for the remaining economies, redistribution is much lower, and that reflects lower taxes and lower spending in these countries, so the ability to redistribute is much less.

For the three main policy debates we cover – progressive taxation, the UBI, and public spending on health and education – we do not take a position on specific policy packages that countries should adopt. Instead, we document facts and arguments and present case studies that will help politicians and policymakers to make the right choices for their countries.

see www.imf.org for more