Latin American Economic Outlook 2011

Transcription

1 Latin American Economic Outlook 2011 Fiscal Policy and the Social Contract Hamlet Gutierrez Policy Analyst, Americas Desk OECD Development Centre Kingston, April 2011

2 Annual growth percentage Uruguay Argentina Peru Ecuador Colombia Brazil Costa Rica Chile Venezuela OECD Mexico Significant impact of the crisis on Latin America GDP growth in previous three years 2009 GDP growth Source: OECD (2010), based on data from ECLAC and OECD. 2

3 Real GDP in % increase but transitory GDP growth expectation LA&C ARG BRA CHL COL CRI DOM MEX PER VEN OECD Source: OECD Economic Outlook, Dec 2010 (Chile, Brazil Mexico and OECD) Latin American Consensus Forecasts, Nov 2010 for other countries 3

4 Resilience was also visible in the social dimension 50 Poverty headcount ratio (% of total population) Source: ECLAC (2010). 4

5 GDP growth percentage 2009 The export channel determined the size of the shock Shock to exports and GDP slowdown 4 Costa Rica 2 0 Dominican Rep. Uruguay Argentina Peru Ecuador Colombia Chile Brazil Venezuela Mexico -6-8 Export impact on GDP growth Source: OECD (2010), based on datatfrom ECLAC. 5

6 2009 GDP growth unexplained by exports But the crisis was also propagated via the financial channel Foreign investors purchases and unexplained GDP growth Argentina -6 Peru Mexico Brazil Colombia Chile Venezuela -12 net purchase of domestic liabilities by foreigners 2009 qiv-2010 qiii* Note: *Financial purchases are adjusted for the size of a country s economic possibilities in the eye of foreign investors, a concept proxied by the volume of export growth in dollar terms in previous years. Source: OECD(2010), based on IFS-IMF data. 6

7 Policy resilience index 2008* which is correlated with hard-earned resilience Foreign investors purchases and fiscal policy resilience Chile 4 Peru Mexico Brazil Colombia 2.5 Argentina 2 Venezuela net purchase of domestic liabilities by foreigners 2009 qiv-2010 qiii Note: *The Policy-Resilience Index is described in OECD (2009a). Policy Resilience Index calculated using 2008 data. Source: OECD (2009, 2010), and IMF-IFS data. 7

8 Percentage of GDP On the fiscal side, an important gap remains Output elasticity of total taxes 0.5 Indirect taxes Social Security Contributions Corporate Income Tax Personal Income Tax CRI ARG BRA URU PER CHL COL MEX LA-8 KOR US SPA OECD Note: OECD unweighted average, excluding Chile and Mexico. Source: Daude, Melguizo and Neut (2010) for Argentina, Chile, Colombia, Costa Rica, Mexico, Peru and Uruguay, de Mello and Mocero (2006) for Brazil, and Girouard and André (2005) for the rest. 8

9 Main Messages Latin America has withstood the global crisis better than other regions. A significant fraction of this new macroeconomic resilience was due to consistent and solid domestic macroeconomic policies Good financial regulation contributed to avoidance of problems in the domestic financial sector There is a window of opportunity to leapfrog ahead: Counter-cyclical fiscal policy in the boom: a stronger institutional framework might help Counter-cyclical financial regulation Development of domestic financial markets 9

10 Italy Uruguay Mexico Chile Brazil Peru Costa Rica Ecuador Argentin a Colombi a Bolivia The middle sectors in Latin America Middle sectors: Proportion of the population earning between 50% and 150% of median income Disadvantaged Middle sectors Affluent Source: Castellani and Parent (2010), based on national household surveys. 10

11 Percentage of total population The middle sectors and the poor Proportion of the population below the middle-sector cut-off, compared with moderate and extreme poverty rates Moderate poverty headcount Disadvantaged Extreme poverty headcount Argentina Brazil Chile Colombia Costa Rica Mexico Peru Dominican Rep. Source: OECD (2010), based on data from the SEDLAC database, accessed in August Notes: Poverty headcount figures refer to the number of individuals below the respective national poverty line, according to official statistics. The square refers to the percentage of disadvantaged population as per the definition. 11

12 Uruguay Mexico Chile Brazil Peru Costa Ecuador Argent Colom Bolivia Uruguay Mexico Chile Brazil Peru Costa Rica Ecuador Argentina Colombia Uruguay Mexico Bolivia Chile Brazil Peru Costa Ecuador Argen Colom Bolivia Possibilities of moving up and down Indices of mobility potential 0.80 DMP Middle sectors size RES Middle sectors size MSMP Middle sectors size (right axis) Potential to move up into the middle sectors Notes: DMP,RES and MSMP are defined in Box 1.2. Potential to fall down out of the middle sectors Source: OECD (2010), based on 2006 National Household Surveys analysed in Castellani and Parent (2010). Potential to move up out of the middle sectors 12

13 Percentage Middle-sector workers: mostly informal Middle-sector workers by employment category Formal employees Non Agricultural Self-employed Agricultural Self-employed Self Employed (with tertiary education completed) Non Agricultural Informal Employees Agricultural informal employees BOL 2006 BRA 2006 CHL 2006 MEX Note: Percentage of total middle sectors workers ( median household adjusted income) Source: OECD (2010), based on household survey data. 13

14 Coverage improves with income in the informal sector sector Pension coverage rate of workers by income category, formal and informal employment BOL 2002 BRA 2006 CHL 2006 MEX 2006 Disadvantaged Middle Sectors Affluent BOL 2002 BRA 2006 CHL 2006 MEX 2006 Disadvantaged Middle Sectors Affluent Workers with formal jobs Workers with informal jobs Source: OECD (2010), based on national household surveys. 14

15 Probability Education as a tool for upward mobility: more can be done Probability of achieving a higher level of education than one s parents, given parental educational achievement Women Men Illiterate Incomplete primary Complete primary Incomplete secondary Complete secondary Incomplete tertiary Complete tertiary Parents level of education 15 Source: OECD ( 2010), based on survey data from Latinobarómetro (2008).

16 PISA Science Score Equity and performance: No trade-off necessary Social inclusion & PISA science test performance Note: Blue lines indicate OECD averages. Inclusion index measures proportion of variance of economic, social and cultural variance within schools. Source: OECD ( 2010), based on survey data from 2006 round of PISA 16

17 Argentina Brazil Chile Colombia Mexico Peru Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Poland Portugal Spain Sweden United Kingdom Tax-Benefit Analysis and Fiscal Legitimacy Income inequality before and after taxes and transfers (Gini coefficient, around 2000) Tax collection (Percentage of GDP, 2008) Inequality before taxes and transfers Inequality after taxes and transfers 40% 35% 30% 40 25% 30 20% 20 15% 10% 10 5% 0 0% OECD LA Brazil Chile Mexico High inequality, low tax collection, and weak fiscal redistribution Is the social contract broken in Latin America? 17

18 Tax-Benefit Analysis and Fiscal Legitimacy Tax policy cannot be analyzed separately from expenditures Agents may be willing to pay higher taxes if they receive more/better public services, and evaluate their net tax-benefit position when setting labour supply, savings, investment Middle classes are said to be the net payer. Disincentives? Citizens behavior incorporate not only monetary, but also social values and perceptions Preferences for redistribution, perceptions on government efficiency, individual experiences and social norms Are middle classes conservatives or reformers? Empirical analysis on perceptions (fiscal legitimacy in Latin America, ) and data (net tax/benefit position in Chile and Mexico, 2006) 18

19 Tax-Benefit Analysis and Fiscal Legitimacy Previous income distribution Households surveys Utilization of services: 2006 National Characterization Socio-economic Survey (CASEN) and Family Budget Survey (EPF) Household Income Survey (ENIGH) Government statements Health, education and taxes: Data at institutional level from the Chilean National Budget Office (DIPRES) and the Mexican Secretary of Public Finance and Credit (SHCP) New income distribution National Accounts Indirect taxes: Estimation of budget shares on consumption from I-O tables 19 Microsimulation tools rely on different sources of information and uses imputation techniques to splice them together.

20 Tax-Benefit Analysis and Fiscal Legitimacy Cash transfers Education Health Taxes Chile: 85% of gross social assistance spending Chile Solidarity, United family subsidies (SUF), Family allowance, Potable water subsidy, PASIS assistance pension and others. Mexico: 45% of gross social assistance spending Oportunidades and Procampo. Chile: 66% of education spending Educational services, School feeding program, Health and oral school programs, School materials and textbooks and others. Mexico: 93% of education spending Educational services and School scholarships. Chile: 57% of health spending Health care net benefits, Supplementary Feeding Program (PNAC) and Complementary Food Program to older people (PACAM). Mexico: 65% of health spending Health care net benefits. Chile: 73% of tax revenues paid by individuals Health SSC, Income taxes, VAT and Excises. Mexico: 79% of tax revenues paid by individuals Health SSC, Income taxes, VAT and Excises. 20

21 Tax-Benefit Analysis and Fiscal Legitimacy Effective net reception of benefits by household income deciles (Percentage of disposable income, 2006) Chile Mexico 120% 100% Taxes Social spending Net transfers 120% 100% Taxes Social spending Net transfers 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% -20% -20% -40% I II III IV V VI VII VIII IX X -40% I II III IV V VI VII VIII IX X Net transfers in Chile and Mexico appear to have a pro-poor objective and the net effect of fiscal policy for middle class households, while positive, is not substantial 21

22 Tax-Benefit Analysis and Fiscal Legitimacy Effective reception of benefits by household income deciles (Percentage of disposable income, 2006) Chile Mexico 120% Cash transfers Education Health 120% Cash transfers Education Health 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% I II III IV V VI VII VIII IX X 0% I II III IV V VI VII VIII IX X Education and health are the most important items in improving poor families income 22

23 The Outlook: Main Messages The middle sectors in Latin America are economically vulnerable Labour informality and low social protection coverage are particularly prevalent among the middle sectors Education is a powerful motor of intergenerational social mobility: but one that isn t working particularly well in Latin America The middle sectors are disposed to pay taxes if they receive public goods of reasonable quality in exchange. 23

24 The Outlook: Policy Recommendations Flexible social protection policies must be put in place to arrest downward social mobility and an increase in inequality Early childhood education, as well as better quantity and quality of secondary education would bolster the role of human capital as a means of climbing the social ladder Tax reform must be accompanied -- or preceded -- by improvements in the quality of public spending 24

25 Research on fiscal policy in Latin America, OECD/DEV 1 Revenue statistics 2 Structural fiscal balances 3 4 Tax-benefit analysis The political economy of fiscal policy Fiscal legitimacy Fiscal policy and elections 5 The OECD LAC Fiscal Initiative 25

26 Revenue Statistics Latin American Revenue Statistics A set of international comparable data on government sector revenues for OECD countries. CTPA/DEV (with the collaboration of ECLAC and CIAT), will apply this methodology to 12 Latin American countries, for the period : Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Mexico, Peru, Uruguay, Venezuela Available 2011q1 in 26

27 Revenue Statistics General tax structure in Argentina Tax revenues as percentage of GDP Tax Revenues by Subsectors of General Government in Brazil Tax revenues as percentage of GDP Taxes on income, profits and capital gains 2000 Social security contributions 3000 Taxes on payroll and workforce 4000 Taxes on property Taxes on goods and services 6000 Other taxes Taxes on income, profits and capital gains in Chile Tax revenues as percentage of GDP Federal government State or Länder government Local government Social Security funds Taxes on production, sale and transfer in Mexico Tax revenues as percentage of GDP Of individuals 1200 Corporate 1300 Unallocable between 1100 and General taxes 5120 Taxes on specific goods and services 5130 Unallocable as between 5110 and

28 Structural fiscal balances Structural balances à la OECD in Latin America 30, , , , , , , , , , Adjusted first earner annual income (PPP dollars) Decile 1 Average Decile 9 ARG 2006 CHL 2006 MEX 2006 URU 2005 BRA 2006 CRI 2006 PER 2006 COL 2008 Source: Daude et al. (2010), based on National Household Surveys Main assumptions: National Household Surveys Only consider labour income (and households with at least some labour income) Adjusted first earner income (control for household composition; 1 main, 0.5 second) By brackets around the national average 28

29 Structural fiscal balances Structural balances à la OECD in Latin America Tax elasticities to output 0.5 Indirect taxes Corporate Income Tax Social Security Contributions Personal Income Tax CRI ARG BRA URU PER CHL COL MEX LA-8 KOR US SPA OECD Note: OECD unweighted average, excluding Chile and Mexico Source: Daude et al. (2010) for Argentina, Chile, Colombia, Costa Rica, Mexico, Peru and Uruguay, de Mello and Moccero (2006) for Brazil, and Girouard and André (2005) for the rest 29

30 Structural fiscal balances Main results (a snapshot) Chile Cyclical Commodity related Observed Adjusted Adjusted primary budget balance (Percentage points of GDP) Mexico Cyclical Commodity related Observed Adjusted Note: Primary budget balance is adjusted for deviations of GDP and commodity prices (for Argentina, Chile, Mexico and Peru) around their trends. Non-financial public sector figures in Argentina, Colombia, Mexico and Uruguay, and general government figures for Brazil, Chile, Costa Rica and Peru (ECLAC-ILPES and IDB database) Source: Daude et al. (2010) 30

31 Structural fiscal balances Fiscal policy in Latin America: countercyclical and sustainable at last? Main results: - Commodity shocks as relevant to fiscal policy as business cycle - Tax automatic stabilizers are small (half the OECD average) - Discretionary fiscal policy has been pro-cyclical in Argentina, Brazil, Costa Rica, Mexico and Uruguay, while neutral in Chile, Colombia, and Peru - Pro-cyclicality of discretionary fiscal policy is explained by lack of access to credit during deep crises, rather than by profligate spending - Cyclically-adjusted balances and debt sustainability analysis confirm the better position enjoyed by the region before the crisis - Uncertainty on output gap: highly volatile cyclical shocks and highly volatile trends for potential output 31

32 Fiscal legitimacy Policy questions Support for democracy Fiscal legitimacy Optimal level of taxes Demand for ex ante and ex post redistribution Latinobarómetro (rounds 2007 and 2008; 20 thousand interviews and 18 LAC countries) 32

33 Fiscal legitimacy Fiscal policy "Good Citizens pay their taxes" (percentage of respondents who agree) "Taxes are too high" (percentage of respondents who agree) Q1 Q2 Q3 Q4 Q5 25 Q1 Q2 Q3 Q4 Q "Tax evasion is never justified" (percentage of respondents who agree) Satisfaction with health services Satisfied Not satisfied No Access Q1 Q2 Q3 Q4 Q5 0 Q1 Q2 Q3 Q4 Q5 33

34 Fiscal legitimacy Conclusions Social class doesn t play a key role in taxation (once controlled for other factors) Perspectives of upwards mobility hypothesis is not confirmed People who perceive a higher past mobility, and forecast a higher future mobility agree to pay (more) taxes Meritocracy pays: impacts positively Those who think perceive living in a meritocracy also think that taxes are not too high Perceived link tax/benefits are key. From generic (corruption) to specific (health and education) Education (years of) impacts positively 34

35 Fiscal legitimacy Policy implications Need to build better institutions (corruption, meritocracy) Potential demand for a stronger social contact (no POUM) Potential role of the middle sectors (Support of democracy, and politically moderate) Double dividends from better public services - More educated citizens support stronger fiscal policy - Better services (education and health) may trigger a virtuous circle 35

36 The OECD LAC Fiscal Initiative Objectives To establish a regional forum for dialogue on fiscal issues (tax and public expenditure) in order to exchange specific policy experiences among LAC and OECD fiscal policymakers. Collaboration with IDB, ECLAC, CIAT To build internationally comparable data and indicators on tax revenues and fiscal policy among LAC and OECD countries. To provide assistance on a demand driven basis in the design and implementation of reform Overview Joint programme of OECD Center for Tax Policy Administration (CTPA) and OECD Development Centre (DEV) Next potential non-tax issues: Pensions, Infrastructures, Education 36

37 Latin American Economic Outlook 2011 Fiscal Policy and the Social Contract Thank you Hamlet Gutierrez Policy Analyst, Americas Desk OECD Development Centre Kingston, April 2011