International Economics A

Transcription

1 International Economics A Højere handelseksamen Examination type a APPENDICES hhx171-iøka/a Wednesday 24 May

2 Page 1 of 13 pages The Danish Economy Growth and Prosperity List of appendices Appendix 1: Gross investment in Denmark from 2008 to 2015, Statistics Denmark January 2017 Appendix 2: The development in hourly wages and hourly productivity in Denmark, DK a stronger Denmark, the Government, August 2016 Appendix 3: Key figures, The Danish Economy, autumn 2016 (extract), the Economic Council Appendix 4: Confederation of Danish Industry and CEPOS (Center for Political Studies): Highly educated people want to work more, finans.dk, 5 September 2016 Appendix 5: A lower top tax rate will not benefit employment only the rich, Jyllandsposten, 12 February 2016 Appendix 6: The Government s 2025 plan is the wrong medicine, Børsen, 19 September 2016 Appendix 7: Output gap, The Danish Economy, autumn 2016 (extract), the Economic Council Appendix 8: DK a stronger Denmark (extract), the Government, August 2016 Appendix 9: AD-AS diagram

3 Page 2 of 13 pages Appendix 1: Gross investment in DKK billion (fixed prices) Gross investment Source: Statistics Denmark, national accounts figures

4 Page 3 of 13 pages Appendix 2: The development in hourly wages and hourly productivity in Denmark Index (1993=100) Hourly wages Hourly productivity Please note that the development in hourly wages and hourly productivity (Gross Value Added, GVA per hour worked) is stated in current prices. Source: DK a stronger Denmark, the Government August 2016

5 Page 4 of 13 pages Appendix 3: Key figures, The Danish Economy, autumn 2016 (extract), the Economic Council Macroeconomic indicators Billion DKK Growth in fixed prices (real growth) Private consumption Public consumption Public investment Housing investment Business investment Stock investment Total domestic demand 1, Total exports 1, Exports of goods from this industrial goods Export of services Total supply 2, Total imports Import of goods from this industrial goods Import of services Gross Domestic Product 1, Change in percentage Consumer prices Hourly wage costs Cash price for single-family houses GDP in importing countries Hourly wage costs abroad Hourly productivity in private urban trade Real disposable income Change stated in 1,000 people Workforce Private employment Public employment Figure stated in 1,000 people Net unemployment Gross unemployment Percentage of GDP Balance of payment General government structural balance General government gross debt (EMU ciriteria)

6 Page 5 of 13 pages Appendix 4: Confederation of Danish Industry and CEPOS (Center for Political Studies): Highly educated people want to work more, finans.dk, 5 September 2016 Confederation of Danish Industry and CEPOS: Highly educated people WANT to work more The society cake must be greater, and lowering the top tax rate could help keep people in the country and get them to work more, according to Cepos and the Confederation of Danish Industry. Illustration: Rina Kjeldgaard. Highly educated people will stay in the country and work more, the more the top tax rate is lowered. This is what both the Confederation of Danish Industry and Cepos are saying in the wake of a survey that questions the effect of tax cuts. It may not be tens of thousands of Danes who want to work more or drop a career abroad if the top tax rate is lowered, but it will have a significant effect on the supply of labour as well as retaining and attracting the brightest people. So say both the country s largest employer organization, the Confederation of Danish Industry (DI) and the centre-right liberal think tank Cepos. The announcements came after member surveys by the Danish Society of Engineers (IDA) and the Danish Association of lawyers and economists ( Djøf) last week indicated that there is not necessarily much potential in using a couple of billion kroner on lowering the top tax rate from 15 to 10 for incomes up to 1 million kroner.

7 Page 6 of 13 pages For example, it was only a few percent, for whom the tax had an impact on whether they would stay or come back. Specialists are impressionable, and if only a small percentage of them would either come home or not to go abroad, then it s good business to lower the top tax rate. We severely need these people, and therefore we must be careful not to say After all, it s just a few thousand because they are the ones that are worth holding on to. If 1 per cent. of the foreigners who are considering coming, do come, then it s a good effect, says the deputy director of DI, Kent Damsgaard. At the same time, he points to the fact that the Finance Ministry s calculation models do not take into account the effects from foreigners or Danes who come home when calculating the effect of a lower top tax rate. In Cepos, chief economist, Mads Lundby Hansen, offers his interpretation of the studies: The 5 per cent, who answer in the questionnaires that tax matters, are people we need. Danish politicians cannot change career opportunities and new challenges abroad, but they can change taxes, and the survey shows that some people will react to this. A scientific study of Danish data also found that the Danish special tax scheme for foreign researchers significantly attracts highly educated foreigners. I see these studies as an indication that the people respond to tax changes in line with economic theory. And even if you work 43 to 48 hours, there are some people who will make an extra effort, says Lundby referring to the conclusion from Djøf that members are already working up to 48 hours a week. A poll from Statistics Denmark in June showed that net there will be more people who will work more than those who want to work less, if the top tax rate was reduced. Eight out of 10, however, would neither work more or less.

8 Page 7 of 13 pages Appendix 5: A lower top tax rate will not benefit employment only the rich, Jyllandsposten, 12 February 2016 We often overestimate the effect of lowering taxes. Photo: Lærke Posselt OPINION A lower top tax rate will not benefit employment - only the rich New figures are questioning whether a lower top tax rate will make society richer. Now just admit that a reduction in the top tax rate is all about giving more money to the rich. finans@finans.dk KRISTIAN WEISE Manager of the independent centre-left think tank Cevea When the government wants to lower the top tax rate, it is really about distribution - meaning more money for those at the top of the income hierarchy. Several reports question whether lower top tax rates actually make us work more. Few things can hit the temper of political economists as the interpretation of what a lower tax means for the economy. It happened this week when a new study from the Rockwool Foundation s research unit was referred to as the final nail in the tax dogmatists coffin. Immediately chief economists from business organizations and right-wing think tanks were on the rampage. The talk was about nonsense and deviation. And the researchers from the Rockwool Foundation felt

9 Page 8 of 13 pages compelled to clarify how their analysis should be interpreted. When the limit is reached The analysis was not a rejection that lower marginal tax rates may lead to a greater supply of labour, but it pointed out that the actual working hours depend less on taxes than on the agreed working hours, and that we therefore often overestimate the effect of reducing taxes. An unimportant difference, one is tempted to say. Data in the report show that tax plays a minor role on Danish working hours than one would assume from the impression of the Danish debate. The report goes against the view, which is underlying the one-sided campaign of the right-wing that marginal tax rates must come down, and that such a reduction will finance itself. The same applies to research recently presented by researchers from the Department of Economics at the University of Copenhagen. They find that the top tax rate does not discourage self-employed people. It is often stated, though, as an argument for lowering the top tax rate that self-employed people stop working when they hit the upper tax bracket. But this huddling together near the top tax bracket, which does in fact occur, is not due to the self-employed people stopping their work. It is instead caused by these people simply using the tax rules for business enterprises allowing them to defer income to other years. Opposing effects The empirical basis for lowering the top tax rate to make the Danes work more is simply thin. Even the advocates of the blessings of lower top tax rates recognize that the reduction in taxes on earned income has two opposing effects: Some will work less because they can earn the same in fewer hours, while others will work more because they get more out of the extra hours. The advocates simply feel that the carrot effect is the biggest one. Perhaps it is time to be honest: A lowering of the top tax rate is just as much about distribution for the advocates, and about what is perceived as fair. Some people ought to have a bigger piece of the pie than they have today and not be taxed more than the rest of the population. That may be your attitude. And peace be with you. But please do not pretend that a lower tax for the wealthiest is an economic wonder drug. Because that is not the case.

10 Page 9 of 13 pages Appendix 6: The Government s 2025 plan is the wrong medicine, Børsen, 19 September 2016 The 2025 plan is the wrong medicine The government s choice of medicine for the economy is wrong, according to the Economic Council of the Labour Movement By Lars Andersen, Director of the Economic Council of the Labour Movement, and Erik Bjørsted, Chief economist of the Economic Council of the Labour Movement The Danish economy is crawling along, and since 2010 we have had an average growth of just 0.6 per cent per year. The Government has now presented its 2025 plan which should put an end to the growth crisis. Unfortunately, the 2025 plan will not solve our growth crisis. The government s 2025 plan has an enormously strong focus on strengthening the supply side of our economy. The government wants to give big tax cuts, lower welfare benefits and advance the already planned increase in the retirement age. The diagnosis for the Danish economy is low growth and low productivity. Unfortunately, the medicine, the government has chosen is not the right one. (...) The government should change its strategy and focus on three main areas up to 2025: education, infrastructure and the Danish model. The workforce is expected to grow significantly over the coming years. Even without the new initiatives in the 2025 plan, the labour force is expected to grow by more than 200,000 people. However, we will not benefit much from the reforms already agreed, if we do not invest in improvements in the working environment combined with an inclusive labour market, making it possible for workers to stay in work for a longer period of their lives. In 2025, there is a great risk that we will be short of about 70,000 people with a skilled background and 65,000 people with a short or medium length further education. Conversely, we risk an excess of unskilled workers and people with only an upper secondary education. This may lead to a lower growth in productivity both in the private sector and the public sector. There is a potential of DKK 96 billion until 2025 if the expected future mismatch can be avoided. The three main areas Our recommendation is that the Government changes its position away from the current savings on education and at the same time increases investment in research and development. (...) Another focus area in the government s 2025 plan should be investment in infrastructure. Our infrastructure needs development. This

11 Page 10 of 13 pages The safest way to ensure prosperity and productivity is prioritizing research, education, infrastructure and an active labour market policy will also increase productivity. The current situation, where the financial cost of investment is close to zero, we should use to invest. Finally, we ought to strengthen the Danish model. The government has already implemented an upper limit to cash benefits, and with the 2025 plan, it is again the people on social welfare who are negatively affected. The safety net is a necessary condition to us having one of the most flexible labour markets in the world. The flexicurity model provides the Danish economy with great adaptability, helping to ensure a low degree of marginalization in the labour market and helping to ensure that Denmark is among those countries where the most people of working age are in work. The safest way to ensure prosperity and productivity is to prioritize research, education, infrastructure and an active labour market policy.

12 Page 11 of 13 pages Appendix 7: Output gap, Danish Economy, autumn 2016 The Economic Council Increasing labour shortage may increase the wage pressure One of the ways in which a tight capacity limit will become obvious is that companies will find it increasingly difficult to attract employees with relevant qualifications. As the economic situation normalizes, the number of unemployed people and people outside the labour force with relevant skills will be reduced. This will limit the potential for production expansion and in itself put a damper on growth. At the same time, a higher wage pressure and a resulting deterioration of competitiveness are also natural consequences of falling unemployment. There are already signs that the labour shortage is on the rise, and wage inflation is increasing slightly. Output-gap in percentage of GDP Capacity limit -2-4 Available capacity Note: The vertical line indicates the transition to prognosis period. Source: Statistics Denmark, ADAM s data bank and own calculations.

13 Page 12 of 13 pages Appendix 8: DK2025 a stronger Denmark (extract), the Government, August 2016 In addition to modern production equipment, employee training is essential to a society s productivity. Those countries with a well-educated population are also the most productive ones. It is important that employees have the right knowledge and skills - not least in relation to implementing new technologies. It is both important that the quality of the education is high, but also that the programs are aligned with the demand from society and the business world. Figure 4.6 Investments have been low in recent years Figure 4.7 A continued low growth in productivity will dampen economic growth Percentage of private GVA Percentage of private GVA Economic growth Economic growth 3.0 3,0 Large contribution from productivity 2.5 2, Small contribution from productivity 2, , , , Rate of investment Average , Expected Contribution from employment Contribution from productivity Note: In figure 4.6 the rate of investment is calculated as the total business investment in relation to the value added in the private sector. Note: GVA = Gross Value Added Source: OECD, Statistics Denmark and own calculations. The relatively long period of years with low productivity growth in Denmark shows that it is not a temporary problem, and that there are structural reasons behind the limited growth. Without new initiatives that increase productivity, there is no prospect of a serious increase in productivity growth. The growth potential will be increased in the coming years. This is mainly due to recent reforms that increase employment, in particular the pension reform from , cf. figure 4.7. However, the weak productivity growth dampens the growth potential of the Danish economy, which despite the reforms remains low compared to the past. Because of this, there is a need for further initiatives which will improve conditions for businesses and thus the growth contribution from productivity. 1 ) In the coming years a relatively rapid population growth is expected. Overall, the effect of the reforms offsets the population growth in terms of wealth per capita, and the share of the population in employment remains almost unchanged towards The total contribution from supply of labour to GDP per capita is therefore small.

14 Page 13 of 13 pages Appendix 9: AD-AS diagram Price level AD Aggregate demand AS Aggregate supply Maximum GDP Real GDP