Isabelle Joumard

Fiscal Relations across Government Levels

Despite its apparent advantages, devolution of fiscal responsibilities has not proceeded evenly over the past two decades. Decentralisation can strengthen the democratic process, allow governments to tailor the supply of public goods to local preferences and introduce some competition across jurisdictions, thus raising public sector efficiency. It can, however, entail efficiency losses and make it difficult to implement redistributive policies. On the spending side, local provision may fail to exploit economies of scale and internalise territorial spillovers – a serious issue since few public goods are purely local by nature. On the revenue side, few tax bases can be exploited by sub-national governments without risking making national objectives difficult to achieve and raising serious distributive concerns. This paper, which is largely based on country experiences in mitigating the potential drawbacks of decentralisation while obtaining most of its benefits, provides a framework for assessing fiscal relations across levels of government...

Tax Systems in European Union Countries

Despite recent cuts, the tax-to-GDP ratio in most EU countries remains much higher than in other economies. The tax mix is also different, with high tax wedges on labour and a stronger reliance on consumption and environmentally related taxes. While there is not much room for cutting taxes significantly without downsizing public spending, further re-balancing the tax burden away from labour could contribute to better employment performance. Greater reliance on property taxes, which are low by international standards, less use of reduced VAT rates and tax incentives targeted to specific saving vehicles should be considered. EU countries’ experience in reforming their tax system may also provide useful insights for other regions where international integration is deepening. The free movement of goods, people and capital within the EU area, combined with the advent of the single currency, has also affected the design of national tax systems and has brought to the fore a number of international taxation issues.

Public Spending Efficiency: Institutional Indicators in Primary and Secondary Education

This paper presents composite indicators of the institutional and policy characteristics of educational systems, collated from the questionnaire responses of 26 Member countries. These indicators provide an overview of the institutional framework in the primary and secondary education sector and are constructed so as to be used for the analysis of international differences in spending efficiency. The key features of the institutional setting in the non-tertiary education sector are grouped under three headings: i) the ability to prioritise and allocate resources efficiently (through decentralisation and mechanisms matching resources to specific needs); ii) the efficiency in managing spending at the local level (through outcome-focused policies and managerial autonomy), and iii) the efficiency in service provision (through benchmarking and user choice). For each country, an intermediate indicator is computed for each of these six institutional properties. Composite indicators then combine the six intermediate indicators of spending efficiency into a single, aggregate measure. Results are presented and some of their implications are discussed. Overall, the characteristics of the institutional framework in the non-tertiary public education sector seem to be very favourable, compared to OECD average, in the United Kingdom, Australia, Norway, Denmark and the Netherlands, whereas results are less favourable for the Czech Republic, Greece, Luxembourg, Japan, Turkey, Hungary, Belgium (French speaking community), Switzerland and Austria.

Fiscal Rules for Sub-central Governments

Against a background of mounting demands for spending on services provided by sub-central governments, this paper examines how fiscal rules can help to ensure that pressure on resources is minimised and available resources are used efficiently. Drawing on questionnaire responses and other sources, this paper gives a detailed picture of fiscal rules for sub-central governments in place among a number of OECD countries. The paper examines the rationales for using fiscal rules, the various impacts fiscal rules can have, the factors making for effective implementation and the interactions between the various types of rule. It then constructs a number of synthetic sub-indicators designed to assess the extent to which sub-central government fiscal frameworks exhibit favourable characteristics for the achievement of fiscal objectives. It concludes with the construction of a composite indicator based on the combined impacts in the different areas of fiscal policy.

Revenue Buoyancy and its Fiscal Policy Implications

Tax receipts surged between 2005 and 2007 in many OECD countries, resulting in significant improvements in headline fiscal positions. As a consequence, pressures for tax cuts and for public spending increases have emerged. In the past, responding to such demands has permanently weakened budget positions as revenue windfalls ultimately proved to be temporary. Hence, the opportunity to address structural deficit problems and prepare for future demographic trends has been lost, and the ability to respond to subsequent cyclical downturns has been weakened. This paper provides an analysis of the factors behind recent revenue buoyancy and examines past responses to unexpected revenue gains. It also discusses whether improved information on fiscal positions and future fiscal challenges, combined with relevant fiscal rules, might help in avoiding a repetition of past errors in fiscal policy.

Strategies for Countries with Favourable Fiscal Positions

The financial crisis and economic downturn are going to weigh on fiscal positions in OECD countries over the short to medium-term, both through the operation of automatic stabilisers and the enactment of discretionary fiscal stimulus packages. However, the strategic policy options facing OECD countries are mainly determined by the soundness of their underlying fiscal positions which vary substantially. This paper first describes how OECD economies are situated with respect to underlying fiscal balances and net government debt. A number of countries seem to enjoy favourable fiscal positions with underlying fiscal surpluses, low government debt or even positive net financial asset positions. When taking account, as far as possible, of implicit liabilities associated with ageing populations and resource-based revenues, fiscal positions still vary greatly across countries. The paper then examines the criteria involved in deciding whether government financial asset accumulation is in excess of needs and the use to which any excess government saving might be put, whether increasing public spending or reducing taxes. Finally, the determinants of the optimal size of the government balance sheet for any given desired net debt position are discussed. Strategies pour les pays beneficiant de situations budgetaires favorables La crise financiere et le ralentissement economique vont peser sur la situation budgetaire des pays de l’OCDE a court et moyen terme, a la fois a travers le jeu des stabilisateurs automatiques et la mise en oeuvre de politiques discretionnaires de relance budgetaire. Toutefois, les options strategiques dont disposent les pays de l’OCDE sont principalement determinees par la solidite de leur situation budgetaire sous-jacente, tres variable d’un pays a l’autre. Ce document commence par decrire la situation des economies de l’OCDE en termes de deficit sous-jacents et de dette nette des administrations publiques. Un certain nombre de pays semblent beneficier d’une situation budgetaire favorable, avec des surplus sousjacents, une faible dette des administrations publiques, ou meme une situation creditrice nette. Lorsque l’on prend en compte, dans la mesure du possible, les engagements implicites lies au vieillissement de la population et les revenus associes a l’exploitation de ressources naturelles, les situations budgetaires restent tres variables selon les pays. Ce document examine ensuite les criteres pertinents pour decider si l’accumulation d’actifs financiers par les administrations publiques est excessive par rapport aux besoins et quelles utilisations pourraient etre faites d’une epargne excedentaire des administrations publiques, que ce soit pour accroitre les depenses publiques ou reduire les impots. Il s’acheve par une analyse des determinants de la taille optimale du bilan des administrations publiques pour un niveau desire de dette nette donne.

Health Status Determinants

This paper aims to shed light on the contribution of health care and other determinants to the health status of the population and to provide evidence on whether or not health care resources are producing similar value for money across OECD countries. First, it discusses the pros and cons of various indicators of the health status, concluding that mortality and longevity indicators have some drawbacks but remain the best available proxies. Second, it suggests that changes in health care spending, lifestyle factors (smoking and alcohol consumption as well as diet), education, pollution and income have been important factors behind improvements in health status. Third, it derives estimates of countries’ relative performance in transforming health care resources into longevity from two different methods – panel data regressions and data envelopment analysis – which give remarkably consistent results. The empirical estimates suggest that potential efficiency gains might be large enough to raise life expectancy at birth by almost three years on average for OECD countries, while a 10% increase in total health spending would increase life expectancy by three to four months.

Income inequality in OECD countries : what are the drivers and policy options?

This book provides a comprehensive review of income inequality issues in the OECD in a cross-country setting. It presents a wealth of data and analysis on the formation of inequality and identifies groups of countries that share similar inequality patterns. It also reviews developments at the extremes of the income distribution, namely poverty, top incomes as well as the distribution of wealth. An important contribution of the book is the careful examination of the determinants of the income distribution, such as globalisation and technical progress as well as the effect of a wide range of economic policies that shape the distribution of income. These include in particular labour market regulations, household taxes and transfers as well as in-kind public services. It also sheds light on an under-researched issue: do policies aimed at boosting economic growth raise or reduce income inequality?

REDUCING INCOME INEQUALITY WHILE BOOSTING ECONOMIC GROWTH: CAN IT BE DONE? EVIDENCE FROM OECD COUNTRIES

This paper identifies inequality patterns across Organisation for Economic Co-operation and Development (OECD) countries and provides new analysis of their policy and non-policy drivers. One key finding is that education and anti-discrimination policies, well-designed labor market institutions and large and/or progressive tax and transfer systems can all reduce income inequality. On this basis, the paper identifies several policy reforms that could yield a double dividend in terms of boosting GDP per capita and reducing income inequality, and also flags other policy areas where reforms would entail a trade-off between both objectives.

Options for Benchmarking Infrastructure Performance

Three main approaches can be used to assess infrastructure performance. The first employs macro-econometric techniques to estimate the impact of the existing infrastructure capital stock on growth and to infer its growth-maximising level. This approach neglects the impact of infrastructure on some dimensions of social welfare, such as pollution. The second relies on ex-ante or ex-post cost-benefit analyses of infrastructure projects. These take into account desirable and undesirable outcomes and provide thus a welfare perspective, but this approach would not allow comparing the performance of the existing infrastructure stock. A third approach aims at benchmarking the social efficiency of infrastructure service provision based on the existing capital stock taking into account positive and negative externalities. This paper analyses the challenges in implementing these approaches. Options pour evaluer la performance des infrastructures Trois types de methodes peuvent etre utilises pour evaluer la performance des infrastructures. Le premier suppose la mise en oeuvre de techniques macro-econometriques permettant d’estimer l’impact du stock d’infrastructures existant sur la croissance pour en deduire son potentiel de maximisation de la croissance. Cette methode ne prend pas en compte l’impact des infrastructures sur certains aspects du bien-etre social, la pollution par exemple. Le deuxieme repose sur des analyses couts-avantages des projets d’infrastructures effectuees a priori ou a posteriori. Cette methode permet de prendre en compte les externalites souhaitables aussi bien que non souhaitables des projets et permet donc de se placer dans la perspective du bien-etre, mais cette methode ne permet pas de comparer les performances des stocks d’infrastructures existants. Enfin, il existe une troisieme methode qui vise a etalonner l’efficience sociale de la prestation de services a partir du stock existant tout en prenant en compte les externalites positives et negatives. Les difficultes inherentes a la mise en oeuvre de ces trois methodes sont examinees dans ce document de travail.