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For new readers who would like to subscribe to the newsletter, send an email to FADSubscribe@imf.org
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The Fiscal Affairs Department (FAD) seeks talented and dedicated professionals with a background in different areas of public finance, to work on macro-fiscal policy issues and to provide technical assistance advice to IMF member countries on public financial management, tax policy reform, revenue administration, and different expenditure policy issues. Vacancies in FAD for staff and long-term expert positions are posted on http://www.imf.org/jobs.
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Current external FAD postings:
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Public financial management specialists: to fill a number of positions at its Washington headquarters, at Regional Technical Assistance Centers in Africa, and in various other locations. In filling these positions, FAD is also keen on exploring possibilities for secondment of qualified specialists from member countries’ relevant academic and government institutions.
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Applications should be submitted online at http://www.imf.org/jobs by making explicit reference to Job No. 1000161 for public financial management specialists no later than April 30, 2010.
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FAD also seeks experts with specialization in the above mentioned areas and who are interested in occasional short-term (2-3 week) assignments; interested candidates may send their CVs to FADexperts@imf.org.
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Fiscal Policy Challenges in the Post-Crisis World
 John Lipsky, First Deputy Managing Director of the IMF, in a speech to the China Development Forum outlined the current global fiscal policy challenges. The contribution from the automatic stabilizers and discretionary stimulus has provided a welcome boost to global demand in 2009 and this year. Despite a major toll on output and employment, there are encouraging signs that the economic recovery has started. The key fiscal challenges now are to ensure that the recovery becomes firmly entrenched; to reduce the high public debt ratios to prudent levels particularly in the advanced economies; and for fiscal policy to contribute to the global rebalancing of savings patterns.
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FAD IN THE NEWS
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Analysis in the Fiscal Monitor was recently featured in The Economist in an article looking at the need for fiscal tightening and the related implications on growth. The article also addressed considerations in determining debt targets in advanced economies, and the means used to implement the necessary fiscal adjustment.
Carlo Cottarelli, Director of the Fiscal Affairs Department, participated in the Budget Reform Policy Forum organized by the Peterson-Pew Commission on Budget Reform. The event was broadcast by C-Span. The panel discussion focused on U.S. fiscal policy, the budget deficit, and the impact of stimulus on the economy. |
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Exiting From Crisis Interventions
Strategies for exiting from crisis intervention policies were the focus of a discussion by the IMF’s Executive Board in February. The paper (prepared by the Fiscal Affairs, Monetary and Capital Market, and Research Departments) called on policymakers to formulate and implement, when the timing is right, strategies that unwind crisis-related policies and put the economy on a path towards strong, lasting, and balanced growth. The task of restoring fiscal sustainability will be particularly challenging, as substantial improvements in primary balances will be required for a sustained period. A companion paper prepared by the Fiscal Affairs Department develops possible elements of a fiscal exit strategy. |
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Book by the Fiscal Affairs Department on Petroleum and Minerals Taxation
There are few areas in which the returns to good policies are so high—and the punishment of bad policies so harsh—as in the management of natural resource wealth. The Taxation of Petroleum and Minerals: Principles, Problems and Practice, edited by Philip Daniel, Michael Keen and Charles McPherson, provides a comprehensive account of the main issues in taxing natural resources. It draws on proceedings of a conference on natural resource taxation held at the Fund in 2008 and on FAD technical assistance in this area. |
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Staff Position Note on Petroleum Product Subsidies
Consumer subsidies for petroleum products have again started to rise with the rebound in international prices. They are projected to reach almost $250 billion in 2010 from $60 billion in 2003. Tax-inclusive subsidies, reflecting suboptimal taxation, are estimated to be much larger—$740 billion in 2010, or 1 percent of global GDP. Halving these subsidies could reduce fiscal deficits by one-sixth in subsidizing countries and could reduce greenhouse emissions by around 15 percent over the long run. Subsidy reform strategies should contain measures to mitigate the impact of higher prices on the poorest groups. |
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New Working Papers by Fiscal Affairs Department Staff
 In a recent study, “Public Expenditures on Social Programs and Household Consumption in China,” FAD staff assesses the potential effect of expanding government social spending on private consumption in China. The paper first identifies the cross-country determinants of household savings, including government social spending, and implications for China. It next employs a generational accounting framework to show that higher social expenditures on education, health, and pensions can have a sizable positive effect on household consumption. The analysis suggests that a sustained 1 percent of GDP increase in government social spending would result in a permanent increase in the household consumption ratio by 1¼ percentage point of GDP.
A paper on the Tax Revenue Response to the Business Cycle examines the behavior of tax revenue during the business cycle. It finds a positive and significant relationship between tax revenue efficiency/collections and the output gap (defined as the deviation of actual real GDP from potential real GDP). For example, in the case of the VAT, a one percentage point increase in the output gap corresponds to a 1¾ percent increase in VAT collections. The paper also finds that a worsening in VAT C-efficiency is driven by shifts in consumption patterns toward goods and services with lower VAT rates, and increases in tax evasion during contractions. A closer examination of the determinants of tax evasion reveals that VAT C-efficiency is positively correlated with stronger institutional underpinnings of the revenue administration, and negatively correlated with the overall tax burden in the economy.
 The paper on Fiscal Policy in Oil Producing Countries presents an analysis of the fiscal policy responses of 31 oil producing countries (OPCs) to the recent oil price cycle (2003-09). The paper finds that the non-oil primary balances in OPCs weakened substantially during the “boom” years (2003–2008) mainly through large increases in primary spending. However, this trend was partially reversed when oil prices went down in 2009. The evidence suggests that fiscal policy has been procyclical and hence has exacerbated the fluctuations in economic activity. Long-term fiscal sustainability positions worsened in most OPCs during the recent oil price cycle.
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New Technical Notes and Manuals from the Fiscal Affairs Department
A Practical Guide to Public Debt Dynamics, Fiscal Sustainability, and Cyclical Adjustment of Budgetary Aggregates discusses the methodology for analyzing the dynamics of debt, and how to derive common indicators of fiscal sustainability and the underlying budgetary position of a country. It focuses on government debt sustainability indicators, and on how to correct budget aggregates for the impact of the business cycle and inflation. It is meant to be used by fiscal economists as a manual or “vade mecum” of formulas and relationships among fiscal variables.
Four other Technical Notes provide advice on budget process-related and revenue administration issues. The note on Reforming Budget System Laws explores the role played by budget system laws in supporting budget reform. The note on the Role of the Legislature in Budget Processes discusses options for best involving the legislature in the budget process. Taxpayer Audit—Development of Effective Plans explains the importance and benefits of planning taxpayer audits at the strategic, operational and case level. Taxpayer Audit—Use of Indirect Methods discusses when the circumstances are right for applying indirect audit methods, and how to ensure outcomes are sufficiently robust to withstand legal challenges. |
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Fundraising for Topical Trust Funds
Donor fundraising for two 5-year topical trust funds (TTFs) is underway to increase IMF delivery of technical assistance (TA) to low- and lower-middle income countries in tax policy and administration, and managing natural resource wealth.
Well-designed and administered tax systems generate the revenue to pay for essential public services, help formalize the economy, and over time, can raise the tax-to-GDP ratio and reduce aid dependency. Through the tax policy and administration TTF, FAD will assist developing countries with low tax collections strengthening policies and administration.
The extraction of natural resources—oil, gas, and minerals—presents opportunities for accelerated development, but pose serious policy and administration challenges. The second TTF targets developing countries with substantial current or potential resource revenues. It will finance TA to improve capacities in tax policy and administration, macro-fiscal management, reserves and debt management, and statistics for recipient countries to realize sustainable benefits from natural resource wealth.
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