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1 A Coesão Social como fator de desenvolvimento econômico Seminário Internacional sobre Política Tributária e Coesão Social – os Impostos sobre o Consumo.

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Presentation on theme: "1 A Coesão Social como fator de desenvolvimento econômico Seminário Internacional sobre Política Tributária e Coesão Social – os Impostos sobre o Consumo."— Presentation transcript:

1 1 A Coesão Social como fator de desenvolvimento econômico Seminário Internacional sobre Política Tributária e Coesão Social – os Impostos sobre o Consumo ESAF – Brasília – DF, BRASIL 30 e 31 de maio de 2007 Jean-Luc Schneider Subdirector, Direction Générale du Trésor et de la Politique Economique jean-luc.schneider@dgtpe.fr

2 2 Outline What is social cohesion? Why does it matter for growth? Why does income differ across regions? How to foster social cohesion? Conclusion

3 3 What is social cohesion? Inequality among a given population (1) Which population? –Are people from a given location alike? Aversion to inequality Social tensions, security,… –Are people from different locations alike? Budget transfers Migrations Development issues  Here, main focus on 2 nd approach

4 4 What is social cohesion? (2) Which kind of inequality? –Wealth = inheritance + income - consumption Income determines long term consumption –Labour income vs. Capital income –GDP/capita vs. wage level Measurement issue Interpretation –Equal access to income vs. Equal income  Focus on income (GDP/head + wages)  Unemployment = measure of risk

5 5 What is social cohesion? (3)How to measure inequality? –Indicators Proportion of people below poverty level Unemployment level Ratio of percentiles »Regions as percentage of total average »Top 20% average income level/bottom 20% Gini coefficient (0=equal income; 100=all income to one person) –Before/after redistribution Difference = effectiveness of the social system

6 6 Indicators of social cohesion for some EU countries GDP/capita at PPP (2006) Unemployme nt rate (2006) Poverty rate* before transfers (2005) Poverty rate* after transfers (2005) P80/P2 0 (2005) Gini (~2000 ) France1079.426134.027 Germany1108.424134.128 Italy996.824195.635 UK1175.329195.633 Hungary637.529134.029 Poland5113.830216.637 Eurozone121067.925164.7n.a. EU251007.926164.9n.a. Source: Eurostat, OECD * Proportion of the population with disposable income after social transfers below 60% of national median income before social transfers.

7 7 Social cohesion in the EU Difference between regions = between countries (1/2) + within countries (1/2) till 80’s = between went down by 25% + within went up by 10% since 80’s Between countries GDP/capita = 36% of EU27 average in Bulgaria GDP/capita = 257% of EU27 average in Luxemburg Unemployment = 13.8% in Poland Unemployment = 3.9% in Denmark Within countries Gini = 37 in Poland Gini = 24 in Sweden P80/P20 = 8.2 in Portugal P80/P20 = 3.3 in Sweden

8 8 Why does it matter for growth? (1) Albert Hirschman’s tunnel –2 lines of cars driving in a tunnel –If same speed: OK –If one line is too slow, some cars will try to overtake and block the speedy line  In democracies: a metaphor for envy  In non-democracies: resources wasted to prevent it

9 9 Why does it matter for growth? (2) Heterogeneity of incomes => of preferences too –Difficulty to get consensus –More difficult to take appropriate decision –Slower adaptation to changes  Heterogeneity reduces innovation and growth ex: small sucessful EU countries

10 10 Why does it matter for growth? (3) Cost of redistribution –Distorsions of tax/benefits system –Disincentive to work –Disincentive to invest –Ex-post heterogeneity hampers growth –Reducing ex-post heterogeneity hampers growth  Ex-ante heterogeneity is more costly

11 11 Why does it matter for growth? (4) It makes macro cycles more harmful –More households face liquidity constraints –More firms go bust in a recession –Wealth effects are more concentrated (on rich)  Effects of macro policy are less previsible  Macro policies are not enough to protect most  Additional cost of other instruments (or lack thereof)

12 12 Why does it matter for growth? (5) Poverty traps at regional level Higher income  Diversification of production  Better resilience to shocks  Investment/labour less risky  Positive cluster effects for those who can move  Poorest area becomes poorer  Possible congestion effects in the richer area May be negative at the aggregate level

13 13 Why does it matter for growth? (6) Emerging countries specialization –Consumption of middle class is more diversified –Broad based domestic market important –Heterogeneity hampers development Production of staple goods for the poor + exports Imports of luxury goods  Depends more on foreign exchange  Protectionnist temptation

14 14 Why does income differ across regions? Income differences: Labour less mobile than capital Regional repartition of capital owners Regional repartition of labour productivity –Private capital –Public capital = infrastructures –Human capital = education –Total factor productivity (TFP) Lack of convergence

15 15 Why does income differ across regions? (1)Location of private capital: –Interest rates = do not differ in a currency area –Risk premia = may differ according to: Local macro fluctuations = exposure to outside risks Security of investment –Taxes = may differ across regions Often higher in poorer regions Case for tax harmonisation in a currency area

16 16 Why does income differ across regions? (2) Infrastructures: –Complement to private capital: transports, telecommunications,… needed to do business –Transports determine the size of markets: increase rentability, if increasing returns to scale increase acessible pool of labour

17 17 Why does income differ across regions? (2)Infrastructures: –Public investment more needed in poorest area

18 18 Why does income differ across regions? (3) Education: –Human capital = most attached to labour –Location of education provision is essential –Especially for lower education Older students move more easily –Similar pattern as infrastructure Need for public provision –Liquidity constraints Need for adequate financing system

19 19 Why does income differ across regions? (4)« Total factor productivity » =How efficiently factors are combined –Depends upon: Incentives to innovate and to accept innovation Labour relations = local social cohesion Risk sharing arrangements (social insurance) –May be affected by local factors: Local taxes + regulations Cultural factors (community/family links,…)

20 20 Why does income differ across regions? The role of globalization Exposure to international trade  Changes in industry specialization  Turnover of jobs across industries  More exposure to unemployment (at all skill levels) New specialization in emerging countries  More demand for more abundant workers  More demand for lower skills  Less inequalities => Globalization foster long term social cohesion in emerging countries

21 21 How does EU foster social cohesion? Convergence = slow process: 2% per year in EU –Still about than 30 years to fill ½ the gap –In transition countries (EU12): Private capital came soon after opening Education was already good Infrastructures: EU intervention TFP: slower to adjust

22 22 Average labour productivity growth (2000-2005)

23 23 How does EU foster social cohesion? Annual average growth rate (1995-2005) Contribution of labour input to GDP growth (1) Contribution of capital input to GDP growth (2) Growth of total factor input (1) + (2) TFP growth (3) GDP growth (1) + (2) + (3) Austria0,50,71,20,92,1 Belgium0,60,71,30,82,0 Denmark0,71,21,90,02,0 Finland1,00,21,22,43,6 France0,20,71,01,12,1 Germany-0,20,60,31,01,3 Greece0,41,11,52,23,7 Ireland2,51,13,64,07,5 Italy0,60,91,50,01,4 Netherlands1,40,72,20,62,7 Portugal0,40,91,41,32,7 Spain2,51,33,7-0,13,6 Sweden0,20,81,01,62,5 United Kingdom0,50,91,4 2,8 Source : OECD

24 24 How does EU foster social cohesion? Two main objectives for EU cohesion policy: –Improve growth and foster convergence for less developed regions 82% of EU cohesion budget Eligible projects: infrastructure, education, innovation –Foster regional competitiveness and employment 16% of EU cohesion budget Eligible projects: employment policy, environment

25 25 How does EU foster social cohesion? Who benefits? –Eligibility criteria at regional level –Convergence (100/268 regions) Regional GDP/capita < 75% of EU average –Competitiveness (168/268 regions) Regional proposition by country National GDP/capita < 90% of EU average

26 26 Eligible regions

27 27 How does EU foster social cohesion? Social cohesion budget in the EU: Increasing importance: About 1/10 of EU budget in the early 80’s More than 1/3 now Level still moderate: About 0.4% of EU GDP

28 28 How does EU foster social cohesion? The absorption issue: –Ceiling on transfers = 4% of national GDP –Available credits are not fully spent: About 1/3 in EU10 About 1/2 in first cohesion countries About 2/3 in richer countries –Administrative capacities –Cofinancing rule (about 1 to 1) –National budget constraints

29 29 How does EU foster social cohesion? Effectiveness of EU social policy: –After 10 years of transfers GDP increased by: –About 5% in Portugal –About 10% in EU10 countries Productivity increased by 2 to 7% Employment increased by 4 to 8% (= 2.5 million jobs) –Significant contribution to reduction of inequality between countries

30 30 How does EU foster social cohesion? Effectiveness of EU social policy: –Less effective within countries (increase in inequalities by 10%) –Eviction effect = choice by benefitting country –No reason to go against that Subsidiarity = each country may know better Positive agglomeration externalities –Eligibility criteria still maintained

31 31 How does EU foster social cohesion? Good results under existing constraints: Level of EU budget EU resources: VAT and GNP based National sovereignty on tax-benefits Unanimity rule on taxation issues Governance

32 32 Conclusion Scope for cohesion policy in a federal country –Stronger governance mechanisms –Higher transfers –Coordination of expenditure policies –Tax policy design –Perequation mechanism –Better sharing of additional growth

33 33 Muito obrigado


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