Political Costs of Tax-Based Consolidations
Political Costs of Tax-Based Consolidations

Author: Chuling Chen

Publisher: International Monetary Fund

Published: 2019-12-27

Total Pages: 31

ISBN-13: 1513521535

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This paper studies the impact of tax-based consolidations on reelection outcomes. Using a granular database of tax-based consolidations for a panel of 10 OECD countries over the last 40 years, we find that tax reforms are politically costly but some reforms are costlier than others. Measures aimed primarily at reducing existing deficits and debt are costlier than tax consolidation policies for improving long-term growth prospects. Electoral costs are particularly high for broad-based indirect tax and corporate tax reforms. Voters tend to penalize governments less if tax consolidations are announced early in the government’s term or if the government has a strong political mandate. Favorable economic conditions increase public support for tax-based consolidations. Personal income tax reforms are electorally salient if the reforms are frontloaded, announced during recessions, and in less progressive tax systems.

The Political Costs of Reforms
The Political Costs of Reforms

Author: Gabriele Ciminelli

Publisher: International Monetary Fund

Published: 2019-10-18

Total Pages: 30

ISBN-13: 1513512110

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The aim of this SDN is to examine whether fear of a political cost associated with economic reforms is justified by the available evidence, and whether there are lessons from how economic policies might be adjusted to mitigate any political cost. The paper will be based on a new comprehensive database on structural reforms developed by RES, which covers a broad sample of advanced and developing economies over four decades, and incorporates regulations related to the real sector (labor, product markets, trade and the current account), and the financial sector (banking, securities markets and the capital account). The paper will address three questions. First, do reforms reduce the probability of a government getting reelected? Second, for which reforms are political costs particularly high? And third, can fiscal stimulus or other policies “sweeten the pill,” and would favorable economic conditions or greater reform ownership raise the odds for reelection?

Expansionary Austerity New International Evidence
Expansionary Austerity New International Evidence

Author: Mr.Daniel Leigh

Publisher: International Monetary Fund

Published: 2011-07-01

Total Pages: 41

ISBN-13: 1455294691

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This paper investigates the short-term effects of fiscal consolidation on economic activity in OECD economies. We examine the historical record, including Budget Speeches and IMFdocuments, to identify changes in fiscal policy motivated by a desire to reduce the budget deficit and not by responding to prospective economic conditions. Using this new dataset, our estimates suggest fiscal consolidation has contractionary effects on private domestic demand and GDP. By contrast, estimates based on conventional measures of the fiscal policy stance used in the literature support the expansionary fiscal contractions hypothesis but appear to be biased toward overstating expansionary effects.

The Political Economy of Taxation in Latin America
The Political Economy of Taxation in Latin America

Author: Gustavo Flores-Macias

Publisher: Cambridge University Press

Published: 2019-06-27

Total Pages: 285

ISBN-13: 1108474578

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Offers a comprehensive, region-wide analysis of the politics of taxation in Latin America to make reforms politically palatable and sustainable.

From Stimulus to Consolidation
From Stimulus to Consolidation

Author: Juan Toro R.

Publisher: International Monetary Fund

Published: 2010-10-06

Total Pages: 122

ISBN-13: 1455217611

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This paper identifies policy tools that could be used for fiscal consolidation in advanced and emerging economies in the years ahead. The consolidation strategy, particularly in advanced countries, should aim to stabilize age-related spending in relation to GDP, reduce non-age-related expenditure ratios, and increase revenues. Bold reforms are needed to offset projected increases in age-related spending, particularly health care. On the revenue side, measures could include improving tax compliance, for example through better international cooperation, as well as increasing the yield from VAT by eliminating exemptions and reduced rates, further developing property taxes, and increasing excise rates within the range of rates already applicable in comparable countries.

Macroeconomic Effects of Tax Rate and Base Changes
Macroeconomic Effects of Tax Rate and Base Changes

Author: Frederico Lima

Publisher:

Published: 2022

Total Pages: 0

ISBN-13:

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This paper examines the macroeconomic effects of tax changes during fiscal consolidations. We build a new narrative dataset of tax changes during fiscal consolidation years, containing detailed information on the expected yield, motivation, and announcement and implementation dates of more than 2,000 tax measures across 10 OECD countries. Using this data, we then analyze the macroeconomic impact of tax changes, distinguishing between tax rate and tax base changes, and further differentiating between changes in personal income, corporate income, and value added taxes. Our results suggest that base broadening during fiscal consolidations leads to smaller output and employment declines compared to rate hikes, even when distinguishing between tax types.

Fiscal Rules to Tame the Political Budget Cycle
Fiscal Rules to Tame the Political Budget Cycle

Author: Lorenzo Forni

Publisher: International Monetary Fund

Published: 2017-01-20

Total Pages: 20

ISBN-13: 147556998X

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The paper provides evidence that fiscal rules can limit the political budget cycle. It focuses on the application of the Italian fiscal rule at the sub-national level over the period 2004-2006 and shows that: 1) municipalities are subject to political budget cycles in capital spending; 2) the Italian subnational fiscal rule introduced in 1999 has been enforced by the central government; 3) municipalities subject to the fiscal rule show more limited political budget cycles than municipalities not subject to the rule. In order to identify the effect, we rely on the fact that the domestic fiscal rule does not apply to municipalities below 5,000 inhabitants. We find that the political budget cycle increases real capital spending by about 35 percent on average in the years prior to municipal elections and that the sub-national fiscal rule reduces these figures by about two thirds.

Austerity
Austerity

Author: Alberto Alesina

Publisher: Princeton University Press

Published: 2020-12

Total Pages: 290

ISBN-13: 0691208638

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A revealing look at austerity measures that succeed—and those that don't Fiscal austerity is hugely controversial. Opponents argue that it can trigger downward growth spirals and become self-defeating. Supporters argue that budget deficits have to be tackled aggressively at all times and at all costs. Bringing needed clarity to one of today's most challenging economic issues, three leading policy experts cut through the political noise to demonstrate that there is not one type of austerity but many. Austerity assesses the relative effectiveness of tax increases and spending cuts at reducing debt, shows that austerity is not necessarily the kiss of death for political careers as is often believed, and charts a sensible approach based on data analysis rather than ideology.

The Political Costs of Reforms
The Political Costs of Reforms

Author: Davide Furceri

Publisher: International Monetary Fund

Published: 2019-10-18

Total Pages: 30

ISBN-13: 1513517155

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Many countries are experiencing persistent, weak medium-term growth and limited fiscal space. Against this background, economic policy agendas—in both advanced and developing economies—are focusing increasingly on structural reforms. While there is broad agreement on the economic benefits of structural reforms, the political-economy of reform is less settled. This is because reforms may generate gains only in the longer term while distributional effects may be sizable in the short run, and because governments may lack political capital to confront vocal interest groups. In these circumstances, politicians may hold back on reforms, fearing they will be penalized at the ballot box. The aim of this Staff Discussion Note is to examine whether the fear of a political cost associated with structural reforms is justified by the available evidence, and whether there are lessons from the data about how reform strategies might be designed to mitigate potential political costs. It provides a major addition to recent IMF analysis examining the output and employment effect of reforms

Making the Modern American Fiscal State
Making the Modern American Fiscal State

Author: Ajay K. Mehrotra

Publisher: Cambridge University Press

Published: 2013-09-30

Total Pages: 447

ISBN-13: 1107043921

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Making the Modern American Fiscal State chronicles the rise of the US system of direct and progressive taxation.