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International Monetary Fund

Canada has enjoyed high growth while adjusting smoothly to commodity price gains, currency appreciation, and, more recently, slowing U.S. demand. Monetary policy has appropriately shifted to guarding against increasing near-term downside risks. A sound fiscal framework policy has produced an enviably strong fiscal position that makes eliminating general government net debt feasible. The budgetary overperformance provides room for tax relief while maintaining small budget surpluses. To foster efficiency, the fiscal room should be used to reduce high marginal effective tax rates on capital, saving, and labor.

International Monetary Fund
This 2002 Article IV Consultation highlights that economic growth in Denmark slowed significantly during 2001 as domestic demand weakened and exports were hit by the global economic slowdown. Unemployment remained low and wage growth was somewhat faster than in euro area partner countries. However, price inflation was subdued. Monetary conditions were eased during 2001 as Danish interest rates generally followed those of the European Central Bank downward. The 2002 budget implies a broadly neutral fiscal stance with the surplus projected to remain within the medium-term target of 1.5–2.5 percent of GDP.
International Monetary Fund. Middle East and Central Asia Dept.
This paper discusses Armenia’s Third Review Under the Extended Arrangement, and Request for Waiver and Modification of Performance Criteria (PC). Growth in Armenia is expected to remain subdued as recession in Russia continues and as the base effects of the 2015 one-off factors dissipate. The program performance has been broadly satisfactory. All end-December 2015 PCs, except for the fiscal deficit PC, and all the continuous PCs were met. The fiscal deficit PC was missed by 0.3 percent of GDP. The IMF staff supports completion of the review and the authorities’ request for a purchase in an amount equivalent to SDR 15.65 million.
International Monetary Fund. Research Dept.
This paper deals with liberalization and the evolution of output during the transition from plan to market. It explains why strong liberalization leads to a comparatively steep fall in output early in the transition, but a relatively strong recovery later on. Because it takes time to restructure the capital stock inherited from the old system, liberalization initially leads to transitional unemployment of capital and the contraction of the old enterprise sector. By making room quickly for the new, more efficient enterprises, however, liberalization also sets the stage for recovery and a much higher level of income in the medium term. [JEL E23, P21, P27, P52]
International Monetary Fund. Research Dept.
This paper outlines potential strengths and weaknesses of various versions of the target zone approach and confronts operational outlines potential strengths and weaknesses of various versions of the target zone approach but also confronts operational. Target zones differ from a pure system of clean floating in that the authorities are permitted (and indeed are likely) to intervene in the exchange market, and, more generally, are encouraged to take a view on the desirable level of the exchange rate. The hard version of target zones shares some of the attributes of the existing European Monetary System (EMS). Unlike the EMS, hard target zones neither entail a formal commitment for exchange rate intervention nor there is analog to the credit facilities of the EMS. The soft version of target zones differs from existing IMF surveillance. Whether measured in real or nominal terms, bilateral or effective terms, and the short-run variability of exchange rates over the period of managed floating has been high—indeed, significantly higher than during the previous Bretton Woods system.
International Monetary Fund. Research Dept.
The CMEA countries are starting to conduct their trade at world prices and in convertible currencies. These are crucial steps in economic reform but will worsen Eastern Europe’s terms of trade and drive it into current account deficit with the U.S.S.R. Proposals have been made for a payments union, resembling the European Payments Union of 1950–58, to ease the transition. Such an arrangement would not function well if it included the U.S.S.R., which would be a persistent creditor. Other ways must be found to deal with the transition.
International Monetary Fund. Research Dept.

The IMF Research Bulletin, a quarterly publication, selectively summarizes research and analytical work done by various departments at the IMF, and also provides a listing of research documents and other research-related activities, including conferences and seminars. The Bulletin is intended to serve as a summary guide to research done at the IMF on various topics, and to provide a better perspective on the analytical underpinnings of the IMF’s operational work.

Mr. Ben Lockwood, Michael B. Devereux, and Michela Redoano
This paper studies whether exchange controls, particularly on the capital account, affect the choice of corporate tax rates, using a panel of 21 OECD countries over the period 1983-99. It builds on existing literature by (1) using a unique dataset with several different measures of the corporate tax rate calculated from the actual parameters of the tax systems, and (2i) allowing exchange controls to affect the intensity of strategic interaction between countries in setting taxes, as well as the levels of tax they choose. We find some evidence that (1) the level of a country’s tax, other things equal, is lowered by a unilateral liberalization of exchange controls; and (2) that strategic interaction in taxsetting between countries is increased by liberalization. These effects are stronger if the country is a high-tax one and if the tax is the statutory or effective average one. There is also evidence that countries’ own tax rates are reduced by liberalization of exchange controls in other countries.
Mr. Ephraim Kleiman
The effects of taxation on the general price level have traditionally been regarded as reflecting monetary policy, rather than fiscal factors. This view abstracted from the possible endogeneity of monetary expansion with respect to tax hikes, and from the effects which taxation may have on the reserve price of entrepreneurial labor. An analysis of Purchasing Power Parity data for 51 countries from stage IV of the ICP project supports the hypothesis that domestic indirect taxes tend to raise the general price level. In contrast to the accepted view, other prices do not seem to decline to offset the effect of such taxes on the price of tradables. The paper also presents some new evidence on the other factors which cause national price levels to diverge from PPP.
International Monetary Fund. Research Dept.

Staff Papers draws on IMF Working Papers, which are research studies by members of the Fund’s staff. A list of Working Papers issued in 1993:3 follows.