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Cover Selected Issues Papers
Wage Indexation and International Competitiveness in Belgium: An Uneasy Coexistence: Belgium
André Geis
Belgium is one of a small group of euro area countries that maintains indexation of wages to inflation as part of its wage setting framework. With intensified price pressures since late 2020 driving inflation to record levels, the tension between compensating workers for purchasing power losses while maintaining international competitiveness have again been highlighted. To improve the performance and viability of the current setup, several avenues of reform could be envisaged. In particular, the scope for excluding price increases in highly volatile components, like energy and food, from the indexation basis should be explored to less the need to restore competitiveness by prolonged periods of real wage restraint. Moreover, options to widen the flexibility of the indexation regime should be contemplated to alleviate the burden of firms at times of large and multiple shocks, thereby also preserving investment and employment. Finally, productivity trends should also be accounted for to capture deviations of labor costs between Belgium and its key export markets.
Keywords:
inflation; price setting; collective bargaining; wage formation; wage setting; wage indexation; inflation indexation; international competitiveness; indexation basis; indexation regime; energy price inflation; health index inflation driver; Wages; Energy prices; Global; Baltics
Cover Selected Issues Papers
Fiscal Federalism in Belgium: Challenges in Restoring Fiscal Sustainability Belgium: Belgium
Yu Ching Wong
Fiscal decentralization in Belgium progressed substantially in 2015-19. However, as decentralization of expenditure responsibilities continued to outpace decentralization of revenue authority, vertical fiscal gaps and greater reliance on transfers from shared resources may have reduced spending discipline. Consecutive shocks (pandemic, energy prices) have worsened the fiscal positions of all levels of government, requiring urgent and concerted effort to improve fiscal and debt sustainability. Fostering better fiscal policy coordination across all levels of government would improve the efficiency of Belgium’s decentralized fiscal framework. We recommend that fiscal adjustment at the subnational levels should be a part of the general government fiscal consolidation plan, with strict spending limits applying; integrating systematic spending reviews in the budgetary process; and adopting a more strategic, multi-annual fiscal framework to support adjustment. Implementing the 2013 Cooperation Arrangement—intended to provide fiscal rules to govern and coordinate public finances at all levels—is important. Also, the cost of overborrowing at the regional level should be fully internalized; recalibration of transfers could be considered; and some flexibility should be retained in the pace and scope of further decentralization. Finally, there is scope to improve the integration of fiscal sustainability objectives in federal and subnational structural reforms.
Keywords:
fiscal policy; fiscal consolidation; taxation and revenue; budget; deficit; and debt; state and local governments; federal and subnational public finances; fiscal decentralization; federalism; decentralization of expenditure responsibility; community government; consolidation plan; Subnational government; Article IV Consultation Staff Report; Fiscal federalism; Fiscal stance; Global
Cover Finance & Development
Finance & Development, March 2023
International Monetary Fund. Communications Department
Finance & Development, March 2023
Keywords:
inflation expectation; inflation surge; tepid inflation; household inflation expectation; monetary policy committee; Inflation; Inflation targeting; Gold; Silver; Digitalization; Global; Asia and Pacific; Africa; Europe; Caribbean
Cover Analytical Notes
The Big Push for Transformation through Climate and Development: Recommendations of the High-Level Advisory Group on Sustainable and Inclusive Recovery and Growth
World Bank
,
International Monetary Fund
,
London School of Economics and Political Science
, and
Brookings Institution
The High-Level Advisory Group (HLAG) on Sustainable and Inclusive Recovery and Growth came together to provide policy analysis and practical proposals for actions that could help countries secure a strong recovery from the pandemic and a successful green transition. This report pulls together key findings from the deliberations and provides actionable recommendations to support a pathway to green, resilient, and inclusive development (GRID). The HLAG started by assessing the scale and nature of investment and financing challenges. It was immediately clear that investment needs require rapid and sustained scaling up: conservative estimates presented to the HLAG by Bhattacharya et al. (2022) suggest that EMDEs other than China have aggregate investment and development spending needs on the order of at least $1.3 trillion per year by 2025 and $3.5 trillion per year by 2030.
Cover IMF Research Perspectives
IMF Research Perspectives: February 2023
IMF Research Perspectives: February 2023
Cover Selected Issues Papers
Labor Market Implications for Green Investments and Carbon Pricing in Spain: Spain
Ana Lariau
and
Ms. Yu Shi
Labor Market Implications for Green Investments and Carbon Pricing in Spain green policies; input-output matrix; employment; occupations; skills ABSTRACT: We provide a tractable framework for assessing the labor market impact of policies that support the green transition of the Spanish economy, taking into account input-output linkages. We present illustrative examples that quantify changes in sectoral employment, occupations and skills stemming from two different green policies: (i) the announced green investments in the recovery plan; and (ii) an increase in carbon pricing and an expansion of the EU Emission Trading System (ETS). Our analysis shows that the labor market impact of these two policies is net positive, although the results depend on the design of the green policies, particularly on the use of the proceeds from the increase in carbon pricing. Strengthening active labor market policies, with a focus on training, and complementing them with education policies such as the expansion of vocational training, would facilitate the transition of workers from shrinking to expanding sectors.
Keywords:
green policies; input-output matrix; employment; occupations; skills; labor market impact; input-output linkage; labor market implication; carbon pricing; impact of policy; IMF staff calculation; Climate finance; Sustainable growth; Climate policy
Cover Selected Issues Papers
Labor Productivity Dynamics in Spain: A Firm-Level Perspective: Spain
Mr. Nicolas Arregui
and
Ms. Yu Shi
This paper uses firm-level data that covers over 1.2 million Spanish firms during the period of 2003-2019 to provide an updated assessment of the drivers of labor productivity in the Spanish economy, focusing on both TFP and firm investment. The empirical analysis shows significant differences in production constraints in both the capital market and the labor market, across firm size and age. This paper also includes a review of Spain’s ambitious reform commitments under the Recovery, Transformation and Resilience Plan and concludes with recommendations for further action.
Keywords:
Productivity; financial constraint; firm size; competition; labor regulation; labor productivity dynamics; I. data coverage; firm-level data; support measure; optimization problem; Labor productivity; Total factor productivity; Labor markets; Europe; Global
Cover Selected Issues Papers
Structural Transitions to Electric Vehicle Production: Czech Republic
Stephen Ayerst
and
Neree C.G.M. Noumon
Sustaining the impressive convergence gains allowed by the Czech automotive sector has become challenging due to its comparatively lower value added, lower investments in research and development, and lower skills in the labor market. Using a structural model of global value chains, the paper examines policies to smooth the transition to the production of electric vehicles in Czechia. The analysis explores the impacts of increasing labor productivity, boosting production capabilities, and moving up the global value chain. These policies were found to have a relatively lower impact when they shift specialization towards lower value-added stages of production.
Keywords:
Automotive industry; Czech Republic; Convergence; Electric vehicles; Global value chains; Labor productivity; Structural Policy; electric vehicle production; production capability; model illustration; Czechia economy; Policy recommendation; Employment; Skilled labor; Global
Cover Selected Issues Papers
Spending Efficiency and Reforms: France
Iulia Ruxandra Teodoru
and
Ruud Vermeulen
To rebuild fiscal buffers after large fiscal responses to successive shocks over 2020-22, France will need to reverse the trend spending increase observed over the last three decades through structural spending reforms. This paper identifies areas where scope for savings or efficiency gains exist based on an evaluation of the level and efficiency of public spending in France relative to European peers, using benchmarking analysis and stochastic frontier analysis to derive efficiency frontiers. Reforming social protection, health, education, and civil service, and rationalizing tax expenditures should preserve or improve outcomes while generating savings that would help meet medium-term adjustment needs.
Keywords:
Public Expenditure; Efficiency; Fiscal Consolidation; Fiscal Policy; France; efficiency frontier; efficiency gain; frontier analysis; IMF staff calculation; spending gap; Tax expenditures; Aging; Europe; Global
Cover Selected Issues Papers
The Effects of Climate and Conflict Shocks on Household Welfare: Niger
Yoro Diallo
As livelihoods in Niger still depend to a large extent on agricultural production, shocks related to climate change and insecurity present a threat for the country’s development path and are the main sources of vulnerability for the population in rural areas. This paper uses data from the latest household living standard survey to quantify the effects and interactions of these shocks on household welfare before proposing policy recommendations to enhance the resilience of households and the economy more generally. Our results show that when rainfall decreases by one standard deviation, per capita income falls by 11 percent. Furthermore, the impact of shocks on households depends on their adaptive capacity, which includes sufficient agricultural capital and income diversification. Without concrete adaptation measures, vulnerability to climate change is expected to increase in Niger, and human capital accumulation in poor household is also expected to deteriorate and could lead to a poverty trap.
Keywords:
Climate Shocks; Conflicts; Welfare; Microeconometrics; Niger; conflict shock; household welfare; vulnerability to climate change; impact of shock; income elasticity; Climate change; Income; Consumption