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International Monetary Fund. European Dept.
This Selected Issues paper estimates the long-run economic impact of Brexit on the United Kingdom under two distinct assumptions for the post-Brexit relationship between the United Kingdom and the European Union. These illustrative scenarios entail different degrees of higher trade costs, a more restricted European Union migration regime and reduced foreign inward investment. A standard multicountry and multisector computable general equilibrium model is used to quantify the impact of higher trade barriers. There is substantial sectoral heterogeneity in the impact, and regions with higher concentrations of the more affected sectors are likely to confront greater losses. The empirical analysis suggests the speed of sectoral labor relocation across sectors has been relatively low in the UK. Irrespective of these empirical estimates, policies, such as retraining, would be critical to facilitate faster adjustment of the economy to the post-Brexit equilibrium thereby helping to minimize the associated costs to individuals and in aggregate.
International Monetary Fund. European Dept.
This Selected Issues paper analyzes labor market challenges in Latvia. In the boom period leading up to the global financial crisis, the economy experienced widespread labor shortages and soaring wage growth. The bursting of the bubble led to a deep recession, high unemployment, and a sharp contraction in wages. With the economy now in its eighth year of recovery, Latvia is once again experiencing a tightening labor market—a situation exacerbated by unfavorable demographic trends. Latvia’s future prosperity will depend critically on whether it is able to address its labor market challenges. Employment protection legislation (EPL) is relatively restrictive. EPL refers to the procedures and costs associated with hiring and dismissing workers. Theory suggests that overly restrictive EPL reduces both job creation and job destruction and may slow productivity growth by raising labor adjustment costs for firms. Latvia’s tightening labor market calls for reforms that make the most of the country’s human resources. Reforms should aim to tackle barriers to employment, encourage more labor market participation, help Latvia’s citizens build new skills, and stem the decline in the working-age population.
International Monetary Fund. European Dept.
This Selected Issues paper on Serbia’s Article IV Consultation reviews the precrisis growth paradigm and its legacy vulnerabilities. The underlying growth model proved vulnerable to shocks, being associated with a high share of nontradable, low domestic savings, and a fragile external position. Convergence to EU income levels was relatively moderate. Economic growth fell following the onset of the global financial crisis and further slowed the pace of convergence. Serbia’s postcrisis income gap remains larger by comparison to more advanced regional economies. Structural bottlenecks continue to undermine overall competitiveness and constrain growth potential.
International Monetary Fund
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
International Monetary Fund
This Selected Issues paper focuses on the fiscal challenge for Belgium in coping with population aging, including the sustainability of prevailing fiscal federalism arrangements across all levels of governments. The analysis demonstrates that the current strategy of upfront consolidation is likely to fall short of achieving sustainability. Further reductions in aging-related spending and growth and productivity-enhancing reforms beyond those assumed under the authorities’ strategy appear to be necessary. The paper also assesses whether the wage bargaining framework, a key labor market institution, is conducive to preserving external competitiveness and raising employment rates.
International Monetary Fund
This Selected Issues paper explores the economic consequences of aging and its impact on long-term fiscal sustainability for Cyprus. The study analyzes the potential macroeconomic impact of different approaches to deal with the fiscal costs of aging. It goes beyond a simple quantification of the fiscal impact by explicitly examining the trade-offs of alternative policies within the context of a general equilibrium overlapping generation framework. It is concluded that addressing the fiscal consequences of aging will require increasing the retirement age to 65 years, followed by further increases to keep up with demographic trends.
International Monetary Fund
This paper provides a background on the key policy challenges for Slovenia in the euro zone. Then, it assesses the discretionary scope to adjust spending and proposes initial steps to enhance budget flexibility so that fiscal adjustment can be targeted on relatively inefficient spending. This study also discusses the long-term fiscal sustainability position of Slovenia using a generational accounting framework. A simulation of retirement incentives suggests that the pension system will encourage individuals to retire earlier than the statutory full pensionable age. These incentives are stronger for low-income earners.
International Monetary Fund
The staff report for the 2005 Article IV Consultation on the People’s Republic of China highlights economic developments and fiscal policy. The continued robust growth owes much to the favorable external environment, with judicious macroeconomic policies, continued structural reforms, and the confidence-building effects of the Closer Economic Partnership Arrangement (CEPA). Reflecting the buoyant activity, inflation has picked up mildly, but remains well contained. Executive Directors noted that low-income families adversely affected by the tax could be assisted through targeted transfers.
International Monetary Fund
This Netherlands’s 2005 Article IV Consultation reports that raising participation and productivity are important for boosting the economy potential and reducing pressures on the public finances in the face of population aging. The authorities have implemented or are in the process of implementing key reforms, including by tightening disability and unemployment benefits and early retirement arrangements, lessening inactivity traps, enhancing competition, and reducing the administrative burden. The financial system remains sound, resilient to potential adverse shocks, and well supervised.
International Monetary Fund
This Selected Issues paper analyzes the challenge of population aging for Belgium. It argues that the aging strategy should be broadened to include more explicitly the objective of raising employment rates to foster potential growth. The paper discusses assumptions underlying the official aging projections, and presents an alternative baseline scenario on the basis of unchanged policies. It discusses the feasibility of strategies that rely exclusively on either fiscal or labor market adjustment, and illustrates the benefits of a two-pronged strategy. The paper also examines employment effects of reductions in labor taxes in a wage-bargaining model.