This paper discusses how decentralized countries can achieve sound fiscal relations between the central government and lower government levels. The concepts of “vertical gap” and “vertical balance” provide an analytical framework for identifying and addressing key challenges. These concepts can help policymakers ensure that the financing of subnational governments (composed of transfers received from the center, own revenues, and borrowing) is both efficient and adequate given the allocation of spending responsibilities. More generally, the paper offers some perspectives about the optimal design of decentralization systems by examining the sequencing and economic principles underlying revenue and expenditure assignments, the use of transfers, and borrowing.
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper examines the adjustment of Australian labor markets to the recent adverse shocks. Australia’s labor markets were not severely impacted by the global financial crisis and are adjusting smoothly to the sizeable commodity prices bust and mining investment downturn. However, some labor market indicators suggest persistent weaknesses. There does not appear to be a significant increase in structural employment in the wake of the commodity prices bust and mining investment decline. Increased flexibility in average hours per worker has likely moderated employment reduction in downturns and prevented a larger increase in unemployment in the wake of the mining investment downturn. At the same time, elevated underemployment signals additional slack, and is likely weighing down wage growth.
This study relates Australian household saving more closely to movements in asset market using event study analysis and econometric analysis. In this study, the policy challenges for Australia from rebalancing in China, a temporary growth slowdown in China, and a recession in advanced countries are analyzed. The Globally Integrated Monetary and Fiscal Model (GIMF) is used for policy challenges. The impact of the mining boom on the Australian labor market is also discussed in this paper.
This paper analyzes the impact of product and labor market policies on technological diffusion and multi-factor productivity (MFP) in a panel of industries in 15 OECD countries over the period 1980 to 2003, with a special focus on Australia. We use a simple convergence empirical framework to show that, on average, convergence of MFP within industries across countries has slowed-down in the 1990s. In contrast, Australian industries have significantly caught-up with industry productivity best practices over the past 16 years, and have benefited from the diffusion of Information and Communication Technologies (ICTs). We show that reforms of both the labor and product markets since the early 1990s can explain Australia's productivity performance and adoption of ICTs.
This Selected Issues paper investigates the possible contribution of activation strategies—in a broad sense—to improve employment rates in Finland. It summarizes recent labor market developments in Finland, and investigates respectively the limitation of current unemployment and disability benefit schemes. The paper identifies possible strategies to activate recipients, and focuses on strategies to boost youth employment rates. The paper also discusses the possibility of using in-work benefit systems to create incentives to work at the low-skilled end of the labor market.
This issue features a timely paper by Vladimir Klyuev and Paul Mills on the role of personal wealth and home equity withdrawal in the decline in the U.S. saving rate. Lusine Lusinyan and Leo Bonato explain how work absence in 18 European countries affects labor supply and demand. And a paper by Paolo Manasse (University of Bologna) entitled "Deficit Limits and Fiscal Rules for Dummies" examines fiscal frameworks.
The past two decades have seen a decline in labor's share of national income in several industrial countries. This paper analyzes the role of three factors in explaining movements in labor's share--factor-biased technological progress, openness to trade, and changes in employment protection--using a panel of 18 industrial countries over 1960-2000. Since most studies suggest that globalization and rapid technological progress (associated with accelerated information technology development) began in the mid-1980s, the sample is split in 1985 into preglobalization/pre-IT revolution and postglobalization/post-IT revolution eras. The results suggest that the decline in labor's share during the past few decades in the OECD member countries may have been largely an equilibrium, rather than a cyclical, phenomenon, as the distribution of national income between labor and capital adjusted to capital-augmenting technological progress and a more globalized world economy.