Fiscal policy has recently gained prominence, both in public debate and in governments’ policy agendas (Figure 1.1). A reassessment of fiscal policy is taking place, stressing its greater role in fostering sustainable and inclusive growth and smoothing the economic cycle. At the same time, the high uncertainty surrounding the outlook and high levels of public debt require a better understanding and managing of fiscal risks. Therefore, fiscal policy has the difficult task of achieving more and better in a more constrained environment. This issue of the Fiscal Monitor shows how the evolution of the debate on fiscal policy can shed new light on fiscal developments and help frame policy recommendations to countries.
A top challenge facing policymakers today is how to raise productivity, the key driver of living standards over the long term. In advanced economies, productivity growth was declining well before the global financial crisis, and the trend worsened in its aftermath (Figure 2.1). A slowdown in productivity has also taken place in developing countries since the crisis, hampering their convergence process toward higher income levels.1 The IMF’s policy agenda has therefore emphasized the need to employ all policy levers, and in particular to promote growth-friendly fiscal policies that will boost productivity and potential output (IMF 2016a).
This publication is a survey by the IMF staff, published twice a year, in the spring and fall, as part of the IMF’s World Economic and Financial Surveys. The current issue analyzes the latest public finance developments, updates medium-term fiscal projections, and assesses policies aimed at placing public finances on a sustainable footing. An analytical chapter employs extensive firm-level data sets as well as new sources of data on tax policy and tax administration for advanced economies, emerging market economies, and low-income developing countries to assess the extent of resource misallocation within countries, focusing on how the design of the tax system may affect resource allocation.