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International Monetary Fund

This Selected Issues paper reviews empirical evidence on the main determinants of the real bilateral exchange rate between the Canadian and the U.S. dollars, with particular emphasis on the role played by cyclical and longer-term economic factors. The paper aims to identify the nature of the shocks that have contributed to the recent downward trend in the Canadian dollar. The analysis shows that fluctuations in the real bilateral exchange rate can be explained reasonably well by its long-term fundamentals. The paper also analyzes inflation and the natural rate of unemployment in Canada.

International Monetary Fund

The issue of productivity growth in Canada has received considerable attention reflecting its marked slowdown since the early 1970s and concerns about its implications for Canadian competitiveness. To better understand productivity developments in Canada, it is useful to decompose total factor productivity (TFP) into investment-specific productivity change (ISP) and technologically neutral productivity change (TNP). The gap in manufacturing productivity growth between Canada and the United States originates mostly in the strong performance of specific industries, such as electrical products and commercial and industrial machinery.

Ms. Genevieve Verdier, Brett Rayner, Ms. Priscilla S Muthoora, Charles Vellutini, Ling Zhu, Vincent de Paul Koukpaizan, Alireza Marahel, Mahmoud Harb, Imen Benmohamed, Mr. Shafik Hebous, Andrew Okello, Nathalie Reyes, Thomas Benninger, and Bernard Sanya
International Monetary Fund. Fiscal Affairs Dept.
International Monetary Fund. Fiscal Affairs Dept.
In October 2021, the MEF asked Congress for the delegation of powers to legislate on tax matters with the aim of increasing tax collections and doing so by adding progressivity to the Peruvian tax system. The initiative being developed by the MEF contains (tentatively, to date) around 40 specific measures—some administrative, others related to tax policy—that the MEF hopes will, as a whole, generate additional revenue for the treasury. The tax collection impact of quite a few of the measures (including those pertaining to the mining sector) has not been estimated, whereas the measures for which there is a calculation are estimated to bring in a little over 1 percent of GDP in revenues. Given Peru’s low level of tax collections, both relative to its own historical trends as well as those of other countries in the region, the amount expected to be collected with the proposed reform is modest. However, increasing tax collections by enhancing progressivity would appear to be the right approach.
International Monetary Fund. Fiscal Affairs Dept.
This paper describes Romania’s Technical Assistance report on reforming personal income taxation. With one of the lowest revenues in the EU and a projected budget deficit exceeding 7 percent of gross domestic product (GDP), Romania should rely on an array of tax instruments to mobilize revenues. The personal income tax (PIT) plays an integral role in the overall reform to balance revenue, efficiency, and distribution considerations. The PIT should be reformed to support revenue and reduce inequality. It is recommended to introduce a new employment income bracket with a moderate top PIT rate, for example of 20 percent. A combination of 20 percent tax on the top decile of the income distribution and the existing 10 percent on the rest of the income distribution raises revenues by 1 percent of GDP, while leaving the majority of taxpayers unaffected. The taxation of the self-employed and microenterprises should be strengthened to close revenue leakages and safeguard the integrity of the tax system. Freelancers are recommended to pay social security contributions on their total net income, possibly up to a cap.
International Monetary Fund. Fiscal Affairs Dept.
The topics discussed in this report are tax regimes for small taxpayers (Chapter II) and the tax treatment of special economic zones (Chapter III). Although these aspects of the tax system have little direct effect on public finances, they affect many people and how those people make decisions or impact the positioning of certain regions relative to the rest of the country. Both are of social and political scope that is disproportionate to their magnitude of tax revenue collection, which is why their design must remain focused in its most strategic sense.
International Monetary Fund. Fiscal Affairs Dept.
This report reviews the Personal Income Tax in Republic of Armenia and identifies policy and administration options to support the introduction of a Universal PIT Declaration, as well as enhance the PIT’s revenue mobilization and equity. We discuss improvements of the PIT’s tax incentives, with a focus on the mortgage interest tax credit, and opportunities to make the PIT more progressive while preserving its revenue mobilization performance. Best practice administrative solutions are presented to facilitate the introduction of the Universal Declaration, including prefilling of information and organizational issues.
Amalio Humberto Petrei

Inflation threatens to become a permanent fact in many economies. One result is that distortions arise in personal income tax systems. The author considers the desirability of schemes for automatically adjusting taxation to inflation.

Mr. Vito Tanzi

Inflation affects individuals and income classes in many ways—as consumers, taxpayers, wage earners, savers, asset holders, lenders, borrowers, and so forth. Because of this multiplicity of influences, it is difficult, and perhaps impossible, to assess the total economic impact of inflation. For this reason, empirical studies have limited themselves to analyzing the impact of inflation on individuals or income classes in their roles as consumers, savers, or wage earners. This partial approach does not answer the question of whether the total impact of inflation is or is not beneficial to individuals in particular income classes, but it does provide interesting information that can be useful for policy purposes. This paper will follow this partial approach and analyze the impact of inflation on individuals in connection with the tax treatment of interest paid or received in the United States.