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ROGER H. GORDON

When the top personal tax rates are above the corporate rate, high income individuals have an incentive to reclassify their earnings as corporate rather than personal income for tax purposes. At least U.S. tax law imposes strict limits on the extent to which employees in publicly traded corporations can engage in such income shifting. However, entrepreneurs setting up new firms can easily reclassify their income for tax purposes. This tax incentive therefore favors entrepreneurial activity. In the United States, these tax incentives were huge during the 1950s and 1960s, though they have been much smaller since then.

LUC LERUTH, REMI PARIS, and IVAN RUZICKA

This paper examines the role and impact of taxation on sustainable forest management. It is shown that fiscal instruments neither reinforce nor substitute for traditional regulatory approaches and can actually undermine sustainability. The paper uses the reasoning at the root of the Faustmann solution to draw conclusions on the incentives for sustainable tropical forest exploitation. It proposes a bond mechanism as an alternative market-based instrument to encourage sustainable forest logging while reducing monitoring costs.

International Monetary Fund

This Selected Issues paper on Germany reviews investment trends and business capital stock in Organization for Economic Co-operation and Development (OECD) countries. Sharp wage increases are found to boost capital formation in the short term as employers substitute capital for labor at a rate that adjusts to the higher relative price for labor. To limit the political economy biases to fiscal policy, the paper explores options to strengthen budgetary institutions, notably more transparency; stronger budgetary rules; and more room for Länder governments to mobilize revenue and tailor spending to local circumstances.

International Monetary Fund

This paper reviews trends in GDP and other macroeconomic variables since independence. It assesses the performance of the different sectors of the economy and expenditure categories. The paper identifies a number of products that could contribute to maintaining the high growth rate that nontraditional exports have experienced. The medium-term fiscal sustainability analysis provides a useful quantification of the impact of the shocks experienced on fiscal performance. Ghana's social insurance system, stock exchange, divestiture program, rural finance, and poverty are also discussed.

International Monetary Fund. African Dept.
This Selected Issues paper discusses the potential fiscal impact of a large-scale gas project and explores aspects of macro-fiscal management of the associated revenue flow. The chapter also provides background and context focusing on recent offshore natural gas discoveries. The paper also describes features of the current petroleum fiscal regime in Tanzania and will present tentative simulations of the fiscal impact of a potential gas project. A string of natural gas discoveries in Tanzania’s deep offshore waters have generated considerable expectations. The outlook for natural gas in Tanzania is positive, albeit still highly uncertain. If major revenues are obtained and put to fruitful use, they could have a transformational impact on the economy. At the same time, expectations need to be tempered by the remaining uncertainty about the eventual size of the gas resources; no company has yet made a final investment decision involving the deep offshore gas reserves. This uncertainty will hopefully diminish in the next few years.
International Monetary Fund
This Selected Issues paper presents evidence on linkages between investment and growth observed in other countries to gauge the expected impact of increasing public investment in Timor-Leste. The results indicate that the level of capital expenditure envisioned in the government’s strategy could significantly boost economic growth and reduce poverty. The paper reviews the major issues related to tax policy reform in Timor-Leste. It also discusses the current direction of Timor-Leste Petroleum Fund asset management and issues that might arise with eventual asset diversification.
International Monetary Fund
This Selected Issues paper presents updated IMF staff estimates of potential output growth for the United States, using data through 2001 that incorporates the full cyclical upswing of the 1990s and the subsequent mild recession, as well as taking into account the revisions to the national accounts released in July 2000. The paper also reviews recent investment trends and provides estimates of the extent to which the capital stock has deviated from its long-term equilibrium.
International Monetary Fund. Research Dept.
Vol. 54, No. 2 includes three notable contributions from the Seventh Jacques Polak Annual Research Conference (ARC) hosted by the IMF in November 2006. Its lead paper, by Olivier Blanchard of Harvard University, is the 2006 Mundell-Fleming Lecture (delivered at the ARC), which analyzes current-account deficits in the advanced economies. Other papers in this issue look at the relationship between international financial integration and the real economy. Other papers discuss whether (or not): i) the next capital account crisis can be predicted; ii) accepted definitions of debt crises are adequate; iii) the Doha Round of trade talks (if they are ever successfully completed) will lead to preference erosion; and finally iv) there is room for political opportunism in countries deciding between money-based or exchange-rate-based stabilization programs.