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Business and Economics > Finance: General

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Cover Selected Issues Papers
Korea in a Changing Global Trade Landscape: Korea
Hua Chai
and
Hyeryoun Kim
The global trade landscape is being reshaped by geoeconomic fragmentation and the rise of industrial policies. This paper studies the impact of these trends on the export-oriented Korean economy. It documents both positive and negative effects of U.S.-China trade tensions, technology and supply chain restrictions, and industrial policies of major economies on Korea's trade and FDI, particularly that of its strategic sectors. To navigate the changing global trade landscape, Korea needs to focus on promoting innovation to maintain competitiveness, diversifying export destinations and supply chains, and expanding exports of services.
Keywords:
trade policy; industrial policy; geoeconomic fragmentation; innovation; U.S.-China trade tension; Korea export share; U.S.-China trade relation; Korea's export; export destination; Exports; Trade tensions; Competition; Manufacturing; Tariffs; Global; North America
Cover IMF Working Papers
Market Power in the Middle East
Yevgeniya Korniyenko
,
Ahmed K Tohamy
, and
Weining Xin
The Middle East (ME) is often perceived as region with rentier economies and uncompetitive markets. Evidence of market power in the region however is scant. In this paper, we ask the following three questions: Is the ME uniquely uncompetitive? Has the evolution of market power in the region traced the global rise in market power? What government policies and actions influenced the market power in the region and can taxes be a way to even the playing field? To answer these questions, we utilize comprehensive firm-level data from Compustat between 2004 and 2022 and employ two methods for estimating markups (production function and cost-share approach). We document that market power among listed firms in the ME is higher than in the US, but on a downward trend. We find that the value-added tax (VAT) reforms introduced by some Gulf states from 2018 to 2022 resulted in a reduction of market power, an additional benefit beyond increasing fiscal space. While policymakers should continue to use available regulatory levers to achieve economic efficiency and a level playing field, VAT could be considered as an alternative instrument.
Keywords:
Middle East; Market Power; Markup; Firm Behavior; market power in the Middle East; markups estimate; sample representativeness; markups in GCC country; markups dynamics; Value-added tax; Competition; Inflation; Oil sector; Global
Cover IMF Working Papers
Europe’s Shift to EVs Amid Intensifying Global Competition
Philippe Wingender
,
Jiaxiong Yao
,
Robert Zymek
,
Benjamin Carton
,
Diego A. Cerdeiro
, and
Anke Weber
European countries have set ambitious goals to reduce their carbon emissions. These goals include a transition to electric vehicles (EVs)—a sector that China increasingly dominates globally—which could reduce the demand for Europe’s large and interconnected auto sector. This paper aims to size up the tradeoffs between Europe’s shift towards EVs and key macroeconomic outcomes, and analyze which policies may sharpen or ease them. Using state-of-the-art macroeconomic and trade models we analyze a scenario in which the share of Chinese cars in EU purchases rises by 15 percent over 5 years as a result of both a positive productivity shock for car production in China and a demand shock that shifts consumer preferences towards Chinese cars (given China’s dominance in the EV sector). We find that for the EU as a whole, the GDP cost of this shift is small in the short term, in the range of 0.2-0.3 percent of GDP, and close to zero over the long term. Adverse short-run effects are more significant for smaller economies heavily reliant on the car sector, mainly in Central Europe. Protectionist policies, such as tariffs on Chinese EVs, would raise the GDP cost of the EV transition. A further increase in Chinese FDI inflows that results in a significant share of Chinese EVs being produced in Central European economies, on the other hand, would offset losses in these economies by supporting their shift from supplying the internal combustion engine (ICE) production chain to that of EVs.
Keywords:
Electric vehicles; green transition; trade; tariffs; global value chains.; protectionist policy response; GDP cost; EV share; Europe's shift; shift to electric vehicles; Foreign direct investment; Productivity; Imports; Europe; Global
Cover Technical Assistance Reports
Republic of Armenia: Technical Assistance Report-Tax Compliance and Crypto Assets
International Monetary Fund. Fiscal Affairs Dept.
Armenia has committed to the adoption of the OECD’s Crypto-Asset Reporting Framework. To give effect it will need to enact legislation. An eight-step roadmap for implementation was developed. It sets out each activity, assigns responsibilities and sets timelines.
Keywords:
Republic of Armenia; Crypto assets; Tax Compliance.; IMF team; IMF's Fiscal Affairs Department; SRC staff; IMF reviewer; SRC draft; Tax law; Securities markets; Capital gains tax; Tax return filing compliance; Europe; Global
Cover IMF Staff Country Reports
Spain: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper focuses on dissecting Spain’s soaring tax revenues and their implications for projections. This paper combines an econometric approach based on historical time series with a more detailed analysis of relevant developments for each tax over the post-Coronavirus disease period. The analysis finds that several factors contributed to the 2020–2023 revenue boom, including large employment gains and the so-called fiscal drag, among others. The revenue boom closed almost half of Spain’s revenues-to-gross domestic product gap relative to peer countries—from 7.1 percentage points in 2019 to 4 in 2023. Given the need for sizeable and sustained fiscal consolidation to rebuild fiscal buffers and set debt on a downward trajectory, continued efforts to boost revenues will be needed. In particular, reforms of the tax system in areas not considered in this paper, such as environmental taxation, could raise additional resources while addressing externalities and supporting the green transition.
Keywords:
Non-tourism services productivity growth; PIT revenue boom; labor productivity growth factor; VAT revenue; product market regulation; Service exports; Export performance; Personal income tax; Employment; Value-added tax; Global; Europe
Cover IMF Working Papers
The Pitfalls of Protectionism: Import Substitution vs. Export-Oriented Industrial Policy
Reda Cherif
and
Fuad Hasanov
Industrial policies pursued in many developing countries in the 1950s-1970s largely failed while the industrial policies of the Asian Miracles succeeded. We argue that a key factor of success is industrial policy with export orientation in contrast to import substitution. Exporting encouraged competition, economies of scale, innovation, and local integration and provided market signals to policymakers. Even in a large market such as India, import substitution policies in the automotive industry failed because of micromanagement and misaligned incentives. We also analyze the risk tradeoffs involved in various industrial policy strategies and their implications on the 21st century industrial policies. While state interventions may be needed to develop some new capabilities and industries, trade protectionism is neither a necessary nor a sufficient tool and will most likely be counterproductive.
Keywords:
Industrial policy; export orientation; import substitution; growth; diversification; innovation; technology; import substitution policy; D. export orientation; risk tradeoff; policies in India; Policy strategy; Exports; Manufacturing; Imports; Tariffs; Competition; Global; Caribbean; North America
Cover IMF Working Papers
Unpleasant Surprises? Elections and Tax News Shocks
Mr. Antonio David
and
Can Sever
Unanticipated changes in tax policy are likely to have different macroeconomic effects compared to anticipated changes due to several mechanisms, including fiscal foresight and policy uncertainty. It is therefore important to understand what drives such policy surprises. We explore the nature of unanticipated tax policy changes by focusing on a political economy determinant of those events, namely the timing of elections. Using monthly data for 22 advanced economies and emerging markets over the period 1990-2018, we show that implementation lags tend to be significantly longer for tax policy change announcements that are made during the pre-election periods, thereby leading to a lower likelihood of “tax news shocks”. We also find that implementation lags become much shorter for tax policy changes that are announced in the aftermath of elections, generating more frequent tax news shocks. This pattern remains similar for different tax measures or types of taxes. The findings are robust to a number of checks, including alternative definitions of tax news shocks, or to controlling for various economic and institutional factors.
Keywords:
Tax Shocks; Electoral Cycles; Political Economy; news shock; implementation lag; election period; change announcement; tax policy policy change; Probit models; Income tax systems; Consumption taxes; Corporate income tax; Global
Cover IMF Staff Country Reports
Nigeria: Selected Issues
International Monetary Fund. African Dept.
This Selected Issues paper presents stylized facts about food insecurity in Nigeria, investigates its drivers in a cross-country setting, and assesses the role of policies. The paper describes regional aspects of Nigeria’s food insecurity and compares the impact of coronavirus disease 2019 and the war in Ukraine on food security in Nigeria and other countries. It also provides an overview of agricultural production and consumption in Nigeria. The paper investigates the drivers of food security using an empirical cross-country framework including demand, supply, and price factors, and offers thoughts on policies to improve agricultural yields and production. The important role of inputs is evident in the policy experience of comparator countries. Nigeria has achieved a substantial increase in agricultural production associated with its policies but some have been less successful. Import dependency for key staples has not fallen and the cost of these agricultural products remains driven by international prices. Further, central bank credit to the agricultural sector has not succeeded in increasing production beyond the stimulus of high rainfall and high food prices.
Keywords:
EIU FOOD INSECURITY index; World wheat price inflation; tax revenue mobilization; food supply; fuel subsidy reform; food price inflation; Mobile banking; Financial inclusion; Food security; Excises; Global; Sub-Saharan Africa
Cover IMF Staff Country Reports
Chile: Selected Issues
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper focuses on Chile’s tax reform scenarios in international perspective. While the economic and social outcomes achieved by Chile have been impressive, important social challenges lie ahead. This paper benchmarks the estimated revenue gains of the tax reform proposal and discusses different fiscal consolidation scenarios. The paper also presents the stylized facts of the tax system in Chile compared with The Organization for Economic Cooperation and Development (OECD) countries. Following a very brief overview of the tax reform proposal, the paper also presents a benchmark analysis of the estimated revenue yields against similar domestic revenue mobilization episodes in OECD countries. The authorities are firmly committed to their medium-term fiscal consolidation plan. The tax reform is needed to finance social spending and meet the authorities’ fiscal consolidation plan. It is also important to consider that the increase in taxes will have implications for growth, with the effect depending on the final composition of the tax and spending reforms.
Keywords:
staff team of the International Monetary Fund; revenue scenario; green tax; abnormal returns; withdrawal request; capital market depth; AFP investment portfolio; climate strategy; NDC goal; IMF staff calculation; Pension spending; Climate policy; Carbon tax; Greenhouse gas emissions; Global; Caribbean; Western Hemisphere
Cover IMF Working Papers
Electoral Cycles in Tax Reforms
Mr. Antonio David
and
Can Sever
We examine electoral cycles in tax reforms using monthly data over the period of 1990-2018 for 22 advanced economies and emerging markets. We show that governments tend to avoid announcing tax reforms during the months running up to elections. In addition, they become more likely to announce those reforms in the first few months following elections, indicating that “political capital” plays a role in the timing of reforms. These patterns are broad-based regarding the changes in tax base and rate, and for various types of taxes. We also find that the pre-election decrease in the likelihood of tax reform announcements is stronger in emerging markets, and weaker in the countries with relatively better institutional quality. Finally, our results indicate that neither fiscal rules nor IMF programs appear to have differential effects on electoral cycles in tax reforms.
Keywords:
Tax Reforms; Electoral Cycles; Political Economy; Institutional Quality; reform announcement; elections in the sample; announcements decrease; election dummy; election variable; Fiscal rules; Probit models; Personal income tax; Social security contributions; Emerging and frontier financial markets; Global