Front Matter Page
© 2011 International Monetary Fund
June 2011
IMF Country Report No. 11/143
Kingdom of The Netherlands—Netherlands: Selected Issues and Analytical Notes
This paper on the Kingdom of The Netherlands—Netherlands was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on May 24, 2011. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of the Kingdom of The Netherlands—Netherlands or the Executive Board of the IMF.
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Front Matter Page
INTERNATIONAL MONETARY FUND
KINGDOM OF THE NETHERLANDS—NETHERLANDS
Selected Issues and Analytical Notes
Prepared by Daniel Kanda, Alasdair Scott, and Sebastian Weber
Approved by the European Department
May 24, 2011
Contents
Analytical Note 1: Unemployment in the Netherlands: A Unique Experience or a Model that can be Imitated?
A. Developments in Unemployment
B. Measures to Reduce Unemployment
C. The Structure of the Labor Market
D. The Structure of the Economy
E. Social Underpinnings
F. The Labor Market in the Context of the Crisis
G. Which Lessons for Whom?
Tables
1-1. Wage Growth in the Manufacturing Sector
1-2. Labor Force Participation, by Gender
1-3. Average Employment Growth by Sector
1-4. Gini Coefficient
Figures
1-1. Unemployment Developments in Selected Developed Countries
1-2. Change in the Relative Strictness of Regular to Temporary Employment
1-3. Cumulative Contributions to Change in the Employment Rate (LHS) and Unemployment Rate (RHS)
1-4. Sectoral Contribution to Total Employment
1-5. Evolution of the Tax Wedge and its Components
1-6. Benefit Replacement Rate by Length of Unemployment
1-7. Employment Protection Legislation
Analytical Note 2: International Trade, Fiscal and Financial Spillovers
A. Risks from Regional Export Concentration and Global Fiscal Consolidation
B. Financial Sector Linkages
C. Conclusion
Tables
2-1. Trade by Regions and Countries – 2009
2-2. Fiscal Contribution to Growth
2-3. Dutch Bank Claims Abroad
2-4. Spillovers to the Netherlands from International Banking Exposures
2-5. Dutch Bank Liabilities Abroad
Figures
2-1. Spillover from the Netherlands Through International Banking Exposures
Analytical Note 3: Macro-Financial Linkages
A. Financial Stress Indicator
B. Financial Spillovers on the Real Sector
C. Conclusion
Tables
3-1. Impact of Credit Growth on Economic Activity
Figures
3-1. Financial Stress Index
3-2. Financial Conditions Index
3-3. Excess Supply of / Demand for Credit
3-4. Bank Lending Standards Developments
Analytical Note 4: Recent Developments in the Dutch Housing Market
Tables
4-1. Mortgage Stock to GDP
4-2. Prices of Existing Houses
Figures
4-1. Dutch House Prices
4-2. Dutch House Prices Ratios
4-3. Indicators of House Price Busts
4-4. Recent House Price Booms and Household Balance Sheets
4-5. Ratio of Mortgages Outstanding to Redeemable Deposits
4-6. Number of Registered Sold Houses
Analytical Note 5: Potential Output Estimates and Structural Policy
A. Introduction
B. Estimates of Potential Output
C. Prospects
D. Policies to Promote Growth
Tables
5-1. Summary of Impact of Relevant Structural Policy Reforms on Growth
Figures
5-1. Output Gap Estimates
5-2. Estimated Output Gap, Potential Growth and NAIRU
5-3. Production Factors Around Output Peaks
Analytical Note 6: Asset Booms, Sectoral Changes, and the Estimation of Dutch Structural Fiscal Balances
A. Dutch Experience
B. The Model
C. Estimation Results
D. Calculating Structural Revenues
E. Structural Expenditures and Structural Balance
Tables
6-1. Ng Perron Unit Root Tests
6-2. Regression Estimates
6-3. Structural Fiscal Position
Figures
6-1. Revenue Breakdown, 1970–2009
6-2. Comparison of Revenue and Nominal GDP Growth Rates, 1970–2009
6-3. Revenue Determinants, 1970–2009
6-4. Revenue Determinants and HP-Filtered Trends, 1970–2015
6-5. Actual and Structural Revenues, 1970–2009
Analytical Note 7: Fiscal Sustainability and Optimal Consolidation Paths in the Netherlands
A. Recent Fiscal Developments and Outlook
B. Estimating the Fiscal Sustainability Gap
C. Measures to Achieve Sustainability
D. Optimal Fiscal Consolidation Paths
Tables
7-1. Illustrative Optimal Annual Fiscal Adjustment Paths Under Quadratic Preferences
Figures
7-1. Change in Expenditure Due to Aging, 2007–60
7-2. Aging-Related Expenditure Under Different Scenarios, 2007–60
7-3. Fiscal Sustainability, 2012–60
7-4. Fiscal Sustainability Excluding No Measures Path, 2012–60
7-5. Decomposition of Pension Expenditure Projections, 2007–60
Analytical Note 8: Modeling Optimal Fiscal Consolidation Paths in a Selection of European Countries
A. Introduction
B. Estimating the Fiscal Sustainability Gap
C. Modeling the Fiscal Consolidation Path
D. Calibration
E. Application of the Model to Countries
F. Concluding Remarks
Figures
8-1. Fiscal Indicators for Selected European Countries
8-2. Comparison of Predicted and Announced Fiscal Consolidation, 2011–15
8-3. Predicted Fiscal Adjustment Paths and Associated Output Gaps, 2011–60
8-4. Projected Paths for Closing Sustainability Gaps, and Costs of Delay
8-5. Projected Evolution of Fiscal Balances and Debt, 2011–60
8-6. Comparison of Predicted and Announced Fiscal Consolidation, 2011–15
Analytical Note 9: Costs and Benefits of Eliminating Mortgage Interest Deductibility
A. Introduction
B. Key Features of the Model
C. Parameterizing the Model
D. Long-run Benefits from Eliminating MID
E. Short-run Costs of Eliminating Mortgage Interest Deductibility
F. Timing the Elimination of Mortgage Interest Deductibility
G. Conclusions
Tables
9-1. Parameter Values in the Model
9-2. Steady-State Values of the Model
9-3. Long-run Effects of Eliminating Mortgage Interest Deductibility
Figures
9-1. User Cost of Housing and Interest Rate Responses
9-2. House Price Reponses
9-3. Nondurable Consumption and Residential Investment Responses
9-4. Housing and Fixed Capital Responses
9-5. Responses to Anticipated Shock
9-6. Consumption Responses
9-7. House Price Responses