Download Diapositiva 1

Woodrow Wilson Center – American University
Washington, D.C. June 2012
Outline
• Chapter 1: A decade of turbulence
• Chapter 2: Fiscal revenues and expenditures:
structure and implications for inequality
• Chapter 3: Fiscal revenues and expenditures
evolution
• Chapter 4: Fiscal challenges from a political
perspective
• Final remarks
Chapter 1
A DECADE OF TURBULENCE
A decade of turbulence
• Three phases of a decade of turbulence: deceleration,
expansion and crisis
• The most severe crisis in the last 30 years
• Services have become the engine of economic growth,
boost by family remittances, tourism, FDI and exports
• However, economic growth was low in labor intensive
sectors
• Poverty was reduced slowly (2001-2007)
• Due to the severity of the crisis, the achievements
reached in poverty reduction were reversed
Three phases of the
decade of turbulence
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
8.3
Annual average rate of Economic Growth
6.6
(Percentages) 6.3
5.0
3.8
2.0
2.2
1.9 2.0
4.3
3.7
3.0
4.9
1.6
2.1
1.9
1.4
-0.2
Costa Rica
El Salvador Guatemala
Phase I
Source: Icefi, based on official data.
Honduras
Phase II
Nicaragua
Phase III
Panamá
…with the most severe crisis in
the last 30 years
14.0
Annual Rate of Economic Growth
(Percentages)
12.0
10.0
8.0
10.1
7.9
7.5
6.3
6.0
4.0
12.1
2.7
4.2 3.8
1.3
2.0
6.2
3.3
1.4
4.2
2.8
2.8
3.6
2.8
4.5
3.2
0.5
(2.0)
(1.3)
(4.0)
Costa Rica
(3.1)
El Salvador Guatemala
2007
Source: Icefi, based on official data.
2008
(2.1)
Honduras
2009
2010
(1.5)
Nicaragua
Panamá
Services have become the engine of
economic growth
Contributions to economic growth by economic sector (2000-2009)
(Economic growth rate points)
Primary Sector
Industry
Services
5.7
6
5
4
3.5
2.6
3
2
1
0.7
0.5
0.5
0.3 0.3
0.2
0.7
CR
SV
0.4 0.5
0.1
0
Source: Icefi, based on official data.
GT
1.1
0.8 0.9
HN
NI
PA
2.9
1.5
…boosted by family remittances, tourism, FDI or
exports (with different levels of intensity)
Comparision between remittances flows, FDI, exports and tourism (2001-2010)
(As a percentage of total flows)
SV
HN
NI
GT
PA
CR
0%
20%
40%
Remittances
Source: Icefi, based on official data.
60%
Tourism
Exports
80%
FDI
100%
…boosted by family remittances, tourism, FDI or
exports (with different levels of intensity)
Comparison between remittances flows, FDI, exports and tourism (2001-2010)
(As a percentage of GDP)
18
16
14
12
10
8
6
4
2
0
80
70
60
50
40
30
20
10
0
CR
PA
Remittances
Fuente: Icefi, basada en datos oficiales.
GT
NI
Tourism
HN
FDI
Exports
SV
Due to the severity of the crisis, the achievements
reached in poverty reduction were reversed
Headcount poverty index by lack of consumption or income (2001-2010)
(as a percentage of total households or individuals)
70
60
Guatemala
50
Nicaragua
40
Panamá
Costa Rica
30
El Salvador
20
Honduras
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Icefi, based on official data.
The big challenges (1)
1. Complementary role of fiscal and macroeconomic
policies
– Role of fiscal policy in promoting economic growth
– Counter cyclical policy that moderates impacts of
economic shocks
– Improve coordination between fiscal and monetary
policy
– Big space for cooperation in Central America
• No only economic integration
• Regional public goods
Capítulo 2
FISCAL REVENUES AND EXPENDITURES:
STRUCTURE AND ITS IMPLICATIONS
FOR INEQUALITY IN THE REGION
Structure of fiscal revenues and
expenditures: implications for inequality
• Public expenditure is a key tool to reduce inequality
– In Central American countries (CAC) exist a relation between lower poverty
and higher levels of public social expenditures
– Social expenditures in education and health benefit more the poor in CAC
• Tax system could prevent more inequality and it’s the main source
of funds for public expenditure
• The impact of tax system in the income distribution is low because
the low collection of direct taxes
–
–
–
–
Low revenues from Personal Income Tax
High levels of fiscal benefits for a few (like tax exemptions)
High levels of income tax evasion
Almost inexistent real estate taxes
Structure of fiscal revenues and
expenditures: implications for inequality
• Fiscal revenues depend mainly on taxation, specially in the lowest
fiscal revenues countries in the region (El Salvador, Guatemala)
• A reduced group of countries have diversified its fiscal revenues
sources, beyond taxes and grants (Panama, Costa Rica)
• Level and composition of public expenditure have notable
differences between Central American Countries
• Allocation of resources to social expenditure was a priority, even
on crisis years
• Social expenditure structure
– Education and health: the main targets
– Social protection: the big difference
Public expenditure is a key tool for
inequality reduction
Completion of primary education (%)
Individuals or households in poverty (%)
Poverty and per capita public social
expenditure
70
60
50
40
30
20
10
0
0
500
Per capita public social expenditure
(USD 2000)
Source: Icefi, based on official data and ECLAC.
1,000
Completion of elementary education
and per capita public spending in
100
education
90
80
70
60
50
40
30
20
10
0
0
50
100
150
200
250
Per capita public social expenditure in
education (2000 USD)
300
Public expenditure in health and education
benefits the poor in Central America
Education
(% of public expenditure in education)
Health
(% of public expenditure in health)
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
-10%
CR
SV
GT
Poorest 40%
Source: Icefi, based in Barreix, Bes and Roca (2009)
HN
Richest 20%
NI
PA
-10%
CR
SV
GT
Poorest 40%
HN
Richest 20%
NI
PA
Tax system has a low redistributive impact
Gini Index change
Decrease ->
3.0
2.0
Inequalty
1.0
-
<--Increase
(1.0)
(2.0)
(3.0)
CR
Source: Icefi, based in Barreix, Bes and Roca (2009)
SV
GT
HN
NI
PA
… mainly because of the low collection of
direct taxes
Direct taxes participation
(% total)
International comparison of tax structure
(% GDP)
18
60.0
51
16
51
50.0
14
40.0
36
34
30.0
34
32
30
36
30
30
26
25
12
10
8
23
22
6
20.0
4
10.0
2
0
CR
SV
GT
Phase I
HN
Phase II
NI
PA
Phase III
Source: Icefi, based in official data and Gómez-Sabaini, Jimenez and Podestá (2010).
Promedio
Direct
Indirect
Social Contributions
OECD
EU
USA
Southeast Asia
Africa
Latin America
Central America
The redistributive effect of taxes and transfers
is much higher in Europe than in Latin America
Central America
= -3.7%
USA=-16.6%
Source: ECLAC, based on Goñi, López and Serven (2008)
The low collection of direct taxes is explained
by…
•
•
•
•
Low revenues from personal income tax
High tax exemptions
High income tax evasion
Others (weak tax administration, political
factors)
Fiscal revenues depend mainly on taxation,
especially in countries with the
lowest fiscal revenue
Fiscal revenues NFPS
(% GDP)
Fiscal revenue structure
(% total )
35.0
30.0
29.7
GT
29.5
25.7
25.0
SV
24.5
HN
20.0
16.8
15.0
NI
12.2
CR
10.0
PA
5.0
0%
20%
40%
60%
80%
100%
HN
Source: Icefi, based on official data.
NI
CR
PA
SV
GT
Taxes
Social Security
Other
Grants
Level and composition of public expenditure
has notable differences
Public expenditure NFPS
(% GDP)
Public expenditure categories
(% total)
PA
NI
HN
GT
SV
CR
0%
20%
40%
Wages
Transfers
Capital expenditures
Interest
Fuente: Icefi, basada en datos oficiales.
60%
80%
100%
Allocation of resources to social expenditure
was a priority, even on crisis years
Macroeconomic priority
(% GDP)
Budget priority
(% total public expenditure)
25.0
80.0
70.0
20.0
60.0
50.0
15.0
40.0
10.0
30.0
20.0
5.0
10.0
-
-
CR
SV
Phase I
Fuente: Icefi, basada en datos oficiales.
GT
Phase II
HN
NI
Phase III
PA
CR
SV
Phase I
GT
Phase II
HN
NI
Phase III
PA
Social expenditure structure : education and health,
main targets; social protection, big difference
As a percentage of public social expenditure (2001-2010)
100
90
80
70
60
50
40
30
20
10
0
1
29
30
0
3
21
19
32
26
1
8
32
1
2
20
27
34
35
59
30
26
32
CR
SV
GT
Education
Fuente: Icefi, basada en datos oficiales.
Health
HN
Social protection
32
27
NI
PA
Housing
Other
The big challenges (2)
2. The challenge of raising more tax revenues remains
– Recent progress on direct taxation is important, but still
there is a long way to advance in tax administration, tax
evasion, and elusion reduction
– Real estate taxes, a tool to strength local government
finances
– Explore fiscal revenues diversification: better management
of public enterprises, public assets and other non tax
revenues
The big challenges (3)
3.
Promote greater equity in public expenditure
– Improving level and allocation of social
expenditure, now with institutional strengthening
– Face new challenges like climate change and
insecurity
– Continuous evaluation of social programs and
infrastructure projects, with better beneficiaries
identification
Capítulo 3
FISCAL REVENUES AND
EXPENDITURES EVOLUTION
Main findings
• Improved fiscal revenues: sustainable?
• Public expenditure growth
– Wages and transfers grew during the crisis
– Public investment was sacrificed
• Strong relationship between revenues?, fiscal deficit
and economic performance
– Fiscal revenue highly dependant on imports
• Debt outlook is better than a decade ago: external
debt was reduced and created fiscal space to face
the crisis
• Three fiscal sustainability scenarios
Improved fiscal revenues:
sustainable?
Total Fiscal revenue (2001-2010)
(% GDP)
Central American average Tax Burden
1990-2010 (% GDP)
35
15
30
14
25
13
20
12
15
11
10
5
10
0
9
CR
ES
Phase I
Source: Icefi, based on official data.
GT
HN
Phase II
NI
Phase III
PA
8
1990 1993 1996 1999 2002 2005 2008
Public expenditure growth:
wages and transfers up, investment down
Expenditure change in anti-crisis plans
Central government (% GDP)
(% GDP)
NFPS
4
I
II
III
CR
27.7
25.7
29.4
SV
18.1
18.1
20.8
GT
14.2
14.2
14.1
1
HN
29.2
30.0
34.2
0
NI
24.6
27.5
31.3
PA
26.0
25.4
26.2
3
2
-1
-2
Wages
Source: Icefi, based on official data.
Transfers
Capital
Interest
CR SV GT HN NI
Strong relationship between fiscal revenues,
fiscal deficit, and economic performance
Deficit increase in 2009, according
to revenues or expenses
Deficit (% of GDP)
CR
SV
GT
HN
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
-3.5
-4.0
-4.5
-5.0
PA
100%
75%
50%
25%
0%
-25%
CR
I
Source: Icefi, based on official data.
NI
II
III
ES
GT
HN
Revenues
NI
PA
Strong response of fiscal revenue to business
cycle, highly dependant of imports
Fiscal revenue growth
Taxes linked to imports
15
50%
45%
10
40%
5
35%
0
30%
25%
-5
20%
-10
15%
-15
CR
SV
GT
II
Source: Icefi, based on official data.
HN
III
NI
PA
10%
CR
2007
SV
GT
2008
HN
2009
NI
PA
2010
Debt outlook is better than a decade ago:
external debt was reduced and created fiscal
space to face the crisis
NFPS
Country
Fuente: Icefi, basada en datos oficiales.
1991-2000
2001-2010
Total
Internal
External
Total
Internal
External
CR
41.8
26.9
14.9
39.4
24.7
14.7
ES
29.1
8.4
20.7
39.7
12.2
27.5
GT
21.7
6.9
14.9
21.8
8.0
13.8
HN
71.4
2.6
71.2
38.8
4.2
34.6
NI
195.9
195.9
82.0
18.5
65.4
PA
77.0
59.4
59.6
13.2
46.3
17.6
Three sustainability scenarios
1. Orthodox Fiscal adjustment
–
Non viable
2. Financial sustainability
–
–
–
Public sector financing at current level
Gradual and progressive reforms in revenue and expenditure
Fiscal deficits around business cycles (with rules)
3. Sustainability with equality and growth
–
–
–
More fiscal revenues
Transparency
Equality and economic growth
Chapter 4
FISCAL CHALLENGES FROM A
POLITICAL PERSPECTIVE
Main findings
• Public sector reforms are very hard to achieve
due to political factors
• Key role of Legislative Branch
• Tax structure strongly influenced by economic
elites and their State role paradigm
• Fiscal reform great challenge: how to make
alliances
Public sector reforms are very hard to
achieve due to political factors
Tax reforms are the best example
• Ambitious reforms are very
hard to be approved
• Actors’ roles, power shares
and interests determine
reforms outcomes
– State branches
– Economic elites
– Popular sectors
Proposed and approved reforms
(2008-2011)
18
16
14
12
10
8
6
4
2
0
CR
SV
GT
Approved
Source: Icefi, based on official data.
HN
Non aproved
NI
PA
Actors, institutions and processes
• Legislative Branch central role
– Growing political parties fragmentation
– Reform approval more difficult in countries with
more fragmented political parties
• Economic elites and their power exercise
– Their influence on State configuration models
– Influence on the tax structure
– Tax incentives vs. Public expenditure
The great challenge: finding allies
• First pillar: recover citizen trust on public sector
– Real and verifiable actions can reduce citizen distrust, via
transparency and anticorruption measures promotion
– Campaigning to communicate the results achieved
• Second pillar: allies search
– Emergent elites interests
– Popular sectors
– Look for pro-reform coalitions
Summing up
Final remarks: the big challenges
1.
2.
3.
4.
Economic challenges
The challenge of raising revenues remains
Promote greater equity in social expenditure (+)
Political challenges
– Fiscal reforms approval by fragmented legislatives
– Influence of economic elites and limited vision on competitiveness
(only demand tax exemptions)
– Transnational elites involvement demands incentives and motivations
to distance themselves from traditional opposition and to contribuite
State strengthening through fiscal reform
– Prevent clientelistic practices on policies addressed to popular
sectors
– Earn medium class trust on State