offentligt fiu alm.del bilag 117finansudvalget 2016-17 the ... · fournier, j-m. and a johansson...
TRANSCRIPT
Copenhagen, May 24, 2017
The long-term effect of the sizeand the mix of public spending
on growth and inequality
http://www.oecd.org/eco/the-effect-of-the-size-and-mix-of-public-spending-on-
growth-and-inequality.htm
ECOSCOPE blog: oecdecoscope.wordpress.com
Finansudvalget 2016-17FIU
Alm.del Bilag 117
Offentligt
Key messages
2
Changes of public spending size, mix and effectiveness can have large
effects on growth and inequality
• Improving student performance yields large gains for all by raising skills.
• Higher public investment is associated with large growth gains and lifts “all boats” as it
raises average incomes without any adverse equity effects.
• Reducing the share of pension spending and of subsidies boosts growth. Lower pension
spending has no adverse effects on disposable income inequality, but lower subsidies
increase inequality.
• Spending more on family and child care benefits reduces inequality as they benefit
lower-income families more.
• Room for improvement is limited in Denmark.
Country-specific characteristics matter
• The design of education policy matters more than education spending.
• The growth gains from higher investment decline at a high level of the public capital
stock, though virtually all countries have room for additional spending.
• The effect of government size depends on government effectiveness.
3
1. Motivation and approach
Changes to the spending and tax mix have
gone in the wrong direction between
2007 and 2013
4
Source: OECD Public Finance Dataset, forthcoming.
AUT
BEL CHE
CZE
DEUDNK
ESP
EST
FIN FRA
GBR
GRC
HUN
IRL
ISL
ISR
ITA
JPN
KOR
LUX
NLD
NOR
POL
PRT
SVK
SVN
SWE
USA
-10
-8
-6
-4
-2
0
2
4
-10 -8 -6 -4 -2 0 2 4 6 8Change in share of personal income tax, social security contributions and corporate income tax
Change in education and public investment share
Higher productive spending and lower distortionary taxes
Lower productive spending and higher distortionary taxes
Design of public spending, growth and
inequality: the approach
5
Key issue: Raising long-term growth while addressing inequality
Empirical setup:
• Growth: Neoclassical convergence model
• Inequality: Estimation of the impact of the mix of spending along the
distribution of household income
• The overall effect of public finance on the distribution of disposable income is
the sum of the direct effect on disposable income and the indirect growth
effect.
6
2. Growth and inequality
effects can be large.
3. Room for improvement is
limited in Denmark
Illustrative long-term growth effects
of an increase in the education level
7
Note: In countries where the mean PISA score or average years of schooling are below the
average level of countries in the top half of the sample, educational attainment is assumed to
gradually converge to this level. The figure reports the effect after 45 years of a reform phased in
over 45 years.
0
5
10
15
20
25
30
Quantity of education (years of schooling) Quality of education (PISA)Per cent
Illustrative long-term GDP gains
from increasing public investment
8
Note: In countries where public investment to potential GDP is below the average ratio of
countries in the top half of the sample, public investment will converge to this average ratio. The
figure reports the effect after 45 years of a reform phased in over 10 years.
0
5
10
15
20
25
30
Public investmentPer cent
Illustrative long-term GDP gains from
decreasing pension spending
9
Note: In countries where spending to the potential GDP ratio on pensions is above the average
level of countries in the bottom half of the sample, spending will gradually decline to this level.
The figure reports the effect after 45 years of a reform phased in over 10 years.
0
5
10
15
20
25
30
Old age and survivors pensionsPer cent
Illustrative gains from decreasing
public subsidies
10
Note: In countries where subsidies to potential GDP are above the average ratio of that of
countries in the bottom half of the sample, subsidies will gradually decline to this ratio.
-10
0
10
20
30
40
Average effects Effects on the poor Effects on the rich
Per cent
Illustrative gains from raising family and
child benefits on disposable income
11
Note: In countries where family benefits to potential GDP is below the average ratio of that of
countries in the top half of the sample, family benefits will gradually converge to this average
ratio.
-10
0
10
20
30
40
Average effects Effects on the poor Effects on the rich
Per cent
12
2. d
3. Country-specific
characteristics matter
In advanced economies, the link between education
spending and student performance is weak
Luxembourg
SwitzerlandNorwayAustria
Singapore
United States
United Kingdom
Malta
Sweden
BelgiumIceland
Denmark
Finland NetherlandsCanada
Japan
Netherland
AustraliaGermany
IrelandFranceItaly
PortugalNew Zealand
Korea
SpainPoland
Israel
Estonia
Czech Rep.Latvia
Slovak Rep.
Russia
CroatiaLithuaniaHungary
Costa Rica
Chinese Taipei
Chile
Brazil
Turkey
Uruguay
Bulgaria
MexicoThailand
MontenegroColombia
Dominican Republic
PeruGeorgia
R² = 0,04
R² = 0,36
300
350
400
450
500
550
600
0 20 40 60 80 100 120 140 160 180 200
Sc
ien
ce
pe
rfo
rma
nc
e (
sc
ore
po
ints
)
Average spending per student from the age of 6 to 15 (in thousands USD, PPP)
The analysis provides no evidence of the growth effect of education spending.
14
-20
-15
-10
-5
0
5
10
0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2
Perception of government effectiveness
GDP gain of one spending point increase of public spending, in per cent
Finland, Sweden, Denmark, Norway
Government size and effectiveness
The adverse effect of government size on potential GDP decreases with government effectiveness
15
Government size and effectiveness
Size of government and citizens’ perception of their effectiveness, 2013
AUS
AUT
BEL
CAN
CHE
CZE
DEU
DNK
ESP
EST
FINFRA
GBR
GRC
HUN
IRL
ISLISR
ITA
JPN
KOR
LUX
NLD
NOR
NZLPOL
PRT
SVK
SVN
SWE
USA
30
35
40
45
50
55
0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2 2.2
Perception of government effectiveness
Size of government (underlying primary spending, % of potential GDP)
16
Estimates of decreasing returns to public
investment
The effect of public investment on potential GDP decreases with the level of capital stock
-15
-10
-5
0
5
10
15
20 40 60 80 100 120
Public capital stock, per cent of potential GDP
GDP gain of one spending point increase of public investment, in per cent
Japan
United States, Luxembourg, Iceland
17
Estimates of decreasing returns to public
investment
Most countries have room to increase the stock of public capital (2013 data)
18
More information
Fournier, J-M. and A Johansson (2016), “The effect of the size and mix of public spending on growth and inequality”, OECD Economics Department Working Papers, No. 1344.
Bloch et al. (2016), “Trends in public finance: Insights from a new dataset”, OECD Economics Department Working Papers, No. 1345.
Johansson, A. (2016), “Public finance, economic growth and inequality: A survey of the evidence”, OECD Economics Department Working Papers, No. 1346.
Fournier, J-M. (2016), “The positive effect of public investment on potential growth”, OECD Economics Department Working Papers, No. 1347.
Disclaimers:
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Impact of different instruments on
growth and equity
19
Policy Growth EquityIncome of
the poorCountries with the most
room for growth gains
Decreasing the size of
government
Low to moderate
government
effectiveness + - +
BEL, CZE, FRA, GRC,
HUN, ITA, POL, PRT, SVNHigh government
effectivenessn.s. - -
Increasing government effectiveness + + + FRA, GRC, HUN, ITA, SVN
Increasing education outcomes + 0/+ + CHL, GRC, MEX, PRT, TUR
Increasing public investment (including R&D) + n.s. +BEL, DEU, GBR, IRL,
ISR, ITA, MEX, TUR
Reducing pension spending + n.s. +AUT, DEU, FIN, FRA, GRC,
ITA, JPN, POL, PRT, SVN
Increasing family benefits n.s. + + CHE, ESP, GRC, PRT
Decreasing public subsidies + - n.s. BEL, CHE
Note: + stands for a positively significant, – for a negatively significant and n.s. for non-significant effect.Source: Fournier and Johansson (2016), “The Effect of the Size and the Mix of Public Spending on Growth and Inequality”,OECD Economics Department Working Papers, No. 1344.