1 a coesão social como fator de desenvolvimento econômico seminário internacional sobre política...

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A Coesão Social como fator de desenvolvimento

econômico

Seminário Internacional sobre Política Tributária e Coesão Social – os Impostos sobre o Consumo

ESAF – Brasília – DF, BRASIL30 e 31 de maio de 2007

Jean-Luc SchneiderSubdirector, Direction Générale du Trésor et de la Politique [email protected]

mailto:[email protected]

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Outline

• What is social cohesion?

• Why does it matter for growth?

• Why does income differ across regions?

• How to foster social cohesion?

• Conclusion

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What is social cohesion?

Inequality among a given population

(1) Which population?– Are people from a given location alike?

• Aversion to inequality• Social tensions, security,…

– Are people from different locations alike? • Budget transfers• Migrations • Development issues

Here, main focus on 2nd approach

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(2) Which kind of inequality?– Wealth = inheritance + income - consumption

• Income determines long term consumption

– Labour income vs. Capital income– GDP/capita vs. wage level

• Measurement issue• Interpretation

– Equal access to income vs. Equal income

Focus on income (GDP/head + wages) Unemployment = measure of risk

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(3) How to measure inequality?– Indicators

• Proportion of people below poverty level • Unemployment level • Ratio of percentiles

» Regions as percentage of total average» Top 20% average income level/bottom 20%

• Gini coefficient (0=equal income; 100=all income to one person)

– Before/after redistribution• Difference = effectiveness of the social system

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Indicators of social cohesion for some EU countries

GDP/capitaat PPP(2006)

Unemployment rate(2006)

Poverty rate* before

transfers(2005)

Poverty rate* after

transfers(2005)

P80/P20

(2005)

Gini(~2000

)

France 107 9.4 26 13 4.0 27

Germany 110 8.4 24 13 4.1 28

Italy 99 6.8 24 19 5.6 35

UK 117 5.3 29 19 5.6 33

Hungary 63 7.5 29 13 4.0 29

Poland 51 13.8 30 21 6.6 37

Eurozone12 106 7.9 25 16 4.7 n.a.

EU25 100 7.9 26 16 4.9 n.a.

Source: Eurostat, OECD* Proportion of the population with disposable income after social transfers below 60% of national median income before social transfers.

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Social cohesion in the EUDifference between regions

= between countries (1/2) + within countries (1/2) till 80’s= between went down by 25% + within went up by 10% since

80’s

• Between countries • GDP/capita = 36% of EU27 average in Bulgaria• GDP/capita = 257% of EU27 average in Luxemburg• Unemployment = 13.8% in Poland• Unemployment = 3.9% in Denmark

• Within countries• Gini = 37 in Poland• Gini = 24 in Sweden • P80/P20 = 8.2 in Portugal• P80/P20 = 3.3 in Sweden

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Why does it matter for growth?

(1) Albert Hirschman’s tunnel– 2 lines of cars driving in a tunnel– If same speed: OK– If one line is too slow, some cars will try to

overtake and block the speedy lineIn democracies: a metaphor for envyIn non-democracies: resources wasted to

prevent it

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(2) Heterogeneity of incomes => of preferences too– Difficulty to get consensus– More difficult to take appropriate decision – Slower adaptation to changes

Heterogeneity reduces innovation and growthex: small sucessful EU countries

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(3) Cost of redistribution– Distorsions of tax/benefits system– Disincentive to work – Disincentive to invest– Ex-post heterogeneity hampers growth– Reducing ex-post heterogeneity hampers

growthEx-ante heterogeneity is more costly

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(4) It makes macro cycles more harmful– More households face liquidity constraints– More firms go bust in a recession– Wealth effects are more concentrated (on rich)Effects of macro policy are less previsibleMacro policies are not enough to protect mostAdditional cost of other instruments (or lack

thereof)

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(5) Poverty traps at regional levelHigher income Diversification of production Better resilience to shocks Investment/labour less riskyPositive cluster effects for those who can movePoorest area becomes poorerPossible congestion effects in the richer area

May be negative at the aggregate level

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(6) Emerging countries specialization– Consumption of middle class is more

diversified– Broad based domestic market important– Heterogeneity hampers development

• Production of staple goods for the poor + exports• Imports of luxury goods

Depends more on foreign exchange Protectionnist temptation

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Why does income differ across regions?

Income differences:• Labour less mobile than capital• Regional repartition of capital owners• Regional repartition of labour productivity

– Private capital– Public capital = infrastructures– Human capital = education– Total factor productivity (TFP)

• Lack of convergence

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(1) Location of private capital:– Interest rates = do not differ in a currency

area– Risk premia = may differ according to:

• Local macro fluctuations = exposure to outside risks

• Security of investment

– Taxes = may differ across regions• Often higher in poorer regions• Case for tax harmonisation in a currency area

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(2) Infrastructures:– Complement to private capital:

• transports, telecommunications,… needed to do business

– Transports determine the size of markets:• increase rentability, if increasing returns to

scale• increase acessible pool of labour

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(2) Infrastructures:– Public investment more needed in poorest area

GDP/capita

Retu

rn o

n in

frastr

uctu

re

investm

en

t

Social return on public investment

Private return on private investment

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(3) Education:– Human capital = most attached to labour– Location of education provision is essential– Especially for lower education

• Older students move more easily

– Similar pattern as infrastructure • Need for public provision

– Liquidity constraints • Need for adequate financing system

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(4) « Total factor productivity »= How efficiently factors are combined– Depends upon:

• Incentives to innovate and to accept innovation• Labour relations = local social cohesion• Risk sharing arrangements (social insurance)

– May be affected by local factors:• Local taxes + regulations• Cultural factors (community/family links,…)

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The role of globalization• Exposure to international trade

Changes in industry specializationTurnover of jobs across industries More exposure to unemployment (at all skill levels)

• New specialization in emerging countriesMore demand for more abundant workersMore demand for lower skillsLess inequalities

=> Globalization foster long term social cohesion in emerging countries

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How does EU foster social cohesion?

Convergence = slow process: 2% per year in EU– Still about than 30 years to fill ½ the gap– In transition countries (EU12):

• Private capital came soon after opening• Education was already good• Infrastructures: EU intervention• TFP: slower to adjust

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Average labour productivity growth (2000-2005)

0

1

2

3

4

5

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Annual average growth rate (1995-2005)

Contribution of labour

input to GDP growth

(1)

Contribution of capital

input to GDP growth

(2)

Growth of total factor

input (1) + (2)

TFP growth (3)

GDP growth (1) + (2) + (3)

Austria 0,5 0,7 1,2 0,9 2,1

Belgium 0,6 0,7 1,3 0,8 2,0

Denmark 0,7 1,2 1,9 0,0 2,0

Finland 1,0 0,2 1,2 2,4 3,6

France 0,2 0,7 1,0 1,1 2,1

Germany -0,2 0,6 0,3 1,0 1,3

Greece 0,4 1,1 1,5 2,2 3,7

Ireland 2,5 1,1 3,6 4,0 7,5

Italy 0,6 0,9 1,5 0,0 1,4

Netherlands 1,4 0,7 2,2 0,6 2,7

Portugal 0,4 0,9 1,4 1,3 2,7

Spain 2,5 1,3 3,7 -0,1 3,6

Sweden 0,2 0,8 1,0 1,6 2,5

United Kingdom 0,5 0,9 1,4 1,4 2,8Source : OECD

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Two main objectives for EU cohesion policy:– Improve growth and foster convergence for less

developed regions • 82% of EU cohesion budget• Eligible projects: infrastructure, education, innovation

– Foster regional competitiveness and employment• 16% of EU cohesion budget• Eligible projects: employment policy, environment

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Who benefits?– Eligibility criteria at regional level– Convergence (100/268 regions)

• Regional GDP/capita < 75% of EU average

– Competitiveness (168/268 regions)• Regional proposition by country • National GDP/capita < 90% of EU average

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Eligible regions

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Social cohesion budget in the EU:

• Increasing importance: • About 1/10 of EU budget in the early 80’s• More than 1/3 now

• Level still moderate:• About 0.4% of EU GDP

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The absorption issue:– Ceiling on transfers = 4% of national GDP – Available credits are not fully spent:

• About 1/3 in EU10 • About 1/2 in first cohesion countries• About 2/3 in richer countries

– Administrative capacities– Cofinancing rule (about 1 to 1)– National budget constraints

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Effectiveness of EU social policy:– After 10 years of transfers

• GDP increased by:– About 5% in Portugal– About 10% in EU10 countries

• Productivity increased by 2 to 7% • Employment increased by 4 to 8% (= 2.5 million

jobs)

– Significant contribution to reduction of inequality between countries

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Effectiveness of EU social policy:– Less effective within countries (increase in

inequalities by 10%)– Eviction effect = choice by benefitting

country– No reason to go against that

• Subsidiarity = each country may know better• Positive agglomeration externalities

– Eligibility criteria still maintained

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Good results under existing constraints:

• Level of EU budget

• EU resources: VAT and GNP based

• National sovereignty on tax-benefits

• Unanimity rule on taxation issues

• Governance

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Conclusion

Scope for cohesion policy in a federal country– Stronger governance mechanisms– Higher transfers – Coordination of expenditure policies– Tax policy design– Perequation mechanism– Better sharing of additional growth

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1 a coesão social como fator de desenvolvimento econômico seminário internacional sobre política...

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