By Carla Grasso
If there’s one thing all economists can agree on, it’s the importance of numbers. Without good data, it is difficult to assess how an economy is performing and formulate smart policies that help improve lives. (more…)
By Michael Keen
It’s hard to pick up a newspaper these days (or, more likely for readers of blogs, to skim one online) without finding another story about some multinational corporation managing, as if by magic, to pay little corporate tax. What lets them do this, of course, are the tax rules that countries themselves set. A new paper takes a closer look at this issue, which is at the heart of the IMF’s mandate: the way tax rules spill over national boundaries, and what this means for macroeconomic performance and economic development. These effects, the paper argues, are pretty powerful and need to be discussed on a global level.
Follow the money
Take, for instance, international capital movements. Though tax is not the only explanation, the foreign direct investment (FDI) positions shown in Table 1 are hard to understand without also knowing that tax arrangements in several of these countries make them attractive conduits through which to route investments. In its share of the world’s FDI, for example, the Netherlands leads the world; and tiny Mauritius is home to FDI 25 times the size of its economy.
Ensuring that sub-Saharan Africa emerges strongly from global recession will require both a sustained recovery in the global economy and sound domestic policies. The good news is that domestic policies are already supporting economic activity.
Many countries entered the crisis in much better shape than in the past. The region’s fiscal position was on average in balance in 2008, compared with big deficits in past cycles. Debt levels were also much lower than in the early 1990s, supported of course by recent debt relief initiatives. Inflation had been brought under control across most of the region. And, reflecting sounder and more open policies, countries had accumulated much larger buffers of foreign reserves—the median ratio of reserves to GDP was 14 percent last year, compared to about 5 percent in the early 1970s.
This favorable starting point gave many countries in the region a fair amount of breathing space. They were able to respond to the crisis by allowing fiscal deficits to rise and interest rates to fall, reaping the rewards of previous good policies. Countries with flexible exchange rates also let them adjust to the changing external environment. Such policy responses helped economies absorb some of the impact of the external shocks. Not all countries were able to take this route, however. Faced with large macroeconomic imbalances that pre-dated the global slowdown, a few countries had to tighten their fiscal or monetary policy stance.