Asosiasi Fakultas Ekonomi & Bisnis Indonesia
Delivering Growth and Equity:
The Role of Fiscal Policy
Hotel Grand Hya-, Nusa Dua - Bali
10-11 December 2015
Presented by:
Juzhong Zhuang
Deputy Chief Economist
Asian Development Bank
Asia’s high growth has led to large
reducHons in poverty …
GDP growth and poverty reducBon
35
30
25
20
15
10
5
0
32.4
7.0
Developing Asia
9.7
3.7
3.4
5.7
Sub-Saharan Africa LaHn America and
Caribbean
2.4
1.5
Middle East and
North Africa
Annual GDP growth (1990-2010), %
CumulaHve reducHon in poverty rate (1990s-2000s), percentage point
Source: ADB staff compilaHon
2
…but has been accompanied by rising
inequality in many countries
Gini Coefficients, Selected Economies, 1990s and 2000s
Singapore
Georgia
PRC
Indonesia
India
Lao PDR
Mongolia
Sri Lanka
Taipei,China
Bangladesh
Tajikistan
Korea, Rep. of
37.1
32.4
29.2
44.2
46.3
42.1
42.1
38.9
32.5
37.0
30.4
36.7
33.2
36.5
32.5
36.4
31.2
33.8
27.6
32.1
29.0
30.8
24.5
28.9
0
5
10
15
20
1990s
25
30
35
40
45
50
2000s
Source: ADB staff compilaHon
3
• Rising inequality and
remaining poverty
reducHon agenda call
for inclusive growth
• Inclusive growth is
about creaHng
sufficient job
opportuniHes through
growth and ensuring
equal access
21
• Fiscal policy is criHcal
in both supporHng
growth and
promoHng equal
access to
opportuniHes
4
Infrastructure investment supports
growth, but oben underspent in Asia
• ADB study shows that spending 1 percentage point of GDP
more on infrastructure can boost growth by an esHmated
1.3 percentage points.
• Regional infrastructure reduces regional inequality, which is
oben a major driver of income inequality in developing
countries.
• Public infrastructure also magnifies the inclusive impact of
other public spending such as on educaHon and health.
• Developing Asia needs to spend about 6% of GDP on
infrastructure annually to meet the needs during 2010-2020,
but many Asian countries only spend 2-3%.
5
Insufficient Infrastructure Spending in Many
ASEAN Countries
Country
EsBmated needs Needs as % of
(2010-2020), US$ GDP (Annual,
Billion
2010-2020)
Infra spend as % Infra spend as
of GDP
% of GDP
1980-2009
2012
Indonesia
450.0
6.2
7.0
3.0
Malaysia
188.1
6.7
6.0
3.5
Philippines
127.0
6.1
2.0
2.2
Thailand
173.0
4.9
4.0
2.0
Viet Nam
110.0
8.1
12.8 (for 2009)
9.2
46.5
9.5
N.A.
4.0
Cambodia; Lao
PDR; Myanmar
Source: Bha-acharyay, Kawai, Nag (2012); ADB staff esHmates.
EducaHon criHcal for growth…
Growth and Years of Schooling
4
(adjusted for iniHal income)
Growth
and Years of Schooling
2
HKGTAP
JPN
MAL
PHI
SIN
0
Growth
*
KOR
-2
INO
THA
-4
IND
-4
-2
0
2
Years of Schooling*
4
6
Coefficient = .39, se = .102, t = 3.822
Note:* Adjusted growth and schooling are computed as deviaHons from their respecHve expected values based on iniHal income.
Source: ADB esHmates based on PWT data for 1970–2010 (growth) and Barro-Lee data (years of schooling).
7
…but educaHonal quality is what
drives growth
Growth and Years of Schooling
(adjusted for years of schooling and iniHal income)
Growth
and Test Scores (Science and Mathematics)
(adjusted for test scores and iniHal income)
Growth and Years of Schooling
4
4
6
6
Growth and Test Scores
SIN
2
Growth
2
HKG
MAL
0
IND
*
KOR
TAP
INO
0
PHI
KOR
THA
SIN
IND
JPN
INO
MAL
HKG
TAP
-2
JPN
PHI
-2
Growth
*
THA
-1
Test Scores *
Coefficient = 1.491, se = .23, t = 6.484
1
-3
-1
1
Years of Schooling*
3
Coefficient = .141, se = .091, t = 1.541
Note:* Leb graph: Adjusted growth and test scores are computed as deviaHons from their respecHve expected values based on iniHal income and years of schooling.
Right graph: Adjusted growth and years of schooling are computed as deviaHons from their respecHve expected values based on iniHal income and test scores.
Source: ADB esHmates based on PWT data for 1970-2010 (growth), Barro-Lee data (years of schooling) and PISA/TIMSS (test scores).
8
Government spending is more effecHve in addressing
inequality than direct income redistribuHon, but revenue
is needed to fund spending
EsBmated marginal impact of pubic spending on inequality
(percentage point)
Spending type
Asia
The rest of the world
Social protecHon
0.490
-0.274
EducaHon
-0.486
-0.034
Health care
-0.241
-0.330
Housing
2.161
-0.614
Source: ADO 2014
9
Asia needs to spend more on educaHon and
health to address inequality
Public spending on educaBon, health, and social protecBon, 2010
% of GDP
25
20.0
20
15
12.0
10
8.1
5.5
5
6.2
5.3
2.9
2.4
3.9
0
EducaHon
Developing Asia
Source: ADO 2014.
Health care
LaHn America and the Caribbean
Social protecHon
OECD
10
And there are large variaHons across
countries
Government spending on health and educaBon (% of GDP), 2013 or
latest year
12
Health
EducaHon
10
8
2.9
6
4
2
6.3
5.3
3.9
3.7
3.6
3.1
3.4
2.8
2
0
Source: KI 2015, ADB
11
Many Asian countries seem to have fiscal space to spend
more; but long term structural issues could erode this
Gross government debt, selected
economies, 2012
Current and projected public spending
on health
India
Pakistan
Malaysia
Lao PDR
Viet Nam
Myanmar
Thailand
Philippines
Armenia
Republic of Korea
Nepal
Georgia
Cambodia
PRC
Indonesia
Kazakhstan
Developing Asia
2.4
Central Asia
2.2
WLD
= 76.2
LA
= 51.7
0
40 80 120
% of GDP
1.0
1.9
1.7
South Asia
Southeast Asia
The Pacific
DA
= 43.0
0
2010
4.5
3.0
East Asia
AE
= 108.6
7.3
9.7
3.6
3.6
4.5
5
% of GDP
10
2050, projected
AE=Advanced Economies; DA=Developing
Asia; LA=LaHn America; WLD=World
Source: WEO 2015, IMF; ADO 2014
12
So Asia needs to expand and strengthen its
revenue base for fiscal sustainability
ComposiBon of tax revenues and social contribuBons,
2010
% of GDP
28.3
30
25
20
15
8.5
3.0
6.3
Social contribuHons
25.4
Property
4.8
1.7
13.0
10
5
0
7.6
2.9
OECD
2.3
3.7
19.8
3.0
1.6
10.1
1.7
3.5
LaHn America & Developing Asia
Caribbean
Indirect
Personal income
Corporate
Tax revenues and social
contribuHons
Source: ADO 2014
13
Fossil fuel subsidies oben benefit the rich
more than the poor, and should be reduced
Total fossil fuel subsidy (% of GDP), 2013
Uzbekistan
Azerbaijan
Pakistan
Indonesia
Bangladesh
Brunei Darussalam
Kazakhstan
India
Malaysia
Thailand
Viet Nam
Sri Lanka
PRC
Taipei,China
Korea, Rep. of
21.7
3.6
3.4
3.3
3.2
2.9
2.8
2.5
1.7
0.9
0.7
0.5
0.2
0.1
0.0
0
5
10
15
20
• Fossil fuel
subsidies accrue
largely to the rich
• They reduce
incenHves for
investment in
renewables and
energy efficiency
25
Source: IEA, Fossil Fuel Subsidies database.
14
Make fiscal policy work for inclusive growth
• Adequate public spending on infrastructure,
educaHon, health, social protecHon, and targeted
fiscal transfers such as CCT
• More effecHve revenue mobilizaHon
– Broaden the base for personal income tax and VAT
– Introduce progressive taxes on property, capital gains, and
inheritance
– Increase use of correcHve taxes and nontax revenues
– Improve tax collecHon and administraHon through ICT
15
Planning for inclusive fiscal policy
• Medium-Term Fiscal Framework to
incorporate inclusive growth into fiscal policy
– Annual review of inclusive government programs
– Align concrete medium-term targets with means
to finance them to ensure fiscal sustainability
• More and be-er fiscal data for evidencebased policy making
16
The Role of Fiscal Policy
Hotel Grand Hya-, Nusa Dua - Bali
10-11 December 2015
Presented by:
Juzhong Zhuang
Deputy Chief Economist
Asian Development Bank
Asia’s high growth has led to large
reducHons in poverty …
GDP growth and poverty reducBon
35
30
25
20
15
10
5
0
32.4
7.0
Developing Asia
9.7
3.7
3.4
5.7
Sub-Saharan Africa LaHn America and
Caribbean
2.4
1.5
Middle East and
North Africa
Annual GDP growth (1990-2010), %
CumulaHve reducHon in poverty rate (1990s-2000s), percentage point
Source: ADB staff compilaHon
2
…but has been accompanied by rising
inequality in many countries
Gini Coefficients, Selected Economies, 1990s and 2000s
Singapore
Georgia
PRC
Indonesia
India
Lao PDR
Mongolia
Sri Lanka
Taipei,China
Bangladesh
Tajikistan
Korea, Rep. of
37.1
32.4
29.2
44.2
46.3
42.1
42.1
38.9
32.5
37.0
30.4
36.7
33.2
36.5
32.5
36.4
31.2
33.8
27.6
32.1
29.0
30.8
24.5
28.9
0
5
10
15
20
1990s
25
30
35
40
45
50
2000s
Source: ADB staff compilaHon
3
• Rising inequality and
remaining poverty
reducHon agenda call
for inclusive growth
• Inclusive growth is
about creaHng
sufficient job
opportuniHes through
growth and ensuring
equal access
21
• Fiscal policy is criHcal
in both supporHng
growth and
promoHng equal
access to
opportuniHes
4
Infrastructure investment supports
growth, but oben underspent in Asia
• ADB study shows that spending 1 percentage point of GDP
more on infrastructure can boost growth by an esHmated
1.3 percentage points.
• Regional infrastructure reduces regional inequality, which is
oben a major driver of income inequality in developing
countries.
• Public infrastructure also magnifies the inclusive impact of
other public spending such as on educaHon and health.
• Developing Asia needs to spend about 6% of GDP on
infrastructure annually to meet the needs during 2010-2020,
but many Asian countries only spend 2-3%.
5
Insufficient Infrastructure Spending in Many
ASEAN Countries
Country
EsBmated needs Needs as % of
(2010-2020), US$ GDP (Annual,
Billion
2010-2020)
Infra spend as % Infra spend as
of GDP
% of GDP
1980-2009
2012
Indonesia
450.0
6.2
7.0
3.0
Malaysia
188.1
6.7
6.0
3.5
Philippines
127.0
6.1
2.0
2.2
Thailand
173.0
4.9
4.0
2.0
Viet Nam
110.0
8.1
12.8 (for 2009)
9.2
46.5
9.5
N.A.
4.0
Cambodia; Lao
PDR; Myanmar
Source: Bha-acharyay, Kawai, Nag (2012); ADB staff esHmates.
EducaHon criHcal for growth…
Growth and Years of Schooling
4
(adjusted for iniHal income)
Growth
and Years of Schooling
2
HKGTAP
JPN
MAL
PHI
SIN
0
Growth
*
KOR
-2
INO
THA
-4
IND
-4
-2
0
2
Years of Schooling*
4
6
Coefficient = .39, se = .102, t = 3.822
Note:* Adjusted growth and schooling are computed as deviaHons from their respecHve expected values based on iniHal income.
Source: ADB esHmates based on PWT data for 1970–2010 (growth) and Barro-Lee data (years of schooling).
7
…but educaHonal quality is what
drives growth
Growth and Years of Schooling
(adjusted for years of schooling and iniHal income)
Growth
and Test Scores (Science and Mathematics)
(adjusted for test scores and iniHal income)
Growth and Years of Schooling
4
4
6
6
Growth and Test Scores
SIN
2
Growth
2
HKG
MAL
0
IND
*
KOR
TAP
INO
0
PHI
KOR
THA
SIN
IND
JPN
INO
MAL
HKG
TAP
-2
JPN
PHI
-2
Growth
*
THA
-1
Test Scores *
Coefficient = 1.491, se = .23, t = 6.484
1
-3
-1
1
Years of Schooling*
3
Coefficient = .141, se = .091, t = 1.541
Note:* Leb graph: Adjusted growth and test scores are computed as deviaHons from their respecHve expected values based on iniHal income and years of schooling.
Right graph: Adjusted growth and years of schooling are computed as deviaHons from their respecHve expected values based on iniHal income and test scores.
Source: ADB esHmates based on PWT data for 1970-2010 (growth), Barro-Lee data (years of schooling) and PISA/TIMSS (test scores).
8
Government spending is more effecHve in addressing
inequality than direct income redistribuHon, but revenue
is needed to fund spending
EsBmated marginal impact of pubic spending on inequality
(percentage point)
Spending type
Asia
The rest of the world
Social protecHon
0.490
-0.274
EducaHon
-0.486
-0.034
Health care
-0.241
-0.330
Housing
2.161
-0.614
Source: ADO 2014
9
Asia needs to spend more on educaHon and
health to address inequality
Public spending on educaBon, health, and social protecBon, 2010
% of GDP
25
20.0
20
15
12.0
10
8.1
5.5
5
6.2
5.3
2.9
2.4
3.9
0
EducaHon
Developing Asia
Source: ADO 2014.
Health care
LaHn America and the Caribbean
Social protecHon
OECD
10
And there are large variaHons across
countries
Government spending on health and educaBon (% of GDP), 2013 or
latest year
12
Health
EducaHon
10
8
2.9
6
4
2
6.3
5.3
3.9
3.7
3.6
3.1
3.4
2.8
2
0
Source: KI 2015, ADB
11
Many Asian countries seem to have fiscal space to spend
more; but long term structural issues could erode this
Gross government debt, selected
economies, 2012
Current and projected public spending
on health
India
Pakistan
Malaysia
Lao PDR
Viet Nam
Myanmar
Thailand
Philippines
Armenia
Republic of Korea
Nepal
Georgia
Cambodia
PRC
Indonesia
Kazakhstan
Developing Asia
2.4
Central Asia
2.2
WLD
= 76.2
LA
= 51.7
0
40 80 120
% of GDP
1.0
1.9
1.7
South Asia
Southeast Asia
The Pacific
DA
= 43.0
0
2010
4.5
3.0
East Asia
AE
= 108.6
7.3
9.7
3.6
3.6
4.5
5
% of GDP
10
2050, projected
AE=Advanced Economies; DA=Developing
Asia; LA=LaHn America; WLD=World
Source: WEO 2015, IMF; ADO 2014
12
So Asia needs to expand and strengthen its
revenue base for fiscal sustainability
ComposiBon of tax revenues and social contribuBons,
2010
% of GDP
28.3
30
25
20
15
8.5
3.0
6.3
Social contribuHons
25.4
Property
4.8
1.7
13.0
10
5
0
7.6
2.9
OECD
2.3
3.7
19.8
3.0
1.6
10.1
1.7
3.5
LaHn America & Developing Asia
Caribbean
Indirect
Personal income
Corporate
Tax revenues and social
contribuHons
Source: ADO 2014
13
Fossil fuel subsidies oben benefit the rich
more than the poor, and should be reduced
Total fossil fuel subsidy (% of GDP), 2013
Uzbekistan
Azerbaijan
Pakistan
Indonesia
Bangladesh
Brunei Darussalam
Kazakhstan
India
Malaysia
Thailand
Viet Nam
Sri Lanka
PRC
Taipei,China
Korea, Rep. of
21.7
3.6
3.4
3.3
3.2
2.9
2.8
2.5
1.7
0.9
0.7
0.5
0.2
0.1
0.0
0
5
10
15
20
• Fossil fuel
subsidies accrue
largely to the rich
• They reduce
incenHves for
investment in
renewables and
energy efficiency
25
Source: IEA, Fossil Fuel Subsidies database.
14
Make fiscal policy work for inclusive growth
• Adequate public spending on infrastructure,
educaHon, health, social protecHon, and targeted
fiscal transfers such as CCT
• More effecHve revenue mobilizaHon
– Broaden the base for personal income tax and VAT
– Introduce progressive taxes on property, capital gains, and
inheritance
– Increase use of correcHve taxes and nontax revenues
– Improve tax collecHon and administraHon through ICT
15
Planning for inclusive fiscal policy
• Medium-Term Fiscal Framework to
incorporate inclusive growth into fiscal policy
– Annual review of inclusive government programs
– Align concrete medium-term targets with means
to finance them to ensure fiscal sustainability
• More and be-er fiscal data for evidencebased policy making
16