Post on 01-Aug-2020
The Quality of Growth:Fiscal Policies for Better Results
Dr. Vinod Thomas
Senior Vice President and
Director General of IEG
The World Bank
Based on joint work with Ramon Lopez and Yan Wang, IEG Briefing paper no. 6
2
I. Same GDP growth, different human and
environmental impacts: 1990-2005
y = - 0.2235-2.4766x
(t=-2.45)
R2 = 0.0659
-50
-40
-30
-20
-10
0
10
20
30
40
50
-8 -6 -4 -2 0 2 4 6 8
GDP growth not explained by initial GDP per capita
Ch
an
ge in
En
vir
on
men
tal q
uality (
bro
wn
issu
es
ind
ex) n
ot e
xp
lain
ed
by in
itia
l in
co
me
y = 0.0733+ 7.757x
(t=5.48)
R2 = 0.1923
-80
-60
-40
-20
0
20
40
60
80
-7 -5 -3 -1 1 3 5 7 9
GDP growth not explained by initial GDP per capita
Ch
an
ge in
Hu
man
Develo
pm
en
t In
dex n
ot
exp
lain
ed
by in
itia
l in
co
me
3
China–the fastest poverty reduction, but...
Source: Ravallion and Chen (2008) ―China is Poorer than we Thought, But No Less Successful in the
Fight against Poverty‖, World Bank Policy Research Working Paper 4621
4
Rising income Inequality,1980-2005China’s income gini index %
Source: Ravallion and Chen (2004); World Bank estimates from NBS 2003 Rural and Urban Household Surveys.
Without adjustments
for spatial cost of
living differences
Adjusted for spatial
cost of living
differences
45.3
41.1
20
30
40
50
1980 1985 1990 1995 2000 2005
5
Income inequality in Brazil is declining
52
54
56
58
60
62
6419
81
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Brazil’s Income Gini index %
6
How? “…allowing the rich to earn money with
their investments and the poor to participate in
economic growth.”Luiz Inacio Lula Da Silva, President of Brazil
• More than $100bn into social projects : microfinance,
Bolsa Familia – increasing coverage
• Poorer states growing faster than the richer ones
• Boost infrastructure with a $280 billion investment
• Allocated land to landless farmers
• 52% population are now middle class as compared to 43%
in 2002
7
Environment degradation in China–
Water and air pollution
China’s Lake Dianchi, Photo by Jun Xia
8
Impact of pollution on public health
Environmental Burden of Disease, per Year
DALYs*/1,000 capita
(World lowest:14, highest: 316)Deaths
Brazil 37 233,000
Chile 21 15,000
China 34 2,350,000
India 68 2,628,000
Note: Estimated based on regional exposure and national health statistics
2004. *DALY: Disability Adjusted Life Years is a weighted measure of
death, illness, and disability.
Source: World Health Organization, 2006, Preventing Disease through Healthy Environments—
Towards an Estimate of the Environmental Burden of Disease.
Economic Stimulus and a greener economy
9
79%
34%
21%18% 17%
13% 12% 11% 10%8%
6% 6%
1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Republic of Korea
China Australia France United Kingdom
Germany USA South Africa
Mexico Canada Spain Japan Italy
Green Fund Share of Economic Stimulus
Source: HSBC Global Research, UNEP --Global Green New Deal: An Update for the G20 Pittsburgh Summit, September 2009
10
H(Human
capital)
• Reducing distortions favoring K
• Correcting market failures
hurting H and R
•Addressing mis-governance and
corruption
• Strengthening regulations for
macro stability
R(Natural
capital)
K(Physical
capital)
WelfareGrowth
TFP
TFP
II. A Framework
Source: Thomas, Wang et al “The Quality of Growth,” 2000.
11
Spending on public goods and growth
Our empirical evidence shows:
• Government spending on public goods associated with higher and cleaner growth
• Payoff to reallocating government spending toward health, education, R&D, and social protection
• Payoff to reducing perverse subsidies to fuel, water and fertilizers, keeping total government expenditure constant
12
Spending on public goods and pollution
• Composition of government expenditure on air pollution, 1985-2000
• Share of public goods in government spending tends to be positively associated with air quality
• Negative association with sulfur dioxide, nitrogen dioxide, lead, carbon monoxide, and air particles
13
Spending on public goods and air pollution (PM10, 1986-1999)
Source: López and Islam for this QoG project; based on data from the new GEMS dataset.
14
Trade-off s?
• Can we afford to lose growth in order to reduce greenhouse gas emissions ?
• The right fiscal policy—more spending on public goods—can help alleviate this trade-off
• Reducing subsidies to fuel coupling carbon trade and a carbon tax might negate any sacrifices in growth
15
III. The need for rebalancing
• Premier Wen said in 2007: ―China’s growth is imbalanced,
inequitable and unsustainable‖
• The need for rebalancing as called for by the World Bank is
based on:
– China becoming the world’s largest energy consumer and
the largest emitter of greenhouse gases
– Share of consumption declining
– Dependence on export: given the weakened global
demand, domestic demand and services need to be
boosted
Source: various World Bank Reports.
16
Greenhouse gases
0
2000
4000
6000
8000
10000
12000
1990 2004 2015 2030
CO2 emission, million tons
China
United States
OECD Europe
Source: World Energy Outlook 2006.
中国
美国
欧洲经合组织国家
17
Subsidies to Gasoline: need to reform Gasoline prices across Asia and major economies
Gasoline pricesUS$ per litre, early June 2008
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
Ven
ezue
la
Indo
nesia-
May
Malay
sia-
May
Indo
nesia-
June
China
Malay
sia-
June
U.S
.A
India-
May
Thailand
Philipp
ines
India-
June
Japa
n
Singa
pore
Sou
th K
orea
Hon
g Kon
g
Ger
man
y
Turk
ey
Administered
Automatic/market
Source: World Bank calculations based on various national sources, Financial Times and CEIC.
自发/市场管制
18
Capital-intensity and industry share
Note:Data are 2001, unless otherwise indicated.
Investment over GDP ratio (percent)
10
15
20
25
30
35
40
10 20 30 40 50 60
Share of industry in value added (percent)
Thailand
SouthKorea
USIndonesia
Japan (1980)
Malaysia (1970)
Malaysia (1980)
Malaysia (1990)
Malaysia
Japan
Japan (1990)
Malaysia (1960)
India (2005)
China (2005) South Korea (1990)
Source: He and Kuijs 2007.
19
China’s consumption declined since 2000(Percent of GDP)
Source: China Statistics Yearbook 2007, National Bureau of Statistics of China.
Consumption
Investment
Net Export
20
Fiscal Reform and quality growth
• Quality of growth: a type of growth that is equitable, stable
and sustainable over time.
• The 12th five-year plan has provided a credible roadmap
• Fiscal policies could be reformed:
– To reduce subsidies on fuel and water
– To reduce other environmentally damaging subsidies
– To increase spending on public goods and social
services
– To increase payment for eco-services
– To pilot resource tax and property tax (local taxes)
21
Policies for quality growth• Rural health and education, rural-urban migration, and
equal job opportunities
• Conditional cash transfers or unconditional ones, such as China’s low income guarantee (Dibao)
• Investing in green energy—Korea and China being the leaders
• Improving energy efficiency
• Green technology can also help poverty reduction, such as solar (e.g. Laos and Vietnam)
• Encouraging carbon trading and other market-based pricing measures
22
References
• Canuto, Otaviano and Guigale, Marcelo, The Day After Tomorrow ,
The World bank, 2010.
Lin, Justin Yifu, Making the Poor More Resilient to Overcome Future Crises, Sustainable Food Systems: Food for all, Forever Conference, Copenhagen , June 29, 2010.
Lopez, Ramon, Vinod Thomas, and Yan Wang, ―The Quality of Growth: Fiscal Policies for Better Results‖, IEG Working Paper no. 6, July 2008.
Ravallion and Chen, 2008. ―China is Poorer than we Thought, But No Less Successful in the Fight against Poverty‖, World Bank Policy Research Working Paper 4621
Ravallion and Chen, 2007. ―China’s Uneven Progress against Poverty‖.
• He, Jianwu and Louis Kuijs, 2007, ―Rebalancing China’s Economy—
Modeling a Policy Package‖, World Bank China Research Paper No.
7, World Bank.
• World Bank, 2010. East Asia and Pacific Economic Update.
World Bank, China Quarterly Update, various issues.