Delivering Growth and Equity:
The Role of Fiscal Policy
Hotel Grand Hya-, Nusa Dua - Bali 10-11 December 2015
Presented by:
Juzhong Zhuang
Asia’s high growth has led to large
reducHons in poverty …
2
7.0
3.7 3.4 2.4
32.4
9.7
5.7
1.5 0
5 10 15 20 25 30 35
Developing Asia Sub-Saharan Africa LaHn America and Caribbean
Middle East and North Africa
GDP growth and poverty reducBon
Annual GDP growth (1990-2010), %
CumulaHve reducHon in poverty rate (1990s-2000s), percentage point
…but has been accompanied by rising
inequality in many countries
3 Singapore
Georgia PRC Indonesia India Lao PDR Mongolia Sri Lanka Taipei,China Bangladesh Tajikistan Korea, Rep. of
Gini Coefficients, Selected Economies, 1990s and 2000s
1990s 2000s
4
21
•
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
•
Fiscal policy is criHcal
in both supporHng
growth and
promoHng equal
access to
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%.
Insufficient Infrastructure Spending in Many
ASEAN Countries
Country EsBmated needs
(2010-2020), US$ Billion
Needs as % of GDP (Annual, 2010-2020)
Infra spend as % of GDP
1980-2009
Infra spend as % of GDP
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
Cambodia; Lao PDR; Myanmar
46.5 9.5 N.A. 4.0
EducaHon criHcal for growth…
7
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).
HKG
Years of Schooling
Coefficient = .39, se = .102, t = 3.822
Growth and Years of Schooling
*
Growth and Years of Schooling
(adjusted for iniHal income)
…but educaHonal quality is what
drives growth
8
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).
HKG
Test Scores
Coefficient = 1.491, se = .23, t = 6.484
Growth and Test Scores (Science and Mathematics)
HKG
Years of Schooling
Coefficient = .141, se = .091, t = 1.541
Growth and Years of Schooling
* *
* *
Growth and Test Scores
(adjusted for years of schooling and iniHal income)
Growth and Years of Schooling
Government spending is more effecHve in addressing
inequality than direct income redistribuHon, but revenue
is needed to fund spending
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
9
EsBmated marginal impact of pubic spending on inequality
(percentage point)
Asia needs to spend more on educaHon and
health to address inequality
2.9 2.4
6.2 5.5
3.9
12.0
5.3
8.1
20.0
0 5 10 15 20 25
EducaHon Health care Social protecHon
% of GDP
Public spending on educaBon, health, and social protecBon, 2010
Developing Asia LaHn America and the Caribbean OECD
10
And there are large variaHons across
countries
11
Source: KI 2015, ADB 2.9
6.3
5.3
3.9
3.7 3.6 3.1
3.4 2.8 2
0 2 4 6 8 10 12
Government spending on health and educaBon (% of GDP), 2013 or latest year
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
0 40 80 120 India
Pakistan Malaysia Lao PDR Viet Nam Myanmar Thailand Philippines Armenia Republic of Korea Nepal Georgia Cambodia PRC Indonesia Kazakhstan
% of GDP
Current and projected public spending on health
Developing Asia
Central Asia
East Asia
South Asia
Southeast Asia
The Pacific
% of GDP
2010 2050, projected
12
AE=Advanced Economies; DA=Developing Asia; LA=LaHn America; WLD=World
So Asia needs to expand and strengthen its
revenue base for fiscal sustainability
2.9 3.7 3.5
OECD LaHn America & Caribbean
Developing Asia
% of GDP
ComposiBon of tax revenues and social contribuBons,
2010
Social contribuHons
Property
Indirect
Personal income
Corporate
Tax revenues and social contribuHons
13
Fossil fuel subsidies oben benefit the rich
more than the poor, and should be reduced
21.7
Uzbekistan Azerbaijan Pakistan Indonesia Bangladesh Brunei Darussalam Kazakhstan India Malaysia Thailand Viet Nam Sri Lanka PRC Taipei,China Korea, Rep. of
Total fossil fuel subsidy (% of GDP), 2013
•
Fossil fuel
subsidies accrue
largely to the rich
•
They reduce
incenHves for
investment in
renewables and
energy efficiency
14
