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Chart of the weekCorporate Tax Rates: How Low Can You Go

2 days ago

By IMFBlog
In life, two things are certain: death and taxes, the saying goes.
Unless you are a large multinational corporation, in which case, maybe not.  Over the past 30 years, corporate tax rates in all countries have fallen to very low levels, as we show in our chart of the week.
This is a problem on several fronts and is one of the reasons why a new approach to international corporate taxation is urgent.
First, the ease with which multinationals seem able to avoid tax, combined with the three-decade long decline in corporate tax rates, undermines both tax revenue and faith in the fairness of the overall tax system.

In life, two things are certain: death and taxes.

Second, the current situation is especially harmful to low-income countries, depriving them of much-needed

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Chart of the weekTrade Balances Mostly Driven by Economic Forces, Not Tariffs

7 days ago

By IMFBlog
Español, Português
Over the past two decades, most of the changes in bilateral trade balances—the difference in the value of exports and imports between two countries—were explained by macroeconomic factors, according to IMF research.
These factors include fiscal policy, demographics, and weak domestic demand. They may also include exchange rate policies and domestic supply-side policies, like subsidies to state-owned enterprises or to export sectors.
In contrast, changes in tariffs played a much smaller role in influencing trade balances.
Our chart of the week from the April World Economic Outlook quantifies the drivers of changes in bilateral trade balances. It specifically looks at the roles of macroeconomic factors, tariffs, and how countries organize their production

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Tariff Shocks: The Role of Value Chains in Europe

14 days ago

By Raju Huidrom, Carlos Mulas-Granados, Laura Papi, and Emil Stavrev
(Español, Português)
The Czech Republic exports only a small number of cars and car parts directly to the United States, but it’s likely to suffer significant economic damage if that country were to impose tariffs on auto imports. The reason: the Czech Republic supplies parts that are used to build cars exported by other European countries.
Europe’s auto industry is one of many that are part of global value chains, in which different stages of manufacturing are dispersed among several countries. Because almost 70 percent of European exports are linked to value chains, tariffs imposed on products shipped by one country can affect many others. That is why, as we explain in a recent study, it’s important to view

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The Slope of the US Yield Curve and Risks to Growth

15 days ago

By Tobias Adrian, Rohit Goel and Fabio Natalucci
The slope of the yield curve in the US has inverted in recent months, making long-term debt significantly cheaper than short-term debt. This inversion is a gauge of investors’ confidence in the economy and signals doubts about future growth.
The slope of the Treasury yield curve is the difference between the interest rate on long-term and short-term debt; and each time the curve inverts, there are questions about the reliability of the signal. For example, the fact that interest rates have been low for a prolonged period may change the information provided by the yield curve. Moreover, due to unconventional monetary policies, central banks hold a significant share of outstanding long-term bonds, which influences the “long end” of the yield

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Chart of The WeekThe Price of Capital Goods and the Threat to Investment

16 days ago

By IMFBlog
Español, Português
Over the past three decades, the prices of machinery and equipment have fallen sharply relative to overall prices. Rising trade and sweeping technological improvements have led to more efficient production of capital goods. This has helped countries around the world raise real investment and improve living standards.
However, trade tensions and sluggish productivity growth could slow the decline in the relative price of machinery and equipment, which would hold back investment growth worldwide.
Our chart of the week from the April World Economic Outlook  shows that since 1990, the price of machinery and equipment relative to the price of consumption fell about 40 percent in emerging market and developing economies.

Over the past three decades, the

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Five Facts on Fintech

20 days ago

By Tobias Adrian and Ceyla Pazarbasioglu
From artificial intelligence to mobile applications, technology helps to increase your access to secure and efficient financial products and services.
Since fintech offers the chance to boost economic growth and expand financial inclusion in all countries, the IMF and World Bank surveyed central banks, finance ministries, and other relevant agencies in 189 countries on a range of topics and received 96 responses.
A new paper details the results of the survey alongside findings from other regional studies, and also identifies areas for international cooperation—including roles for the IMF and World Bank—and in which further work is needed by governments, international organizations, and standard-setting bodies.

Foremost in all countries’ minds

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When Disaster Strikes: Preparing for Climate Change

21 days ago

By Seán Nolan and Krishna Srinivasan
Earlier this year, Cyclone Idai devastated Mozambique, Malawi, and Zimbabwe by leaving more than 1,000 people dead, thousands more missing, and damages in the billions. These storms were among the recent reminders of how natural disasters can cause severe and catastrophic damage. Natural disasters destroy lives and property and have large and lasting effects on economies by reducing production and increasing debt burdens. They also tend to disproportionately affect the poor, who have a limited ability to cope with the impact.
Although not alone, the small island countries in the Caribbean and Pacific are particularly vulnerable to natural disasters. They have suffered, on average, disaster-related losses of 2 to 3 percent of GDP per year over the past

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Chart of the WeekGrowing Through Education in Nigeria

23 days ago

By Vivian Malta and Monique Newiak
Our chart of the week, drawn from the IMF’s 2019 economic health check for Nigeria, highlights substantial inequality in access to education between girls and boys, and between rich and poor.
It is widely accepted that addressing educational gaps results in rapid and large benefits for children, their families, communities, and the country more broadly.

Limited schooling for girls
According to a survey conducted by the Nigeria Bureau of Statistics, a girl born into a Nigerian family in the poorest fifth of society spends about 1 year in school—approximately a third of the already limited schooling enjoyed by, say, her brother.
Access to education improves as a family gets richer, but gender inequality in education is entrenched and barely

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Chart of the WeekMapping the World’s Financial Weak Spots

27 days ago

By IMFBlog
Español, Português
Where will the next financial crisis come from? The short answer is: We don’t know. We can, however, look for vulnerabilities in the system that, if left untreated, can develop into problems.
What do we mean by a vulnerability? It is an area of weakness that can amplify and spread an unexpected economic shock, increasing the level of risk to the financial system. Imagine the impact of an earthquake on a house built on sand, as opposed to bedrock. In the financial world, cracks in the bedrock can arise from high levels of debt and mismatches of institutions’ risk factors such as currencies or the maturities of their exposures.

Government debt in the euro area remains one of the most serious vulnerabilities.

One such weak spot is the debt level in US

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China Deepens Global Finance Links as It Joins Benchmark Indexes

28 days ago

By Sally Chen, Dimitris Drakopoulos, and Rohit Goel
中文, 日本語
China is embarking on the next stage of its integration into global financial markets. It is a stage that is likely to see a fresh flood of overseas investment, improved liquidity, better governance, and a broader range of instruments.
The catalyst: inclusion of Chinese stocks and bonds in a larger number of global financial-market indexes. As Chinese securities are added, investment managers who seek to match or surpass the returns of the indexes will adjust their portfolios to include Chinese stocks and bonds. And increasingly it is these benchmark-driven asset managers who are propelling portfolio flows.

This trend of rising foreign ownership is likely to accelerate further.

In the past five years alone, foreign

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A Global Picture of Public Wealth

29 days ago

By Jason Harris, Abdelhak Senhadji, and Alexander F. Tieman
Español, Português
Our new data on government assets shows that when governments know what they own, they can make better use of the assets for the well-being of all their citizens.  We make these data free and publicly available for all to use because we believe transparency can help create better public policy. 
The chart shows that advanced economies have larger balance sheets compared to emerging markets and low-income developing countries. This reflects the size of their public sectors, which generally provide more infrastructure and services. But advanced economies also have larger liabilities and, on average, lower net worth.

We wrote about countries’ assets back in October in the Fiscal Monitor and in our blog about

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State Ownership in Europe’s Former Socialist States: The Unfinished Reform Agenda

29 days ago

By Poul Thomsen
As we approach the 30th anniversary of the fall of the Berlin Wall, the former socialist countries of Central, Eastern, and Southeastern Europe (CESEE) have made tremendous progress in becoming full-fledged market economies and raising income levels. Large-scale privatization in the 1990s was a key element of this transition but produced mixed results. In some cases, privatization generated broad-based ownership and healthy competition, while in some other countries, privatization did not advance so far, or led to public monopolies being replaced by private ones. This experience has highlighted the importance of a strong institutional and competitive environment, including better governance of both public and private entities.  

State owned enterprises systematically

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Making the Euro Area More Resilient Before the Next Recession Hits

June 17, 2019

By Shekhar Aiyar, John Bluedorn, and Romain Duval
Español, Français, Português
Growth in the euro area rebounded earlier this year, but it remains fragile, while risks have increased. Now is a good time for euro area economies to strengthen their ability to weather any future economic difficulties.
A new IMF staff paper looks at the resilience of euro area countries and finds that they have had more frequent and severe recessions than other advanced economies over the past 20 years. An even greater cause for concern is that differences between member countries’ growth and unemployment rates after euro area-wide downturns have widened. This widening was most stark following the 2008 global financial crisis.

While euro area countries have made substantial progress in improving

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To Reduce Inequality, Employ Young People

June 13, 2019

Burcu Hacibedel and Priscilla Muthoora
Español, Português
Rising economic growth has reduced inequality in low-income and emerging market countries over the years. In good economic times, young people working helps reduce inequality in both groups of countries. But when growth slows down and jobs are lost, more young people out of work in low-income countries leads to a rise in inequality.  In emerging markets, the story is a bit different and we’ll explain why.
The results in our coauthored recent paper, which studies a group of 71 low-income and emerging market countries, emphasize the importance of both the quality of jobs created and a country’s policies to support employment, which helps reduce inequality and foster more inclusive growth.
A new way of knowing
The relationship

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Chart of the WeekKeeping the Wheels of Commerce Turning

June 10, 2019

By IMFBlog
The tariff disputes roiling markets are a reminder that the global system of free trade, which has delivered so much prosperity, is a fragile one.
We all know what happened in the 1930s, when trade wars only served to deepen the misery inflicted by the Great Depression. That is why, after World War II, countries agreed to gradually reduce tariffs.
But many continued to restrict flows of goods across borders in other ways as they sought to give their domestic industries an edge over foreign competitors.
One common method was to impose different exchange rates for different kinds of transactions in a bid to stimulate exports and discourage imports. That is one example of what is known as a multiple currency practice, or MCP. Another is to offer favorable exchange rates to

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Chart of the WeekThe Rise of Powerful Companies

June 6, 2019

By IMFBlog
People are concerned that the rising power of big successful companies could lower capital investment, weaken productivity, and reduce people’s take-home pay.
While rising corporate market power has had a fairly limited negative economic impact so far, if left unchecked, it could take a bigger toll on growth and people’s income.
Our Chart of the Week from the April World Economic Outlook analyzes nearly 1 million companies from 27 advanced and emerging market economies since the early 2000s and shows that firms’ average price markup—the ratio of a company’s product price to its production cost—has increased moderately.
Across advanced economies, average markups increased by 8 percent since 2000 but by less than 2 percent in those emerging economies covered by the analysis.

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How to Help, Not Hinder Global Growth

June 5, 2019

By Christine Lagarde
As the G-20 finance ministers and central bank governors gather this week in Fukuoka, they can take inspiration from their host city. Known as Japan’s “startup city,” Fukuoka has flourished in recent decades by embracing trade, innovation, and openness.
That spirit is needed more than ever to help reduce trade tensions and clear other stumbling blocks on the way back to higher and more sustainable growth. The goal must be to help, not stand in the way of global growth.
Signs of stabilization
In April, I described the global economy as being at a “delicate moment.” The IMF cut its global growth forecast to 3.3 percent in 2019, largely because of temporary, country-specific factors and the tangible effects of trade tensions. At the same time, we projected a pickup in

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Keynes, the IMF, and the Future

May 30, 2019

By Gita Bhatt
If Lord Keynes, who helped usher in the post–World War II economic order at the Bretton Woods conference, visited the IMF today, he would be astonished at the institution’s evolution. He would find a modern IMF able to help countries with new tools for analyzing financial risks and external imbalances and take on income inequality, corruption, and climate change. He would marvel at our universal membership, diverse staff, and female head.
He would also find a world transformed by new emerging powers and technologies that link countries and markets at light speed.
Keynes would understand today’s reality too. He saw it all before: growing economic and political nationalism, fraying of alliances, and sharply declining support for multilateralism. Yet he wouldn’t despair. With

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Chart of the WeekCorruption and Your Money

May 28, 2019

By IMFBlog
The costs of corruption run deep. Your taxpayer dollars are lost in different ways, siphoned off from schools, roads, and hospitals to line the pockets of people up to no good.
Equally damaging is the way it corrodes the government’s ability to help grow the economy in a way that benefits all citizens.
And no country is immune to corruption. Our Chart of the Week from the Fiscal Monitor analyzes more than 180 countries and finds that more corrupt countries collect fewer taxes, as people pay bribes to avoid them, including through tax loopholes designed in exchange for kickbacks. Also, when taxpayers believe their governments are corrupt, they are more likely to evade paying taxes.
The chart shows that overall, the least corrupt governments collect 4 percent of GDP more in

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The Impact of US-China Trade Tensions

May 23, 2019

By Eugenio Cerutti, Gita Gopinath, and Adil Mohommad
US-China trade tensions have negatively affected consumers as well as many producers in both countries. The tariffs have reduced trade between the US and China, but the bilateral trade deficit remains broadly unchanged. While the impact on global growth is relatively modest at this time, the latest escalation could significantly dent business and financial market sentiment, disrupt global supply chains, and jeopardize the projected recovery in global growth in 2019.

Evolution of trade in the US and China
The raising of US tariffs to 25 percent on $200 billion of annual Chinese imports on May 10, together with the announced Chinese retaliation, marks the latest escalation in the US–China trade tensions.
The impact of previously

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Communications as a Policy Tool

May 22, 2019

By Gerry Rice and Olga Stankova
عربي, 中文, Español, Русский
When it comes to forging economic policy, communicating with the public is no longer an afterthought. Instead, communications are increasingly seen as a policy tool in itself. To be sure, communications can never be a substitute for good policies. But economic reforms are more likely to fail or even be reversed unless they are understood, believed, and accepted by those whom they affect. The same principle applies to a wide range of policies—monetary, financial, fiscal, and structural.
The proliferation of social media makes it possible for ever more people to express their views on public policies, fueling rising expectations for transparency and accountability across the globe. As a result, policymakers face growing pressure

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Designing Labor Policies to Foster Inclusive Growth in Emerging Markets

May 21, 2019

By Romain Duval and Prakash Loungani
Emerging market economies have enjoyed good growth in recent decades but are still far from closing gaps in living standards with advanced economies. Emerging markets also need growth to be shared by everyone, particularly by providing their growing populations with good jobs and social protection.
In a new IMF staff paper, we look at how the design of labor markets—institutions and policies—could foster inclusive growth in these countries.    
Different designs
The design of labor market policies in emerging markets differs significantly from that in advanced economies, as shown in this simple summary figure.

Only half of emerging markets have unemployment insurance systems in place, while they exist in nearly all advanced economies. This

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A Review of IMF-Supported Lending Programs

May 20, 2019

By Petya Koeva Brooks, Martin Mühleisen, and Chad Steinberg
The IMF’s Review of Program Design and Conditionality provides a deep look into the design of 133 IMF-supported lending programs in operation between September 2011 and December 2017. This review is the first major stocktaking of IMF programs since the Global Financial Crisis, a period of unexpectedly slow economic growth.
Programs as shock absorbers
Countries often come to the IMF when they already face major threats to economic or financial stability. Hence, IMF programs serve as “shock absorbers,” enabling countries to meet immediate financial needs and significantly cushion economic distress. IMF programs also catalyze additional financing from the markets, other official lenders, and donors. This helps protect the

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Chart of the Week House Prices Are Up: Should We Be Happy?

May 16, 2019

By IMFBlog
Español, Português
House prices around the world have recovered smartly since the 2008 global financial crisis. Depending on where you live, that may or may not be a good thing.
IMF research shows that there is a tight link between movements in house prices, on the one hand, and economic and financial stability, on the other.
In fact, more than half of the banking crises in recent decades were preceded by boom-bust cycles in house prices. So it’s no wonder that central bankers in Australia, Canada, Europe, and elsewhere have expressed concern about the potential for large declines.

The Chart of the Week shows average annual price changes in 32 advanced and emerging market economies and their major cities from 2013 through the second quarter of 2018. Dublin tops the gains

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Tackling Income Inequality Requires New Policies

May 15, 2019

By IMFBlog
Español, Português
The hollowing out of the middle class, rising social and political tension, lack of education, globalization, and rapid technological change are just a few of the many drivers of growing income inequality.
“Inclusive growth is one of the critical challenges of our time,” IMF Managing Director Christine Lagarde said at a recent event on income inequality at the IMF Spring Meetings.
“The bitter-sweet reality is that despite economic growth there are still far too many people who are left out,” Lagarde added.
The IMF’s Gita Gopinath, the World Bank’s Pinelopi Koujianou Goldberg, and the OECD’s Laurence Boone—all chief economists of their respective institutions, talked about inequality and its economic origins during a roundtable discussion opened by

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Chart of the WeekFintech Can Cut Costs of Remittances to Latin America

May 7, 2019

By IMFBlog
Español, Português
For Latin Americans living abroad, sometimes sending money back home can be a complicated and costly ordeal. Most people rely on traditional banking methods and money transfer operators to send their remittances. But using these financial services for cross-border payments is costly—about a 6 percent charge on the total amount—and these fees are typically paid by the sender. This means less money left over for the family or friends receiving the money.
A more cost-effective approach for Latin American countries relies on using fintech, like mobile banking, to send money across borders, according to a recent IMF staff Working Paper.
Our chart of the week shows Latin America’s share of remittances transmitted with mobile money along with its overall share of

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Getting Real on Meeting Paris Climate Change Commitments

May 3, 2019

By Christine Lagarde and Vitor Gaspar
Español, Português
Climate change is the great existential challenge of our times. It is a challenge that spans all regions, with especially severe consequences for low-income countries.
Without mitigating actions, global temperatures are projected to rise by 4oC above pre-industrial levels by the end of the century—with increasing and irreversible risks of collapsing ice sheets, inundation of low-lying island states, extreme weather events, and runaway warming scenarios.
A warming climate could also mean increased extinction risk for a large fraction of species, the spread of diseases, an undermining of food security, and reduced renewable surface water and groundwater resources.
The good news is that this urgent threat has inspired an

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Bank Profitability: Consider the Source

April 30, 2019

By Udaibir S. Das, Kun Hu, and TengTeng Xu
Español, Português
The global financial crisis of 2007–2009 and the ensuing period of low interest rates have renewed interest among policy makers in the relationship between bank profitability and financial stability. Despite the subsequent recovery, the return on equity of many banks remains below the cost of equity. Market valuations remain below the balance sheet value of banks, indicating the market’s assessment of banks’ ability to overcome profitability challenges is not optimistic.
In a recent IMF Working Paper, we look into how bank profitability affects financial stability from both theoretical and empirical perspectives. We developed a theoretical model of the relationship between bank profitability and financial stability by

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Chart of the WeekFalling Costs Make Wind, Solar More Affordable

April 26, 2019

By Christian Bogmans
Harnessing wind and solar energy for low-carbon electric power generation was once considered uneconomical. Now, rapidly falling costs for these technologies are boosting global renewable energy capacity. Renewable energy sources can help reduce carbon emissions substantially and the effects of global warming.
As the Chart of the Week from the April World Economic Outlook shows, solar and onshore wind turbines saw the biggest price declines among low-carbon energy sources between 2009 and 2017. Prices dropped 76 percent for solar panels and 34 percent for turbines during that time, making them competitive alternatives to fossil fuels and more traditional low-carbon energy sources such as hydropower and nuclear.
The numbers are based on the so-called levelized

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Every Day is Earth Day

April 24, 2019

By IMFBlog
IMF Managing Director Christine Lagarde had a one-on-one conversation with Sir David Attenborough, the preeminent global broadcaster, during the April IMF-World Bank Spring Meetings on the environment and life on earth.
The conversation explored more specifically the interplay and spillovers between the natural world and the economic and financial world. Attenborough recommended treating the natural world in a manner similar to the economic one—guarding nature’s capital, so profits from it could continue into the future.
See the clip below and the full video here.

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