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The Macroeconomic Effects of Labor and Product Market Reforms in Morocco
This paper studies the macroeconomic effects and sequencing of (LMRs) and product (PMRs) market reforms in Morocco. It finds that introducing LMRs and PMRs simultaneously would add about 2.5 percentage points (pp) of GDP growth and reduce unemployment by about 2.2 pp after five years. If sequencing is required, starting with PMRs would be more effective in boosting output, while starting with LMRs would reduce unemployment faster. Finally, increasing unemployment benefits would be more effective if this reform takes place after the implementation of LMRs and PMRs.
Morocco
This Selected Issues paper studies the potential for well-sequenced labor and product market reforms to play a more important role in promoting growth and job creation in Morocco. A Dynamic General Equilibrium model is used to assess the macroeconomic effects of different reform scenarios (isolated, coordinated, or sequenced) that reduce hiring costs and/or firms’ entry costs in the presence of a large informal sector. The paper highlights that reforms are most effective if executed in a coordinated fashion, as implementing simultaneous reforms in the labor and product markets could add about 2.5 percent of gross domestic product growth and reduce unemployment by about 2.2 percentage points after five years. If reforms are to be introduced sequentially, due for instance to capacity or political economy constraints, starting with product market reforms is more effective in boosting output in the short-run while starting with labor market reforms would reduce unemployment faster.
Accounting for Climate Risks in Costing the Sustainable Development Goals
This paper evaluates the additional spending needed to meet core targets of selected Sustainable Development Goals (SDGs) while accounting for the associated cost to address climate risks. The SDGs under study are those related to human and physical capital development. An additional 3.8 percent of global GDP, or US$3.4 trillion, of public and private spending will be required by 2030 to achieve a strong performance in the selected SDGs while addressing associated climate risks. This includes an increase of 0.4 percent of global GDP (US$358 billion) compared to estimates that do not account for mitigation and adaptation needs within these sectors. LIDCs and SSA experience the highest climate-related cost augmentation relative to GDP, while EMEs (driven by large Asian emerging economies) bear the largest cost in absolute terms.
Macroeconomic Impact of Product and Labor Market Reforms on Informality and Unemployment in India
This paper investigates the implications of lowering formal regulations in labor and product markets on informality and macroeconomic outcomes in India. We estimate a DSGE model with an informal sector, and rigidities in the formal labor and product markets. Along with increasing GDP and employment, deregulation also leads to lower informality and greater product market competition. Slow reallocation of resources between the formal and informal sectors leads to some adverse impacts in the short run that can be minimized by implementing a combined package of reforms. These impacts are shown to be greater in an economy with a larger informal sector.
How to Gain the Most from Structural Conditionality of IMF-Supported Programs
Structural conditionality of IMF-supported programs is designed to support structural reforms by countries borrowing from the IMF. Taking stock of program conditions and their implementation, this paper finds that conditionality focuses on fiscal, monetary and financial issues—areas where IMF expertise is strong—and shies away from structural areas such as labor or product market reforms. Hence, tackling deep-rooted structural issues during IMF-supported programs often remained elusive. To ensure countries gain most from IMF conditionality, the paper outlines an evaluation matrix for prioritizing and designing structural reforms, and applies it to case studies.
Colombia
This Selected Issues paper examines the export growth in Colombia. Colombian exports are heavily concentrated in commodities but the large real depreciation since 2015 offers an opportunity to grow nontraditional exports substantially. Colombia’s comparative advantage in noncommodity products was weak in 2013-15, and export diversification was low, partly owing to the commodity price boom. Exports grew moderately in recent years but in line with historical relationships given fundamentals. The export outlook is positive. Given global growth assumptions, the IMF staff’s models predict acceleration in export growth. The historical experience of commodity exporters suffers large real depreciations also paints a positive picture.
More Gray, More Volatile? Aging and (Optimal) Monetary Policy
The evidence on the inflation impact of aging is mixed, and there is no evidence regarding the volatility of inflation. Based on advanced economies’ data and a DSGE-OLG model, we find that aging leads to downward pressure on inflation and higher inflation volatility. Our paper is also the first, using this framework, to discuss how aging affects the transmission channels of monetary policy. We are also the first to examine aging and optimal central bank policies. As aging redistributes wealth among generations and the labor force becomes more scarce, our model suggests that aging makes monetary policy less effective and in more gray societies central banks should react more strongly to nominal variables.
The Role of the Fund in Governance Issues - Review of the Guidance Note - Preliminary Considerations - Background Notes
The Background Notes in this Supplement provide essential context and analysis needed to understand the problem of governance and corruption, its impact on the economies of Fund members, and the history and nature of Fund engagement on these issues. They also seek to support the assessment of the Fund’s overall approach to promoting good governance and reducing corruption—including through the lenses of key stakeholders—with a view to identifying strength and closing any remaining gaps.
Argentina
This paper discusses whether there is a more efficient way of taxing labor in Argentina that has a minimal cost in terms of foregone revenues. Social security contributions for dependent workers are generally high in Argentina, despite the plethora of different regimes and exceptions. A reform of labor taxation in Argentina would need to address these inefficiencies. Reducing the tax wedge would stimulate employment and formalization, especially if targeted to low-paid workers, as there is evidence that it’s their employment that mostly responds to tax incentives. Argentina’s tax and transfer system appears to be less progressive than the estimated optimal one. The simulations suggest that the proposed changes would have a positive impact on economic activity and formality, with a minor cost in terms of foregone revenues. Greater labor supply and wages in the formal sector push up revenue from labor taxation, compensating part of the direct cost of the reform.
Structural Reform Packages, Sequencing, and the Informal Economy
This paper explores the macroeconomic impacts of labor and product market deregulation using a small open-economy model with formal and informal markets. We examine both the long-run effects and the transition towards the post-reform equilibrium, while our main focus are reform packages and sequencing. The unofficial sector is a major determinant of the sign, and, in particular, the magnitude of responses. South Africa, an emerging country, is considered when Bayesian estimating the model. Regarding the long run, both labor and product market reforms considerably increase output, although labor market reforms are more successful in decreasing unemployment. Nevertheless, there are short-term costs, for example, a decrease in household consumption, net exports or output, or a decrease in competition. Combining reforms, especially with product market deregulation, are good at reducing short-term costs. Finally, concerning the speed of adjustment, it is usually better to start with a labor market reform.
