Taxing Labor versus Taxing Consumption?
Europe’s welfare systems face substantial demographic headwinds. Increasing life expectancy and the approaching retirement of “Baby Boomers” will increase public expenditures for years to come. Rightfully, much attention is focused on containing additional spending needs for pensions, health and long term care. But how is all this being paid for?
Currently, the majority of social spending, including most importantly pension benefits, in most countries in Europe and Central Asia is financed through social security contributions, which are essentially taxes on labor. This has two important implications. First, in terms of fiscal sustainability, the growth in spending is only a concern if expenditures grow faster than the corresponding revenues. Since labor taxes are the predominant source of financing for most welfare systems in both EU and transition countries, aging will not only increase spending, but simultaneously exert pressure on revenues. With the exception of countries in Central Asia and Turkey, the labor force, and hence the number of taxpayers that pay labor taxes will decline by about 20 percent on average across the region. Second, already today, labor taxes, including both personal income taxes and social security contributions account on average for about 40 percent of total gross labor costs in Europe and Central Asia (including EU member states), compared to an average of 34 percent in the OECD. This means that for every US$ 1 received in net earnings, employers on average incur a labor cost of US$ 1.67. And out of the 67 cents that are paid in labor taxes, 43 cents (or 65 percent) are directly used to finance social security benefits. By increasing the cost of labor, the high tax burden potentially harms competitiveness, job creation, and growth in countries in the region.
Taxing Labor versus Taxing Consumption?
One of the background papers to the World Bank’s 2012 Gender World Development Report, “Masculinities, Social Change and Development,” alluded to Raewyn Connell’s theory of “hegemonic masculinity” as well as the strong correlation between heterosexism and gender inequalities.
Hegemonic masculinity is defined as the gender practice that guarantees the dominant social position of men and the subordinate social position of women. As summarized by Schifter and Madrigal (2000), it is the view that “Men, by virtue of their sex, [are] naturally strong, aggressive, assertive, and hardworking, whereas women [are] submissive, passive, vain, and delicate.” Hegemonic masculinity justifies the social, economic, cultural, and legal deprivations of women.
Diversification of a country’s exports – increasing both the number of products it produces and the destinations of those products – is considered part of the path to development. Many economists and policy-makers see export diversification as an important means for increasing employment and speeding growth. Diversification also makes growth more stable, as it provides protection against shocks; a country that exports many products will not be hit so hard when the price of one falls, and similarly, a nation that exports to a wide variety of destinations will be shielded against a recession in one of them.
But new evidence contributes to a body of work suggesting that countries with an abundance of natural resources might be more prone to export concentration during spurts of high natural-resource prices – mainly in products, but also to a milder extent in trading partners – leaving them more vulnerable to price swings.
Technology use in schools at reasonably large scale began in many OECD countries in earnest in the 1980s and then accelerated greatly in the 1990s, as the Internet and falling hardware prices helped convince education policymakers that the time was right to make large investments in ICTs. In most middle and low income countries, these processes began a little later, and have (until recently) proceeded more slowly. As a result, it was only about ten years ago, as education systems began to adopt and use ICTs in significant amounts (or planned to do so), that efforts to catalog and analyze what was happening in these sets of countries began in earnest. UNESCO-Bangkok's Meta-survey on the Use of Technologies in Education in Asia and the Pacific, published in 2003, was the first notable effort in this regard. A trio of subsequent efforts supported by infoDev (Africa in 2007; the Caribbean in 2009; and South Asia in 2010) helped to map out for the first time what was happening in other regions of the world related to the use of ICTs in education. While the information in such regional reports can rather quickly become dated in some cases, given the pace of technological change, they still provide useful points of departure for further inquiry. In some other parts of the world, even less has been published and made available for global audiences about how ICTs are being used in education.
Information about developments in many of the countries of the Soviet Union, for example, has not, for the most part, been widely disseminated outside the region (indeed, for many within the region as well!). The Moscow-based UNESCO Institute for Information Technologies in Education (IITE) has been perhaps the best 'one-stop shop' for information about ICT use in the region. Recent work by the Asian Development Bank has gone much further to help to fill in one of the most apparent 'blind spots' in our collective global understanding of how countries are using ICTs to help meet a variety of objectives within their formal education systems. ICT in Education in Central and West Asia [executive summary, PDF] summarizes research conducted over five years (2006-2011) in Azerbaijan, Kazakhstan, the Kyrgyz Republic, Tajikistan, and Uzbekistan, with shorter studies on Afghanistan, Armenia, Georgia, and Pakistan.
Some key findings from this work:
Cities have always been the driving forces of world civilizations. What Niniveh was to the Assyrian civilization, Babylon was to the Babylonian civilization. When Peter the Great, third in the Romanov Dynasty, became Russia’s ruler in 1696, Moscow’s influence began to expand. Peter strengthened the rule of the tsar and westernized Russia, at the same time, making it a European powerhouse and greatly expanding its borders. By 1918, the Russian empire spanned a vast territory from Western Europe to China.
As Peter the Great and his successors strove to consolidate their reign over this empire, major social, economic, cultural, and political changes were happening in the urban centers. Moscow led these changes, followed by St. Petersburg, which was built as a gateway to filter and channel western civilization through the empire. By fostering diversification through connectivity, specialization, and scale economies, these cities started the structural transformation of the Russian empire away from depending on commodities and limited markets in a way that more effectively served local demand.
The Soviet era altered this dynamic.
Emerging Europe and Central Asia (ECA) is an interesting region because what you expect is not always what exists. Since this is written in honor of International Women's Day, discussing women’s labor market participation seems appropriate. The standard indicator used for this is the “female labor force participation” (LFP) rate, which is the proportion of all women between 15-64 years who either work or are looking for work.
Since much of the region has a common socialist legacy, you would expect to see similar labor market behavior among women. However, the proportion of women who work ranges from a low of 42 percent in Bosnia and Herzegovina to 74 percent of adult women in Kazakhstan. And it wasn’t 20 years of social and economic transition that led to this divergence. Even in 1990, the range was about the same. The exception was Moldova which saw a 26 percentage point decline.
- Russian Federation
- Kyrgyz Republic
- Bosnia and Herzegovina
- Europe and Central Asia
- Labor and Social Protection
- Social Development
- Macroeconomics and Economic Growth
- labor market
- International Women's Day
To make governments truly accountable to their citizens, by far the best basis is to have credible elections. When citizens can actually throw out governments they no longer approve of then you have a fundamental framework for transforming accountability relationships. This is true even when you concede that elections are not perfect instruments of accountability. More needs to be done in the period between elections; citizen vigilance must not wane. But free and fair elections are incredible accountability devices.
That is why for new or young democracies, the first time a sitting government concedes defeat in an election is a milestone. It does not follow that the new democracy is going to make it but you know immediately that the basis is being created for constitutional democracy. Hopes begin to rise that maybe, just maybe, another new democracy is becoming viable. So, while staying out of the intricacies of the politics of Georgia and its passions, please join me in saluting the fact that President Mikheil Saakashvili of Georgia conceded that his party lost the recent elections in that country and promised to work with the new government for the remainder of his own term. That singular act of statesmanship has now set the stage, as CNN reports, ‘for the nation’s first peaceful, democratic transition through election since the breakup of the Soviet Union’. And as the political scientist Joshua Tucker, writing in The Monkey Cage, points out, ‘this is a further step of the incremental growth of Georgian pluralism. But it is not a final step.’ Here’s hoping Georgia continues to take these steps to pluralism.
In the late 1990s, an international consultant told me that a proposed electronic health information system in the Dominican Republic was “like Star Wars and will not work in this country.”
Our objective was to improve service delivery by virtually connecting health providers to share medical records with one another as patients moved from health centers to hospitals. We learned that this was much more than an overnight task, requiring a sustained medium-term effort by the government to get the system fully up and running.
In recent years, I’ve seen similar efforts realized in the Russian Federation, Georgia, Azerbaijan and Botswana. In two Russian regions, Chuvash Republic and Voronezh Oblast, for example, electronic records are helping coordinate the flow of clinical and financial information across the health systems as facilities, departments within hospitals, and health insurance agencies have been “virtually” connected through broadband networks. The electronic records are supporting clinical decision-making, facilitating performance measurement and pay-for-performance initiatives, and ultimately the continuity of care as patients move across the health system. Inter- and intra-regional medical consultations and distance learning activities are also being supported by telemedicine networks that connect specialized hospitals with general facilities.
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When healthcare professionals take the Hippocratic Oath, they promise to prescribe patients regimens based on their “ability and judgment” and to “never do harm to anyone”.
Although extraordinary progress in medical knowledge during the last 50 years, coupled with the development of new technologies, drugs and procedures, has improved health conditions and quality of life, it has also created an ever-growing quandary regarding which drugs, medical procedures, tests and treatments work best.
And for policy makers, administrators and health economists, the unrestrained acquisition and use of new medical technologies and procedures (e.g., open heart surgery to replace clogged arteries, ultrasound technology scanners to aid in the detection of heart disease, and life-saving antiretroviral drugs for HIV/AIDS) is increasing health expenditures in an era of fiscal deficits.
In many countries, I’ve see how ensuring value for money in a limited-resources environment is not only difficult but requires careful selection and funding of procedures and drugs. It also comes with serious political, economic and ethical implications—and with new drugs and technologies appearing every day, this challenge isn’t going away. What should countries do?
One of the fascinating benefits of working at a place like the World Bank is the exposure it offers to interesting people doing interesting things in interesting places that many other folks know little about. Small countries like Uruguay and Portugal, for example, are beginning to attract the attention of educational reform communities from around the world due to their ambitious plans for the use of educational technologies. Much is happening in other parts of the world as well, of course, especially in many countries of Eastern Europe and Central Asia. The largest stand-alone World Bank education project to date that focused on educational technologies, for example, was the Russia E-Learning Support Project. Macedonia gained renown in many corners as the first 'wireless country', with all of that Balkan country's primary and secondary schools online since the middle of the last decade -- although other countries, like Estonia and the tiny Pacific island nation of Niue, also lay claim to versions of this title. (If you are looking for more information on the Macedonian experience, you can find it here and here [pdf]). Much less well known, however, is the related experience of the small country of Georgia, located at the crossroads of Eastern Europe and Western Asia, where small laptops are being distributed to primary school students and where school leaving exams are now conducted via online computer-adaptive testing.