A New IMF Course at JVI Discussing the Links between Fiscal Policy and Labor Market

April 29, 2019

For the first time, the Joint Vienna Institute (JVI) in Austria offered the course titled “Social Protection, Taxation, and Employment” during April 24-26, 2019. This course provided an overview of the impact of labor taxation and social benefits on labor market outcomes, with an emphasis on challenges and reform experiences in emerging economies. The course addressed timely issues for emerging European economies, where labor markets are often constrained by demographic trends, low labor-force participation, and weak productivity growth; and undeclared work remains a challenge, leaving many individuals without social protection and reducing revenue collection.

An important take away from the course was that incentives matter. Benefit design and labor taxes affect work decisions (whether to work and how much to work), tax compliance (whether to participate in formal labor markets and how much earnings to declare), and social outcomes. The course highlighted how these effects vary across different groups, particularly low-earning individuals, women, and older workers. Special attention was paid to the challenges in Central and Eastern Europe, a region characterized by its budget reliance on consumption taxes, low income taxes with special regimes for small businesses, and expansive social security systems with high social contribution rates. The course discussed lessons learned from reform experiences in several countries, including evidence of the impact on informality of payroll taxes, regulations, special tax schemes, and the design of social benefits.

The course was delivered by the IMF’s Fiscal Affairs Department (FAD), with lectures given by Mauricio Soto (FAD), Ricardo Fenochietto (FAD), and Alain Jousten (University of Liege). In the closing roundtable session, participants exchanged views on critical aspects of tax policy, revenue administration, social benefits design, and labor regulations, and their impact on labor market outcomes.

Stay tuned for the next offering of this course!

Mauricio Soto, Senior Economist, IMF Fiscal Affairs Department

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