Going for Growth and Development

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Going for Growth and Development
Javier Santiso Director, OECD Development Centre
? Paris, May 2008 ?
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Latin America has left the 1980s behind,
recuperating growth in GDP per capita terms
The 1980s were lost in terms of GDP per capita
but not in terms of political reform
Source OECD Development Centre, 2007. Based on
Angus Madison, Historical Statistics. The World
Economy, Paris, OECD, 2003 and Polity IV
project. Data is average of available data.
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Peru symbolizes the complex relationship between
growth, development and democracy
Humalas party received more votes than Garcías
in the three fastest growing regions of the
country
1st round vote share of APRA (Garcías party)
minus vote share of U PP (Humalas party)
Growth in average consumption per capita,
2004-2006 (household survey)
Source OECD Development Centre, 2007. Based on
Instituto Peruano de Economía, Perspectivas de la
economía peruana, Oct. 2007 and Jurado Nacional
de Elecciones, Elección Presidencial y Congresal,
2006, Resultados.
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Poverty and politics are closely linked in the
case of Peru
Percentage of the population with two or more
basic services, 2005
Electoral results first round presidential
elections 2006
UPP PNP (Humala)
Less than 50 Between 50 and 75 75 or more
Others
APRA (García)
Water, electricity, telephone, Source
Household survey, Enaho 2005
Source Perus Electoral office
Source OECD Development Centre, 2007. Based on
Instituto Peruano de Economia, Perspectivas de la
economía peruana, Oct. 2007
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The poorest segments of the population have not
participated in the prosperity
Unlike other regions, growth in Latin America has
left out the poor
GDP per capita by quintile
Quintile annual growth in GDP per capita
GDP per capita by quintile
Quintile annual growth in GDP per capita
Quintile annual growth in GDP per capita
GDP per capita by quintile
GDP per capita by quintile
Quintile annual growth in GDP per capita
Source OECD Development Centre, 2007. Based on
IMF , Globalization and Inequality, 2007. OECD
includes Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Ireland,
Israel, Italy, Japan, Korea, Netherlands, Norway,
Singapore, Spain, Sweden, UK, US.
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Poverty is falling but it still affects a large
portion of the population
population in poverty
Millions of people in poverty
Source OECD Development Centre, 2007. Based on
CEPALSTAT y ECLACs Panorama Social de América
Latina 2007.
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Improvements in inequality are modest or absent
Changes in inequality during the last decade
deteriorations
improvements
Source OECD Development Centre, 2007. Based on
CEPALSTAT y ECLACs Panorama Social de América
Latina 2006.
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Fiscal policy plays a very limited redistributive
role, especially taxation
Inequality before and after taxes and transfers
Gini coefficient
Source OECD Development Centre, 2007. Based on
data by Goñi, López, and Servén (2006)
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There is no Latin curse Quality fiscal policy is
not a matter of DNA
Inequality before and after taxes and transfers
Gini coefficient
Source OECD Development Centre, 2007. Based on
data by Goñi, López, and Servén (2006).
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But reform has failed to raise significantly more
revenue
Tax revenue (Central Government, GDP, 2006)
Source OECD Development Centre, 2007. Based on
ECLACs ILPES Database and OECD Revenue
Statistics Database.
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The result is very limited political capital to
work with fiscal legitimacy is low
of citizens who trust tax revenue is well spent
(2003-05)
Firms assessment of the neutrality/composition
of government decisions/spending (2003-2006)
Fairer/ Wiser
Unfair/ Wasteful
Source OECD Development Centre, 2007. Based on
Latinobarómetro (2003, 2005) and World Bank
Institute, Governance Indicators Database. Based
on World Economic Forum, Global Competitiveness
Report, 2003-2006.
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Fiscal legitimacy enhances democratic governance
50
Costa Rica
45
Uruguay
40
Venezuela
Honduras
Nicaragua
35
Chile
Argentina
El Salvador
30
Brazil
Bolivia
Democratic performance
( satisfied with democracy)
25
Panama
Ecuador
Colombia
Guatemala
20
Mexico
15
Peru
10
Paraguay
5
0
0
5
10
15
20
25
30
Fiscal legitimacy
( who trust taxes are well spent)
Source OECD Development Centre, 2007. Based on
Latinobarómetro (2003).
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It is not (only) a question of quantity but of
quality (efficiency)
Source OECD Development Centre, 2007. Based on
PISA (2003) and OECD Education at a Glance (2005)
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And equity Regressive fiscal policies damage
legitimacy
Source OECD Development Centre, 2007. Based on
Latinobarómetro (2003) and ECLACs Panorama
Social.
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Social spending is regressive, especially social
security
Source OECD Development Centre, 2007. Based on
Latinobarómetro (2003) and ECLACs Panorama
Social .
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Policy dialogue and openness is key for financial
accountability
Source OECD Development Centre, 2007. Based on
Freedom House (2007) and ECLAC and OECD Revenue
Statistics (2007).
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Fiscal policy is a powerful tool to promote
democratic participation
Voter turnout (2000-05 presidential elections)
Relative price of government services (share of
taxes on total spending)
Source OECD Development Centre, 2007. Based on
ECLAC ILPES database and Payne et al. (2007)
Democracies in Development - Politics and Reform
in Latin America International IDEA.
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Conclusions

• Democracy puts fiscal policy at the heart of the
  relationship between the state and its citizens
• Building broad consensus is paramount to success
  in the implementation of fiscal reforms
• Local think-tanks can play a crucial role in
  fostering constructive dialogue on policy
  options, if they are financially independent
• It not a technical but rather a political issue

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Going for Growth and Development
Javier Santiso Director, OECD Development Centre
? Paris, May 2008 ?