Who pays if you’re sick?

Emerging economies have made good progress on health coverage recently, but the share of out-of-pocket payments in total health expenditure remains significantly higher than in most advanced countries. Direct payments by people receiving healthcare can represent quite a blow to the living standards of households’. This is especially the case for poor households, though can also be true for relatively better-off households when the costs of hospitalisation, medicines, or even forgone income are high.


Are tax havens disappearing?

Countries the Financial Stability Board declared posed problems in 2011

Today’s first post is from Christian Chavagneux, Deputy Editor of Alternatives Economiques, Editor of Economie politique and author with Ronen Palan of Les paradis fiscaux, (Tax Havens) whose 3rd edition is forthcoming in 2012. Below, you will find a reply from OECD’s Pascal Saint-Amans

The fight against tax havens was one of the priorities of the 2009 G20 summit in London. Three years later, the results are mixed. To combat fraud and tax evasion by the wealthy, the G20 decided to push for the signature of treaties covering the mutual exchange of information in order to develop information exchange on demand. What can we expect from this?

According to a study by Niels Johannesen and Gabriel Zucman, the announcement of the treaties had little effect on bank deposits in tax havens. Their claim is backed up by data from French budget minister Valérie Pécresse: France made 230 requests for information to 18 countries in the first 8 months of 2011. The reply rate was only 30% and the quality of the information supplied wasn’t always of the highest quality, adding weight to the demand of international NGOs to move to a system of automatic exchange of information.

The super rich are not the only ones to take advantage of tax havens, multinationals use them too. Analysis of the geographical distribution of FDI by US firms at the end of 2010 for example shows that the Netherlands, Luxemburg, Bermuda or Ireland come out well ahead of Germany, France or China. 

The Banque de France recalculated FDI flows into and out of France eliminating fictitious flows transiting via tax havens. The result? France’s outward FDI flows dropped by 41% and flows into France by 81%! Adjusting data for several years this way shows a widening gap between traditional and corrected figures, a sign that use of tax havens is growing.

The G20 has done nothing to fight against such shady dealings which, according to Bloomberg allow Google for example to be taxed at 2.4%. To combat this, NGOs are asking for country by country reporting. In other words, multinationals would have to provide their turnover, number of employees, payroll, profits and taxes for each country they operate in. This would show the disparity between the place where an economic transaction was carried out and where it is taxed.

The G20 has abandoned the fight against tax havens as territories that facilitate financial instability. In November 2011, after months of work, the Financial Stability Board declared that only two countries posed problems: Venezuela and Libya. However, a 2008 report by the US Government Accountability Office showed that a part of the American shadow banking system that developed the toxic assets of the subprime crisis was operating out of the Cayman Isles.

The Northern Rock fiasco in the UK resulted from excess short-term debt hidden in its Granite subsidiary, registered in Jersey. Bear Stearns took hits on speculative funds partly based in the Caymans, and likewise the German firm Hypo Real Estate was destroyed by losing bets placed by its irish subsidiaries, and so on. 

Tax havens have played a leading role in all the key epsiodes of the financial crisis. As well as that, when you realise that they are the main holders of American public debt and that according to Patrick Artus of Natixis bank, “The three main holders of French debt are Luxemburg, the Cayman Isles and the UK”, it’s easy to see that these territories are involved in speculation on public debt.

Tax havens, in the service of the richest and most powerful individuals and companies, promote global inequalities. Their offer of opaque services and risk taking contribute to speculative finance and the serious consequences in terms of loss of business and jobs. Unfortunately, the G20 is still far from having done everything to control these parasitical states. 

Useful links

The article (in French) in Alternatives économiques that started this debate is here 

The Tax Justice Network’s Financial Secrecy Index

Are tax havens disappearing? Yes, but this is only the beginning

Members of the Global Forum on Transparency and Exchange of Information for Tax Purposes

Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, replies to Christian Chavagneux’s article.

Christian Chavagneux is right to criticise tax havens and argues that more needs to be done to combat their negative consequences for developed and developing countries alike. But it’s wrong to imply that the G20’s actions have been ineffective since it pledged to tackle the issue in 2009.

The study he quotes by Johansen and Zucman on whether bank secrecy has ended actually answers another question, namely the effect of the G20 push for tax information exchange on the location of bank deposits. The location of the deposits themselves is not the issue – funds do not need to be repatriated to a country in order to be taxed by that country. What is important, and what the G20 initiative focuses on, is making the existence and ownership of those deposits more transparent to tax authorities.

The information exchange agreements signed since 2009 are only now beginning to enter into force, and the expansion of each country’s network of agreements is continuing. Even so, an OECD survey of 20 rich and poor countries showed that early measures to deter tax evasion have already resulted in 100,000 individuals paying a total of $14bn in unpaid tax on assets worth between $120-150bn.

We now have commitments by all the major international financial centres to eliminate bank secrecy for tax purposes. In most cases, including Switzerland, Singapore and Austria and Liechtenstein, those commitments have already been implemented. 

Nor are governments abandoning the fight on tax havens as Christian Chavagneux suggests, including on automatic exchange of information. In 2011, the updated multilateral Convention on Mutual Administrative in Tax Matters entered into force and now has 33 signatories including Costa Rica, France, Georgia, Germany, Indonesia, Norway, Russia, the UK and the USA. The Convention looks beyond mere information exchange on request, allowing parties to engage in automatic exchange as well as international assistance for tax collection. In November 2011, we saw the G20 support automatic exchange of information as appropriate.

In February 2012, the Financial Action Task Force refined its criteria for assessing anti-money laundering frameworks, with more targeted requirements that will improve transparency. That same month, the US proposal to implement the Foreign Accounts Tax Compliance Act led to the UK, France, Italy, Spain and Germany agreeing to explore a common approach to improved reporting of bank transactions. These changes will lead to stronger domestic frameworks to ensure all relevant information is available, and tax authorities relying on broader networks of information exchange agreements can expect to benefit from these developments.

The Global Forum on Transparency and Exchange of Information for Tax Purposes already has 107 members and continues to expand its membership to cover emerging financial centres. By the next G20 Summit in Mexico in June, the Forum will have published more than 70 Phase 1 country reviews, while the Phase 2 reviews commenced in 2012 provide for an in-depth investigation into the procedures and resources available, to make sure that each jurisdiction can meet their commitments to the international standard.

The role of governments is primordial of course, but we also recognise the efforts of civil society in continuing to draw attention to the issue of tax transparency. That is why OECD initiatives like the Taskforce on Tax and Development are bringing together tax authorities, business and civil society to share proposals to move towards our common goal of fairer taxation. 

Tax havens have been around since the late 19th or early 20th centuries, depending on how you define them. They are defended by powerful vested interests and the fight against them will not be won quickly or easily. However, combined with new OECD projects to strengthen inter-agency cooperation to tackle tax crimes and other financial crimes, there is good reason to be optimistic that we will continue to build on the substantial progress made since 2009.

Useful links

OECD Centre for Tax Policy and Administration

The outcomes of the 59 country reviews published so far by the Global Forum are available on the Exchange of tax Information (EOI) portal along with an interactive map showing the network of agreements to exchange tax information:

Tackling gender differences in financial literacy

Today’s post is contributed by Chiara Monticone and Flore-Anne Messy of the OECD’s Financial Affairs Division

International Women’s Day traditionally attracts media attention to differences between men and women, such as the number of women on company boards, income gaps, and so on. However, awareness of gender differences in financial literacy and of their potential implications has remained quite low even though policy makers now recognise financial literacy as an essential life-skill, and financial education has become an important policy priority as a complement to financial consumer protection, inclusion and prudential regulation. The G20 Mexican Presidency for example has called on the OECD to develop High Level Principles on National Strategy for Financial Education that are expected to be approved by G20 leaders in June 2012.

A new working paper from the OECD’s Financial Affairs Division, Empowering Women through Financial Awareness and Education, reveals that women perform worse than men on tests of financial knowledge on average. For instance, in the US, while 60-70% of men can correctly answer questions about calculating interest or about inflation and risk diversification, only 50-60% of women can do so.

Moreover, women tend to be less confident about their financial skills than men in several domains. For instance, a study conducted in Australia reveals that women are generally as confident as men in their ability with everyday money management, including budgeting, saving, dealing with credit and managing debt, but that they are less confident than men when it comes to more complex issues like investing, understanding financial language and planning for retirement.

Evidence on vulnerable sub-populations suggests that women at either end of the age spectrum, low-income women, and widows may be more vulnerable to the negative consequences of low levels of financial literacy than other women, or men in the same subgroups.

This is worrying because lower levels of financial literacy can reduce women’s active participation within the economy, as well as effective personal and household financial management. Greater financial literacy could enable women to be better equipped to access and choose appropriate financial services , as well as to develop and manage entrepreneurial activities. Moreover, as women tend both to live longer and earn less than men, they are more likely to face poverty or financial hardship later in life.

All this is amplified by the fact that public policies in many countries have shifted a range of financial risks and related decisions to individual consumers. In addition, women’s lower financial literacy can reduce  their economic power within the household, and the transmission of knowledge to the next generation.

A survey of authorities in developed and emerging economies reveals that some of them – including Australia, India, Lebanon, New Zealand, Poland, Turkey, the UK and the US – acknowledge the need to address the financial literacy of women and girls, and have implemented financial education programmes targeting them.

However, there is scope for improvement. Gender differences in financial literacy and behaviour  should be explored further, to gain a deeper understanding of the specific aspects of financial literacy that might negatively affect the financial wellbeing of women, and design better targeted policy interventions. For instance, more needs to be learnt about why women’s levels of financial literacy are lower than men’s.

The OECD International Network on Financial Education (INFE) is working to address these issues by collecting and analysing internationally comparable data using the OECD/INFE Financial Literacy Core Questionnaire for adults and the 2012 PISA Financial Literacy international option for 15 year olds; identifying and comparing  effective financial education programmes; and  developing high-level policy analysis.

Useful links

OECD work on financial education

OECD work on gender

International Gateway for Financial Education (IGFE)


Hourglass job markets and earnings inequality

Education, union membership, gender and employment status influence wage distributions

Today’s post is contributed by Craig Holmes from the ESRC Centre on Skills, Knowledge and Organisational Performance (SKOPE) at Oxford University

It’s becoming more and more common to hear both researchers and policymakers across the OECD talking about the polarisation of labour markets. This is the idea that, because of technical progress, many middle-skill, middle-wage jobs (such as assembly line operators and clerical workers) have been replaced by machinery, hollowing out the labour market. This leads to increased employment in either high skill jobs – managers, professional and technician – or low wage work, particular in personal or retail services. This pattern of change has been particularly noted in the US (through the work of David Autor and colleagues) and the UK (most prominently in the work by Alan Manning and Maarten Goos). There is growing evidence of this phenomena occurring, to a greater or less extent, across Europe as well.

While we readily see this change in the types of jobs people are doing, it is less clear what effect this had had on the distribution of earnings. If everything else in the labour market had stayed the same, this hollowing-out would certainly be the cause of rising wage inequality. However, over the past thirty years, polarisation is just one of a number of changes which have impacted what people are paid. So the question is: what impact has it really had on earnings?

In a new report for the Resolution Foundation, Professor Ken Mayhew and I look at this question in the UK. We find that, when looking at wage distributions from the mid-1980s until the early 2000s, there is a surprising lack of evidence that work is polarising into high paid and low paid jobs. Certainly, there has been an increase in the gap between low and middle earners which means that if the definition of a low-paid job is some proportion of the median wage, then the share of workers in this part of the distribution has increased.

Similarly, the share of workers in jobs earning multiples of median earnings has also increased as wage growth at the top outstrips that at the middle. However, there is a more interesting picture of how pay has changed if we consider the range of wages being paid as a scale along which all jobs are placed. In that case, whether we think of a job as good or not depends on its placement on this scale. In particular, the very rapid growth in wages for the top 10-15% of workers that has seen them pull away from the rest has meant that the majority of jobs earning above median wages more closely resemble middle wage jobs, rather than top jobs.

What accounts for these changes? The report breaks down the changing shape of the wage distribution into the individual contributions from a wide range of factors that are related to earnings. An increase in educational attainment, particularly through a growth in the number of graduates, has pushed all wages upwards, but this effect is largest at the top of the distribution. Similarly, the decline in union membership has pulled wages down, but this effect is larger at the bottom and middle of the distribution. By comparison, the hollowing out of certain types of jobs has had a smaller effect – not as large (and positive) at the top, or as large (and negative) at the bottom as the changes caused by these other two factors.

The second thing that has changed is the way different worker characteristics correspond to wages – what economists call rates of returns or wage premia. The wage differentials between different occupations have changed, but these changes are not the same across the distribution. The relative earnings of managerial workers, for example, have grown particularly around the 75th percentile of the distribution, but much less elsewhere. Rates of return to a degree also appear to have fluctuated at different points in the wage distribution. Our analysis shows that the graduate premium has grown sharply for the top 15% of earners, but has remained relatively constant (or even declined) for everyone else.

The overall result is that the growing group of the apparently good, high skill jobs are becoming increasingly heterogeneous in their earnings, with many of them simply replacing the old middle skill jobs in the earnings distribution. To illustrate this further, consider the gross weekly earnings of managers in three different industries: healthcare, retail and financial services.

According to the polarisation concept, the growth of theses job, with their higher average earnings, should have increased high wage employment and driven up earnings inequality. However, while many of the new managerial jobs created in healthcare continue to exhibit high earnings, those created in retail are increasingly much lower paid. Between 2000 and 2008, the proportion of these jobs earning below £400 per week – adjusting for inflation – increased from 37% to 58%. In financial services, a sector which has performed relatively well over this time period, there has clearly been a growth in high wage managerial jobs. Jobs earning over £1,500 per week increased from just a couple of percent in 1993 and 2000, to 10% in 2008. However, there was also a growth in the proportion of managers in this sector earning less than £400 (from 24% to 30%).

Perhaps this should not be surprising – why should someone moving from a middle-wage, routine job to a managerial or technician occupation be as likely to earn as much as someone who had previously self-selected into those occupations? Their capacity to do a job through formal education and training and differences in unobservable abilities are an important contributor to eventual earnings.

Two major implications come from this report.

First, the findings suggest an important constraint on the belief that technological progress will continue to create good, high-skill jobs for an increasingly well-educated workforce. The lower-than-expected pay for many of these workers is related to their value-added and their productivity, suggesting either a shortage of specific skills in new hires or a significant underutilisation of these skills by employers creating and designing these jobs.

Second, these conclusions are also relevant to the growing concern that median incomes are stagnating, relative to growth (as highlighted by the Resolution Foundation’s report last year). In the past, the polarisation notion has been used to attempt to explain this, with increasing wages for higher end jobs, and decreasing wages for the declining middle jobs. Our research frames the argument differently. As around 44% of jobs would be classified as higher end jobs, the median worker is now quite likely to be working in one as well. Therefore, it is the growing disparity within this one group of occupations, rather than the widening of earnings between the two groups of occupations, that may offer a better explanation of the phenomenon.

Useful links

The OECD’s Going for Growth 2012 has a chapter on Reducing income inequality while boosting economic growth: Can it be done?

Lessons in service

Beijing student Rebecca Liu (right) samples service learning in Botswana

In the first of two postings, regular Insights blogger Brian Keeley reports from Botswana on service learning.

Classes end early at Maru-a-Pula school in Gaborone. But as students spill out into the intense heat of the African afternoon, their day is far from over.

After eating lunch, they get to choose from the sort of activities found in most schools – sport, music, art and so on.

But on at least a few afternoons a week, the students also take part in “service learning” – in other words, helping out in the school or local community.

For some students, that can mean cleaning out science labs or covering books in the library. Others leave campus and head off to help out in care homes for the disabled or to a nearby village, where they run education and food programmes. The scale of the school and the students’ commitment is impressive: at two o’clock, buses line up to take the youngsters to their projects. Once there, they all pitch in and may take on relatively demanding duties, such as working with children with severe disabilities.

Service learning isn’t a new idea. At Maru-a-Pula (or MaP), for example, projects have been running since the school opened its doors 40 years ago. Nevertheless, in recent years the concept has really taken off, as Andrew Furco noted in a recent OECD report: “Service-learning is one of the fastest growing educational initiatives in contemporary primary, secondary and post-secondary education.”

Cynics might suggest that this is because universities now routinely expect to see signs of extra-curricular life in college applications. But there are also sound educational reasons for asking students “to study real problems in real time for real people,” as Andrew puts it.

I had a chance to see some of those benefits when I traveled recently to MaP with a group of students from Beijing. Young people in China are technically required to do some sort of community work, but the requirement can usually be met with a spot of sweeping around the school grounds. Indeed, there’s a lingering suspicion of service learning in China. In part, that’s a legacy of the Cultural Revolution, when universities and colleges were shuttered and at least 12 million students and young people were sent down to the countryside to “learn from the peasants”. But it may also reflect a belief that “real” learning only happens in the classroom – a belief that is surely not restricted to China.

Once you see service learning in action, however, it’s hard not to feel that such thinking misses the point. Academic work matters, of course, but it’s not the only way to learn. By asking kids to step out of their comfort zones, service learning can confront them with sometimes difficult truths about both themselves and the wider world. One of our students admitted that before embarking  on the projects, he had felt that he knew just about everything he needed to know. “But now,” he said, “I realize I’m just a silly little boy.” He was being a bit hard on himself, but his statement acknowledged the way that service learning can pose questions that simply can’t be asked in the classroom.

But for all the current interest in service learning, there are inevitably going to be objections – isn’t it too expensive, too time-consuming, a waste of scarce school resources? Can it be made to work in a regular curriculum? And, fundamentally, does it work? I’ll come back to look at some of these issues in the very near future.

Find our more

The Nature of Learning: Using Research to Inspire Practice (OECD, 2010)

OECD work on education

OECD educationtoday blog 

Tragedy at sea

Free ebook!

At the start of the year, I was thinking of doing something about the Titanic, 2012 being the centenary of its sinking, and a chance to quote one of the greatest illustrations of hubris ever uttered (if it ever was): “God himself couldn’t sink this ship”. Technically, God didn’t, but as we all know, one of His icebergs did.

Then the Costa Concordia sank and I decided to wait. But for the past couple of days, the misadventures of the Concordia’s sister ship the Costa Allegra have featured prominently on the French news.

This is because, first of the association with the other vessel, and second because the Indian navy supplied spectacular footage of the cruise liner being towed by a fishing boat. And third because there were French people on board. (Localism is a long journalistic tradition. When the Titanic sank, Scottish daily The Aberdeen Press and Journal announced the news with the headline “Northeast man lost at sea”.)

Two questions come to mind. When will Costa change the name of whatever is left of their fleet to something forgettable? And why does a fishing boat need engines powerful enough to haul a gigantic cruise liner hundreds of miles across the ocean?

The unsurprising answer to the first question is as soon as possible. The more surprising answer to the second one is nets.  The Trevignon, the trawler that rescued the Costa Allegra, needs its 5000 horsepower engines to deploy a net that measures 1800 metres by 300 metres in a circle around the fish then lift a catch weighing a hundred tonnes or more out of the water and onto the deck in under 20 minutes.  

The fish it hunts are tuna, which as this video from the WWF shows, are bigger and faster than a Porsche. And more expensive too, the record being $736,000 for a single fish, or $2737 a kilo.  That’s over four times the record we talked about in this post in 2010, and even this will probably be beaten fairly soon because bluefin tuna are becoming ever rarer.

In fact, lots of fish are becoming rarer. Approximately 30% of the world’s fish stocks are overexploited, depleted, or recovering from depletion and 50% are fully exploited. One sign of this is the number of new species appearing in shops and restaurants to compensate for the lack of traditional species.

Green Economy in a Blue World a new report from the FAO, UNEP and other organisations shows that with up to 40% of the global population living within 100 kilometres of the coast, the world’s marine ecosystems (the “Blue World”) provide essential food, shelter and livelihoods to millions of people. Human impacts are taking an increasing toll on the health and productivity of the world’s oceans, but, the report argues, it’s possible to unlock the vast potential of the marine-based economy in a way that would significantly reduce damage to oceans, while alleviating poverty and improving livelihoods.

Useful links

OECD Green Growth Studies: Food and Agriculture focuses on primary agriculture, but also talks about fisheries and aquaculture .  

OECD Insights: Fisheries provides the answers to the following questions:

  • What did Queen Elizabeth have for her 80th birthday dinner, and why couldn’t she have it for her 81st?
  • What was a wondyrchurm, and what did the government decide to do about it?
  • Why was Prohibition good for gangsters and bad for fishers?
  • Who invented fish and chips?
  • How did an amateur taxidermist change the global food industry?
  • Whose contract says they can’t keep their appendix?
  • How much is a trawlerful of fish worth?
  • What does ghost fishing catch?

If you’re too modern to buy the print version of the book or too lazy to download the free ebook, you can look up the answers here.