Philippine Macroeconomic Policies Affecting Households

Due to prolonged recession in developed countries and the rise in interest rates, the Philippine government has embarked on a series of stabilization and structural programs to stem the alarming rate of the country’s indebtedness. This study presents the key macroeconomic policies adopted in recent years and these affect individual households. It also discusses the mechanisms by which monetary and fiscal adjustments affect the labor market, the goods market and the government expenditures including the provision of public goods. Areas for future research are highlighted.stabilization program, MIMAP, macroeconomic adjustments

Economic and fiscal policy determinants of public deficits: The Philippine case

The large and unsustainable deficits of the early 1980s have reemerged in recent years. This paper aims to answer two questions: What has caused the poor fiscal performance of the Philippines in recent years? Is it the result of unfortunate events, macroeconomic shocks or misdirected fiscal policy? Using time series data and 2SLS estimation method, two measures of public deficits - the national government account balance (NGAB) and the consolidated public sector financial position (CPSFP) - were regressed against some macroeconomic and fiscal variables. An important result of the empirical work is that the broader measure, CPSFP, turned out to be the more useful and meaningful one both from the theoretical and policy standpoints. The statistically significant determinants of CPFSP are the following: economic growth rate, inflation, domestic liquidity, capital expenditure, intergovernmental fiscal transfer, and tax effort. Using the narrow deficit concept of NGAB as dependent variable, economic rate and intergovernmental fiscal transfer turned out to be statistically insignificant. Tax effort, defined as taxes as percent of GDP, is the most robust determinant of fiscal deficits, with higher tax effort associated with larger fiscal surplus or lower deficit. But tax effort was largely determined by two episodes to tax changes during the period under study. The contribution of the 1986 tax reform to tax effort is positive and highly significant while that of the 1997 tax reform is negatively and statistically significant. Looking forward, any package of reforms which aim to achieve fiscal sustainability in the Philippines should include a strong component for improving revenue effort. Such component should not only aim to correct existing weaknesses in the current tax system (such as, for example, the narrow tax base owing to the proliferation of fiscal incentives laws) but also improve tax administration

Reforming the Philippine tax system: lessons from two tax reform programs

The most important role that fiscal policy can play with regard to growth is to ensure macroeconomic stability. But despite two highly visible tax reform programs in less than two decades, the Philippines is now in the midst of a fiscal crisis. This has been brought about by pressures on the spending side of the equation. But the biggest contributor to the present fiscal crisis is the deterioration of the tax system -- its declining tax effort and growing unresponsiveness to changes in economic activity. The paper aims to describe analytically the similarities and differences of the 1986 Tax Reform Program and the 1997 Comprehensive Tax Reform Program (CTRP). In assessing the effect of the reform programs, the following questions were raised: Has the revenue mobilization capability of the tax system improved? Has the tax system become responsive to changes in economic activity? Has the share of corrective taxes to total taxes increased? There are lessons learned in managing the reform: tax reforms should be done at the start of an administration; they should be presented as a critical component of a comprehensive public sector reform program; in an environment where timely, upward, adjustment in existing tax rates are difficult to legislate, ad valorem taxation should be preferred to specific taxation; successful reforms require broad political support; and most importantly, the President must have the political will to do what is best for his country. Given the seriousness of the country's fiscal problem, the low-yielding, complicated and inflexible tax system needs a major overhaul, not minor tinkering. The next round of tax reforms should focus on broadening the tax base, increasing the tax yield, improving the system's responsiveness to changes in economic activity, and simplifying tax administration. The focus of the reform program should be: (a) heavier reliance on corrective or Piguovian taxes; (b) higher rate and broader VAT base, (c) rationalization of fiscal incentives, and (d) flat and lower income taxes

The Philippines: Fiscal behavior in recent history

The Philippine national government experienced large and unsustainable budget deficits in the 1980s. After a brief period of near balanced budget in the mid-1990s, large budget deficits have reemerged in recent years. But unlike the heavy fiscal imbalances in the early 1980s which were caused by large investment in public infrastructure and low tax effort, the return of large fiscal deficits in recent years was accompanied by falling tax effort and underspending for education, health and public infrastructure. With deficits rising and investment in human capital and public infrastructure deteriorating, an appropriate question is: what has caused the poor fiscal performance of the Philippines in recent years? Is it the result of unfortunate events, macroeconomic shocks or misdirected fiscal policy

Philippine macroeconomic policies affecting households

The Philippine economic performance in the 1980s is typical of highly indebted countries (HICs) which were caught in a bind as a result of prolonged recession in developed countries in the 1980s and the rise in real interest rates. The ability of the Philippines to increase exports was severely limited by the world economic slowdown and the tall in primary commodity prices. At the same time, its debt burden rose dramatically as real interest rates rose and funds from commercial banks dried up. Under such difficult circumstances, the Philippine government embarked on a series of stabilization and structural adjustment programs. This study discusses the key macroeconomic policies adopted in recent years and how they may affect individual households. This discussion is given in Section Ii. The mechanisms by which monetary and fiscal adjustments affect the labor market, the goods market and government expenditures including the provision of public goods are broadly discussed in Section III. In the final section, some areas for future research are discussed

The economy on a cusp: The proposed VAT amendments and their larger significande

Debates on the revision of the value-added tax (VAT) are about to reach the penultimate stage. Once house and senate have passed their respective versions of the bill, congress - through a bicameral conference committee sometimes referred to as the 'third chamber' - must then agree on the final form of the law. After all the media-posturing, the politicking, and horse-trading have subsided, politicians of both chambers are still left to confront the nation's true interests - and their own consciences. It is vital that they finally pass a law that is right in form and adequate to the economy's needs

Population, poverty, politics and the reproductive health bill

Following an earlier paper titled 'Population and Poverty: The Real Score' (UPSE Discussion Paper 0415, December 2004), the present paper was first issued in August 2008 as a contribution to the public debate on the population issue that never seemed to die in this country. The debate heated up about that time in reaction to a revival of moves to push for legislation on reproductive health and family planning (RH/FP). Those attempts at legislation, however, failed in the 13th Congress, and again in the 14th Congress. Since late last year, the debate has been heating up further on the heels of President Noy Aquino's pronouncements seeming to favor RH/FP, though he prefers the nomenclature 'responsible parenthood'. With some updating of the data, this paper remains as relevant as ever to the ongoing public debate. It is being re-issued as a Discussion Paper for wider circulation