Productivity and long term growth

Going for Growth 2018 - Brazil note

 

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Going for Growth is the OECD flagship report analysing structural policy settings and economic performance to provide policymakers with concrete reform recommendations to boost growth and ensure that the gains are shared by all. The 2018 Interim Report reviews the main growth challenges and takes stock of reforms enacted over the past year -- in both advanced and emerging economies -- on policy priorities identified in the previous issue of Going for Growth.

Country highlights

The catch up in GDP per capita towards the most advanced OECD countries has stalled in recent years, mainly due to weak labour productivity performance. Inequality and poverty are still high but coming down, although at a diminishing pace more recently.

A more educated workforce, better infrastructure and less tax distortions are keys to support productivity improvements. Lowering trade barriers also remains a priority for Brazil in order to increase exposure to international competition and strengthen incentives for productivity improvements. To reconcile the need for further reductions in income inequality with diminishing fiscal space, social expenditure should focus more on the most efficient policy instruments, particularly conditional cash transfers, at the expense of less efficient instruments. This would accelerate the decline of income inequality without spending more.

Going for Growth 2017 recommendations include:

  • Increase the effectiveness of social benefits by redirecting spending towards conditional cash transfers to the poor, which is the most efficient instrument for reducing income inequality. Sever the indexation of minimum pensions and social benefits from the minimum wage to avoid large real spending increases on benefits that reach households around the middle of the income distribution. Reassess the effectiveness of other benefits indexed to the minimum wage, including the Abono Salarial.
  • Enhance outcomes and equity in education by improving the quality of education through better teacher pay, in-service training and stronger performance incentives. Ensure full-day schooling nationwide and build more schools where needed. Further expand tertiary vocational and professional training programmes to address skill shortages and reduce drop-out rates.
  • Reduce barriers to trade by lowering tariffs and scaling back local content requirements. This will improve access to imported intermediate inputs and strengthen competitive pressures on domestic producers.
  • Reduce distortions in the tax system by consolidating indirect taxes at the state and federal levels and working towards one value added tax with a broad base, full refund for input VAT and zero-rating for exports.
  • Increase public and private investment in infrastructure by improving the technical capacity and planning for infrastructure concessions and elaborating more detailed tender packages prior to launching tender calls.

Recent policy actions in these areas include:

  • Some local content requirements have been scaled back for fossil fuel investment projects.

Brazil: Latest Economic Forecast 

Brazil: Latest Economic Survey

 

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