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Should the rich pay more taxes than the poor?

Paolo Mauro: Adding Ethics to Public Finance March 1, 2022 Should the rich pay more taxes than the poor? Economists and public finance practitioners have traditionally focused on economic efficiency when answering questions like that, steering clear of any moral considerations that could be seen as subjective. But recent work by evolutionary moral psychologists suggests that a more human approach to policy decisions can lead to better policies that muster broader support. Paolo Mauro is Deputy Director in the IMF Fiscal Affairs Department. In this podcast, he says considering people's moral perspectives makes policy choices more politically feasible and sustainable. Listen to the podcast Read the transcript   ***** Thanks for listening to the podcast. We're always looking to improve your experience so let us know if you have any suggestions! Send your comments to me at bedwards2@imf.org.   Bruce Edwards Producer, IMF Podcasts

Emerging markets saw a surge in their share of the rapidly growing world of sustainable finance last year.

Dear maria, We just published a new blog—please find the full text below.  Sustainable Finance in Emerging Markets is Enjoying Rapid Growth, But May Bring Risks (IMAGE: MACIEK905/ISTOCK BY GETTY IMAGES) By Deepali Gautam, Rohit Goel and Fabio Natalucci Financial stability concerns include potentially higher sensitivity to global financial conditions. Most of the activity in the rapidly growing world of sustainable finance has been previously concentrated in advanced economies, but emerging markets, while still a small share of the total, saw a surge last year. As a result, their market share has increased for the first time since 2016, underscoring the growing investor appetite for environmental, social, and governance (ESG) products, but this growing opportunity also poses new risks. ESG’s rising prominence Sustainable finance incorporates ESG principles into business decisions and investment strategies, covering issues from climate change to labor practices. It has become more mainstream in emerging markets in part because of pandemic-related financing needs, such as healthcare, as well as Latin America’s surge in climate-related borrowing. ESG-linked debt issuance more than tripled last year to $190 billion. Sustainability-related equity fund flows also rose, to $25 billion, bringing total assets under management to nearly $150 billion. ESG investments now make up almost 18 percent of foreign financing for emerging markets excluding China, quadruple the average for recent years. This raises questions about possible financial stability risks. Expanding across dimensions The ESG ecosystem in emerging markets has grown not only in size but also broadened across other dimensions. Green bonds remain a core part of this ecosystem, with volumes growing at an average rate of 20 percent. However, social and other sustainability-linked instruments are becoming more important, reaching almost half of total issuance in 2019-21, up from about a fifth in 2016-18. This expansion of sustainable finance is also evident in the more active green bond issuance by non-financial firms and government related sectors, a subject we will detail in a forthcoming IMF staff paper. One key dynamic of the emerging-market ESG world is growth outside of China. Issuance excluding China made up almost half of the total in 2019-21, compared to only about a third during the preceding three years. Other increasingly important players in the sustainability market are Chile, where ESG issuance has reached nearly 12 percent of gross domestic product over the last five years, as well as Peru and Mexico. Some low-income countries, like Benin and Togo also issued ESG-linked debt in 2021. Private finance role Recent gains in ESG markets may be an important opportunity for emerging markets to access more stable funding sources and develop a broader and more mature sustainable finance ecosystem. With many of these nations highly exposed to climate hazards and already facing related transition challenges, private finance will play a crucial role in mitigating these risks and strengthening the financial sector. But there are also risks that emerging-market policymakers must monitor and challenges they need to address. Financial stability risks include the different investor base relative to more traditional investors and a potentially higher sensitivity to global financial conditions, given the technology-heavy composition of many ESG indices. That’s an important consideration in the current policy environment, with central banks in advanced economies raising interest rates and reducing policy accommodation put in place during the pandemic—a development that is starting to tighten financial conditions around the world. Policymakers should strengthen the climate information architecture to incentivize efficient pricing of such risks and avoid greenwashing, the use of green labels or strategies that are often unverified or deceptive about environmental soundness. Policies should aim at improving the quality, consistency, and comparability of climate data, develop classifications that align investments with climate goals, and enhance global disclosure standards. While some of these issues are also common in advanced economies, emerging market economies face additional challenges, particularly with respect to the transition to a green economy and to the availability and quality of climate data. To avoid fragmentation of markets and regulatory approaches, international coordination and the adoption of global standards  Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org   Thank you again for your interest in IMF Blog. Read more of our latest content here. Take good care! Ceyla Pazarbasioglu and Carmen M. Reinhart explain why hidden debts and their terms must be revealed to secure economic recovery. (IMAGE: ISTOCK ERHUI1979) Dear maria, As the COVID-19 crisis lingers, emerging market and developing economies are entering perilous waters that evoke memories of past debt defaults. Although all countries amassed debt to fight the pandemic, the economic recovery in these economies substantially lags their advanced economy counterparts. Tighter monetary policies in advanced economies are poised to push up international interest rates, which tends to put pressure on currencies and heighten the odds of default. In an article for the upcoming issue of F&D Magazine, the IMF's Ceyla Pazarbasioglu and World Bank's Carmen M. Reinhart explain that the extent of many emerging market and developing economy liabilities and their terms aren’t fully known. If these economies are to foster a sustained recovery and limit the risk of a crisis, they must make a full accounting of hidden debts, both public and private. Read the full article Coming This Week: F&D March Issue "Rethinking Fiscal" This article is a preview of our upcoming issue of Finance & Development, which will focus on how the pandemic has forced a rethink of fiscal policy. Fresh insights and analysis from Vitor Gaspar, Olivier Blanchard, Arminio Fraga, Ricardo Reis, Emmanuel Saez, Felipe Larraín, and more will delve into issues of spending, debt and the role of government in economic life. The issue will also explore how some countries are innovating in areas of climate, transparency, and digitalization; the role of taxation; and how fiscal policy can be used to curb inequalities.  Take a look back at our December Issue of Finance & Development.  Want to get a print copy delivered to your home or office? Click here to subscribe.   Have Your Say What do you think of this article? Please write to us directly and let us know your thoughts. We would love to hear from you. Nick Owen Senior Editor F&D Magazine nowen@IMF.org   P.S. Want to get a print copy delivered to your home or office? Click here to subscribe.