Social protest, housing, regulation

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  • Social Protest, Housing, Regulation, and more

    Dr. Michael Sarel, Head of Kohelet Economics Forum

    December 2014

  • Compared with the US, the Euro area and the OECD, the prices in Israel in most consumption sections, are not very high (as of 2011)

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    120 119

    109

    103 103 99 97 94

    60

    80

    100

    120

    140

    160

    Communication (22)Transport (20)Food and non-alcoholicbeverages (3)

    Clothing and footwear(16)

    Household furnishings,equipment and

    maintenance (18)

    Miscellaneous goods andservices (26)

    Housing, water,electricity, gas and other

    fuels (17)

    Health (19)Education (24)

    Israel

    United States

    Euro area (17 countries)

    OECD - Total

    Source: OECD, 2011

    Standard of living

  • In the food section, Israel is expensive in all categories except for one

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    84

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    60

    80

    100

    120

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    160

    Non-alcoholicbeverages (12)

    Milk, cheese andeggs (8)

    Oils and fats (9)Alcoholicbeverages (14)

    Other food (11)Bread andcereals (5)

    Fish (7)Meat (6)Food and non-alcoholic

    beverages (3)

    Food (4)Alcoholicbeverages,

    tobacco andnarcotics (13)

    Fruits,vegetables,

    potatoes (10)

    Israel

    United States

    Euro area (17 countries)

    OECD - Total

    Source: OECD, 2011

    Standard of living

  • Price Level and Income per Capita Level

    -2

    -1.5

    -1

    -0.5

    0

    0.5

    1

    1.5

    5 6 7 8 9 10 11 12

  • 10.3%

    9.7%

    8.7%

    7.4%

    8.9%

    8.0%

    7.0% 6.9%

    6.2%

    6.6% 6.7% 6.6%

    6.8% 6.6% 6.6%

    6.1% 6.0% 5.9% 5.8%

    5.6%

    5.9% 5.9% 5.8% 5.8% 5.8% 6.0%

    6.5%

    6.2% 6.3% 6.3%

    5.7%

    58%

    59%

    60%

    61%

    62%

    63%

    64%

    65%

    66%

    5%

    6%

    7%

    8%

    9%

    10%

    11%

    12%

    13%

    5

    Unemployment and Participation rates Ages 15+

    Source: CBS

    Participation rates (RHS)

  • 6

    Employment Rate Ages 15+, 2013

    Source: OECD

    59.8%

    55.2%

    35%

    40%

    45%

    50%

    55%

    60%

    65%

    70%

    75%

    80%

  • Israel, as percent of weighted average

    of G-8 advanced economies, 1995-2011

    50%

    60%

    70%

    80%

    90%

    100%income per person

    productivity per person

    productivity per worker

    productivity per hour worked

    Source: PWT 8.0 database, Michael Sarels calculations 7

  • Competitiveness (e.g. where can the next improvements in productivity come from?)

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    20

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    180

    0

    10

    20

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    40

    50

    60

    70Rank in doing Business measures, Israel & high-income OECD countries

    (lower numbers indicate a better rank)

    Ease of Doing Business Rank (lef axis)

    Getting Credit

    Paying Taxes

    Protecting Minority Investors

    Enforcing Contracts

  • 0.46

    0.54

    0.49

    0.34

    0.39 0.38

    0.36

    0.2

    0.25

    0.3

    0.35

    0.4

    0.45

    0.5

    0.55

    0.6

    9

    Gini index for inequality* 1988-2010

    Source: National Insurance Institute of Israel, CBS

    *Concatenated series which correct for changes to the settings and definitions, except the data for 2012.

    Economic income inequality

    Net income inequality

  • 69.7%

    59.7%

    50.3%

    20.3% 23.0%

    23.1%

    9.9%

    17.2%

    26.6%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    2009 2034 2059

    Ultra-Orthodox Jews

    Arabs

    Jews, excluding Ultra-Othodox

    Macroeconomic background

    Adverse Demographic Dynamics Unprecedented demographic changes, expected to occur in the coming decades, pose complicated challenges.

  • 01

    2

    3

    4

    5

    6

    7

    2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

    11

    Budget Deficit Targets (as percent of GDP)

    Targets 2009

    Targets 2013 Targets 2014

  • 12

    Prosperity-Promoting Policies

    Market-friendly vs. government-controlled economy

    Flexible labor markets vs. excessive regulation and workers rights

    Professional, long-term considerations vs. political, populist, short-term approach

    The role of public education

  • 80

    90

    100

    110

    120

    130

    140

    150

    1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

    Figure 1. Real Apartment Prices (In terms of the Consumer Price Index, excluding housing)

    Index (1994 = 100); data refer to January of each year

  • 10.9

    11.7

    12.0 12.0

    12.4

    12.8

    13.0

    13.1

    9

    10

    11

    12

    13

    14

    2006 2007 2008 2009 2010 2011 2012 2013

    Figure 2. Per capita housing services share of GDP (in thousands of shekels per capita, chained data, 2010 prices)

  • 80

    85

    90

    95

    100

    105

    110

    115

    120

    1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

    Figure 4. The ratio between apartment prices (the value of

    the property) and rental prices (the value of housing

    services) Index (1999 = 100); data refer to January of each year

  • 68.8

    84.1

    78.7 79.1 78.4

    73.8

    69.8 68.6

    63.1

    54.1

    38.6

    0

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    90

    All

    households

    10st decile 9st decile 8st decile 7st decile 6st decile 5st decile 4st decile 3st decile 2st decile 1st decile

    Figure 5. Percentage of households living in own

    apartments

  • 974

    2,035

    1,406

    1,233

    1,090

    947

    815 774

    618

    497

    331

    0

    500

    1000

    1500

    2000

    2500

    All

    households

    10st decile 9st decile 8st decile 7st decile 6st decile 5st decile 4st decile 3st decile 2st decile 1st decile

    Figure 7. Value of an owned apartment (in thousands of

    shekels)

    the average for all households in each decile

  • The 0% VAT proposed policy

    From a political economy perspective almost impossible to terminate it in the

    future

    Imposes a huge fiscal cost at least 50 billion NIS in the first 20 years

    There is no such thing as a free lunch the plan will necessarily result in higher

    tax rates and/or lower level of public services higher burden on the population

    Creates new distortions in the tax system high probability of additional VAT exemptions higher tax rates negative impact on growth

    Requires a cumbersome and expensive system of price controls

    Even with such a system, some (or even most) of the benefit will go to

    homebuilders

    The rest of the benefit will go to high-income households

  • In the department of economy, an act, a habit, an institution, a law, gives birth

    not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause - it is seen. The others

    unfold in succession - they are not seen: it is well for us, if they are foreseen.

    Between a good and a bad economist this constitutes the whole difference - the

    one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now

    this difference is enormous, for it almost always happens that when the

    immediate consequence is favourable, the ultimate consequences are fatal,

    and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true

    economist pursues a great good to come, - at the risk of a small present evil.

    That Which is Seen, and That Which is Not Seen Frederic Bastiat, 1850

    The zero-VAT plan is not intended for economists

    Yair Lapid, 2014