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Welfare systems and social protection depend on sustainable systems of taxation. In the wake of the global financial crisis more than a decade ago and the more recent impacts of COVID-19, national debt levels in advanced economies are near their highest levels since World War II - averaging over 100% of GDP for Organisation for Economic Co-operation and Development countries. This puts pressure on governments to find ways to cut spending or increase tax revenue (or both) - particularly as central banks move interest rates higher following decades of sustained lows, and direct more government funds into making interest payments while leaving less for public services like infrastructure and education. Policy-makers must find ways to address deficits that do not hinder economic growth. Some economists argue that cutting government spending is best for restoring fiscal health and stirring growth; others counter that only increasing spending can reinvigorate economies. While raising taxes can be necessary to tackle deficits, some argue that that tax hikes can choke economic growth by discouraging work, investment, and innovation. Others emphasize that in an era of serious inequality, the wealthiest members of society are effectively hoarding wealth that could be put to more productive social use. As countries try to strike a balance between taxing and spending in order to preserve (or even extend) social protections, there is ongoing debate about how to best find a sustainable path. There are certain types of spending that can actually lower a budget deficit, primarily related to “program integrity” measures targeting fraud, tax evasion, and bureaucratic mistakes, according to an analysis published by the Brookings Institution. Similar spending aimed at curbing improper payments in the US’s Medicare health insurance program for people 65 or older could yield about $14 for every $1 spent, according to this analysis, while spending an additional $1 billion annually on reviews to determine whether or not to grant disability insurance could save some $43 billion. As policy-makers try to address their country’s particular challenges, they must be mindful not only of the impact it may have on deficits and economic growth, but also on the morale and well-being of large parts of the population. In France, for example, a government decision in late 2018 to increase gasoline taxes in order to reduce reliance on fossil fuels sparked regular street protests by thousands of “gilets jaunes” (“yellow vests”).

Fiscal Policies to Support Social Protection

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Fiscal Policies to Support Social Protection