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Innovative Fiscal Policies Could Boost Global Economic Growth, IMF Report Suggests

Targeted support for 'green' and digital technologies essential for overcoming productivity slowdown and fiscal constraints.

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Innovative Fiscal Policies Could Boost Global Economic Growth, IMF Report Suggests

  • Targeted support for ‘green’ and digital technologies essential for overcoming productivity slowdown and fiscal constraints.

Washington, D.C. – April 17, 2024

In a new report by the International Monetary Fund (IMF), fiscal policies aimed at fostering innovation and the diffusion of technology are highlighted as key drivers to rejuvenate the stagnant productivity growth that plagues the global economy. The report, released this month, emphasizes the potential of well-designed fiscal initiatives to spur significant economic advancements across nations.

Despite rapid technological progress, especially in digital technologies and artificial intelligence (AI), global productivity growth has been on a decline over the past two decades. The IMF’s Fiscal Monitor points out that innovation is now concentrated in fewer sectors and countries, which limits widespread economic benefits. Furthermore, the adoption of essential low-carbon and digital technologies is lagging, especially in developing economies.

The report suggests that directing innovation toward specific sectors, such as low-carbon technologies and AI, could bring substantial social and economic benefits. However, the effectiveness of such industrial policies hinges on their ability to generate measurable social benefits like reduced carbon emissions and significant knowledge spillovers to other industries. The IMF warns that subsidies misdirected towards politically connected sectors or policies that discriminate against foreign firms could backfire, leading to economic inefficiencies and international tensions.

For advanced and emerging economies alike, the IMF advocates a mix of public funding for fundamental research, R&D grants for innovative startups, and R&D tax incentives to encourage broader application of new technologies. Such a policy mix, if well-designed, is projected to raise long-term GDP by $3 to $4 for every dollar spent on innovation, suggesting a robust return on investment.

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Moreover, the report highlights the critical role of facilitating technology diffusion in emerging market and developing economies. Strategic public investments in digital infrastructure and education are deemed essential for harnessing technology from more developed countries, potentially boosting medium-term GDP growth by up to 1.9 percent.

To finance these strategic investments, the IMF recommends improving expenditure efficiency and revamping tax systems. A broad-based value-added tax and scaling back ineffective corporate tax incentives are among the suggested measures to enhance fiscal capacity and support growth-enhancing spending.

In conclusion, the IMF underscores the necessity of maintaining and enhancing international cooperation to maximize the benefits of global innovation and technology diffusion. As economies worldwide struggle with fiscal pressures and the urgent need for sustainable development, the report calls for cohesive policies that not only foster innovation but also ensure its broad and equitable distribution across the globe.

Tags: IMF Report SuggestsInnovative Fiscal Policies Could Boost Global Economic GrowthTargeted support for 'green' and digital technologies essential for overcoming productivity slowdown and fiscal constraints.
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