Galen Sher
I am a senior economist working on global fiscal policy issues at the International Monetary Fund (IMF). I contribute to the IMF's biannual Fiscal Monitor report that provides fiscal forecasts and global fiscal policy advice.
Previously, I was the senior economist covering Germany in the IMF's European Department, where I developed advice on economic policy for the German government and managed the forecasts of government revenues, spending, and debt.
Before that, as an economist in the IMF's Research Department, I provided thematic analyses and policy advice to the Group of Twenty (G-20), including during the COVID-19 pandemic. And before that, I provided analysis and advice to Armenia, Azerbaijan, Singapore and Uruguay in Article IV consultations and Financial Sector Assessment Programs (FSAPs), as economist in the Western Hemisphere and Monetary and Capital Markets Departments.
Before joining the IMF, I was research economist at the Bank of England. I obtained my PhD in economics from the University of Oxford.
Outside my day job, I have a strong interest in research. My current ongoing research projects include measuring the relationships between newspapers and open-economy asset prices, measuring cyber risk, measuring interest rate risk, measuring liquidity risk, measuring the effect of finance on long-run economic growth, and on measuring statistical dependence.
I have also worked on modelling the effects of macroprudential policies, modelling the resilience in global value chains, estimating firms' productivity, estimating the impact of energy supply shocks on the economy, modelling international migration, and modelling capital flows.
I maintain this account in my personal capacity. The views expressed here do not necessarily represent those of the IMF, its Executive Board or management.
Supervisors: Steve Bond
Previously, I was the senior economist covering Germany in the IMF's European Department, where I developed advice on economic policy for the German government and managed the forecasts of government revenues, spending, and debt.
Before that, as an economist in the IMF's Research Department, I provided thematic analyses and policy advice to the Group of Twenty (G-20), including during the COVID-19 pandemic. And before that, I provided analysis and advice to Armenia, Azerbaijan, Singapore and Uruguay in Article IV consultations and Financial Sector Assessment Programs (FSAPs), as economist in the Western Hemisphere and Monetary and Capital Markets Departments.
Before joining the IMF, I was research economist at the Bank of England. I obtained my PhD in economics from the University of Oxford.
Outside my day job, I have a strong interest in research. My current ongoing research projects include measuring the relationships between newspapers and open-economy asset prices, measuring cyber risk, measuring interest rate risk, measuring liquidity risk, measuring the effect of finance on long-run economic growth, and on measuring statistical dependence.
I have also worked on modelling the effects of macroprudential policies, modelling the resilience in global value chains, estimating firms' productivity, estimating the impact of energy supply shocks on the economy, modelling international migration, and modelling capital flows.
I maintain this account in my personal capacity. The views expressed here do not necessarily represent those of the IMF, its Executive Board or management.
Supervisors: Steve Bond
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Papers by Galen Sher
- Germany's greatest economic challenge is the expected shrinking of the labor force over the next five years. A big wave of baby-boomer retirements is coming and immigration is unlikely to fill the gap. To deal with this, ambitious reforms are needed to boost labor supply and raise pfroductivity. 🧓
- To boost labor supply, the authorities should expand access to more reliable childcare and lower taxes on secondary earners in married couples, both of which would let women extend their working hours from part-time to full-time, if they choose to do so. 👷♀️
- Productivity could be raised by increasing public investment, deepening the European single market, promoting digitalization, and cutting red tape. 🛫
Growth is projected to slow to about 1.5 percent in 2022, mostly reflecting significant headwinds from the war. The recovery should pick up modestly in 2023 if energy supplies are secured, supply bottlenecks dissipate, and disruptive COVID-19 infection waves are avoided. Risks are to the downside, especially from a potential further cut-off of Russia’s natural gas exports.
The authorities’ policy response to the pandemic and war spillovers has been timely and generally well-designed. Staff’s main policy recommendations are as follows:
> Fiscal policy. The broadly neutral fiscal stance in 2022 is appropriate under the baseline forecast. The government’s plan to tighten policy and return to the debt
brake rule in 2023 should be manageable under the baseline assumptions of waning drags from the pandemic and energy prices. If downside risks materialize, however, the government should allow automatic stabilizers to operate fully and continue to flexibly provide targeted support, and if needed consider activating the escape clause of the debt break rule for another year. Looking ahead, Germany needs to invest in its own productive potential and resiliency through enhancing energy security, digitalization, life-long learning, innovation, labor supply, and social protection. Higher investment can also help lower Germany’s large external imbalances. Structural increases in spending for strategic priorities should be integrated into the core budget over time, which may require a review of the fiscal framework, including expenditure and revenue policies, and the fiscal rule.
> Contingency planning for a gas shutoff scenario. Staff’s analysis suggests that a full and permanent Europe-wide shutoff could lower annual German GDP by 1–3 percent in 2022, 2023, and 2024, which would not be recovered later, and could raise inflation by about 2 percentage points on average. A cold winter, economic frictions, and inefficient rationing could increase these losses. Cooperation with other EU countries to prepare contingency plans for possible gas shortages is key. The authorities should clarify infrastructure needs and potential rationing plans in various cut-off scenarios, to encourage further preparation and investment. Most of the existing measures to help vulnerable households and firms cope with spiking energy costs and potential gas shortages are generally well-designed. However, tax cuts on fossil fuels and subsidies for firms’ energy bills reduce incentives to conserve energy at a critical time, and should be phased out as planned; other support facilities for firms need clear termination dates.
> Public investment and structural reforms. Germany needs to boost public investment in energy security and decarbonization; digitalization; and transportation infrastructure. The authorities should rapidly and decisively overcome the long-standing obstacles to ramping up public investment—burdensome administrative procedures, legal hurdles, limited planning capacity, labor and material shortages, and imperfect coordination across different levels of government. Structural reforms should focus on boosting labor supply, skills, and business dynamism.
> Financial stability. The 2022 FSAP assesses the German banking sector generally resilient to shocks, but points to pockets of vulnerability and downside risks that require close monitoring and call for some additional buffers for less capitalized banks. Given continued rapid house price gains, the recently activated capital-based
measures should be supplemented with borrower-based measures, such as supervisory guidance on a loan-to-value cap. The authorities are also urged to accelerate the closure of data gaps, strengthen guidance on lending standards and add income-based measures to their macroprudential toolkit. The authorities should also consolidate the existing mandatory deposit insurance schemes into a single scheme with a government liquidity backstop.
The crisis could leave permanent scars on the income distribution as it hit amid uneven access to opportunities and persistent income gaps in many economies. Not only have income inequalities risen in many countries during the past quarter century, economies with high levels of inequality often also have low social mobility across generations owing to unequal access to opportunities. Moreover, the greater the pre-existing inequalities, the more unequal are likely to be the impact of the pandemic. In the absence of strong policy action to protect vulnerable groups, the crisis thus risks having a lasting impact on the income distribution.
The impact of COVID-19 has reinforced the need to shed light on the uneven access to opportunities. Policy design needs to take into account that gaps can be present throughout life.
• Uneven access to health care, early childhood development, and education perpetuates throughout life. Differences in long-term outcomes often reflect that children born into low socioeconomic
status more often are exposed to poor nutrition and health risks. Furthermore, while educational attainment has increased across the G-20, gaps persist, including as people in advanced economies tend to have more years of schooling than in emerging market economies. A larger share of individuals in emerging market economies also exhibits “learning poverty”—that is, an inability to read and comprehend a simple text by age 10.
• Youth and women face sizable gaps in the labor market. Many young people face joblessness, and female labor force participation is often well below that of men. In addition, the informal sector accounts for a large share of activity, particularly among women, leaving many people with fewer safety nets than in the formal sector. Disparities also exist across space within countries, as lagging regions tend to have worse experiences in terms of health, education, and labor market outcomes.
• Many people do not have full access to financial services and technology. This impacts payments, savings, credit, and insurance, and constrains access to education, starting a business, and coping with shocks. Many small enterprises have difficulties obtaining credit to grow, which hinders firm dynamism and job creation.
Uneven access to the full benefits from technological advances and structural impediments to the entry of new firms hold back competition and, in turn, job creation. Uneven access to opportunities, low intergenerational mobility, and persistent income inequality weigh on growth. An empirical analysis shows that uneven access to opportunities is associated with low intergenerational mobility in income and education. In turn, it hampers growth through suboptimal levels of education, and inequality tends to hold back the strength and durability of growth. Where intergenerational mobility is low, the analysis also shows that benefits from structural reforms may not be distributed evenly to all individuals.
To ensure that any increase in inequality from the crisis does not become permanent and to foster a durable and inclusive recovery, action is required to level the playing field for all.
• Focus on health, early childhood development, and education is essential. Interventions should help ensure adequate health care and improve maternal health and the early childhood environment. This includes ensuring adequate nutrition, access to water and sanitation, and social protection for disadvantaged groups. Improving educational outcomes should focus not only on spending levels but also on the quality of education, including to address learning poverty. In this respect, model simulations show that increasing educational attainment in emerging market economies can benefit growth and reduce inequality. To complement national policies for systemic change, place-based policies targeted to disadvantaged communities—such as interventions to improve the quality of schooling, health, childcare, safety, housing, and infrastructure—can improve the prospects of upward mobility for children growing up in these communities.
• Policymakers should level the playing field across age and gender. Labor market policies and structural reforms to strengthen competition in product markets can be instrumental in leveling the playing field for all, so that the post-pandemic recovery expands economic opportunities
across all groups. Considerations should be given to active labor market policies, training, as well as the design of labor market regulations. Complementary product market reforms can be particularly important in ensuring a business environment that encourages innovation and growth
to help generate additional employment opportunities, including for youth. Leveling the playing field across gender would also require removing legal restrictions on women.
• Enhancing access to financial services and technology is vital for inclusive growth. This would require encouraging the availability of low-cost products and improving financial information and capabilities. Small and medium-sized enterprises would have better opportunities to grow if information gaps were closed, allowing for better assessment of their creditworthiness. While Fintech has helped expand access to financial services, more can be done by using the widespread availability of mobile phones to alleviate gaps in traditional financial account ownership.
Fiscal policy can also facilitate enhancing access to opportunities and reducing inequality. As we move forward from the immediate crisis response, fiscal policy would need to consider not only if there is fiscal space and a need to expand overall spending to enhance access to opportunities, as well as health care and social protection, but also if reprioritization can help enhance spending efficiency. Gender budgeting can help address gender inequality, in addition to improving access to affordable and high-quality childcare and parental leave policies. Removing tax policy provisions that discriminate against the second earner can help lift female labor force participation. More progressive taxation by increasing the tax rate for high-income earners can have the dual impact of generating revenue for additional expenditure and reducing ex-post inequality. Public transfers and safety nets can facilitate income and wealth redistribution and support families’ investment in children. Reducing barriers to spatial mobility would raise social mobility by helping people move to better jobs, opportunities, and services. Policies include improving infrastructure and reducing explicit or implicit costs of internal migration, such as by ensuring that safety net programs are portable across space.
- Germany's greatest economic challenge is the expected shrinking of the labor force over the next five years. A big wave of baby-boomer retirements is coming and immigration is unlikely to fill the gap. To deal with this, ambitious reforms are needed to boost labor supply and raise pfroductivity. 🧓
- To boost labor supply, the authorities should expand access to more reliable childcare and lower taxes on secondary earners in married couples, both of which would let women extend their working hours from part-time to full-time, if they choose to do so. 👷♀️
- Productivity could be raised by increasing public investment, deepening the European single market, promoting digitalization, and cutting red tape. 🛫
Growth is projected to slow to about 1.5 percent in 2022, mostly reflecting significant headwinds from the war. The recovery should pick up modestly in 2023 if energy supplies are secured, supply bottlenecks dissipate, and disruptive COVID-19 infection waves are avoided. Risks are to the downside, especially from a potential further cut-off of Russia’s natural gas exports.
The authorities’ policy response to the pandemic and war spillovers has been timely and generally well-designed. Staff’s main policy recommendations are as follows:
> Fiscal policy. The broadly neutral fiscal stance in 2022 is appropriate under the baseline forecast. The government’s plan to tighten policy and return to the debt
brake rule in 2023 should be manageable under the baseline assumptions of waning drags from the pandemic and energy prices. If downside risks materialize, however, the government should allow automatic stabilizers to operate fully and continue to flexibly provide targeted support, and if needed consider activating the escape clause of the debt break rule for another year. Looking ahead, Germany needs to invest in its own productive potential and resiliency through enhancing energy security, digitalization, life-long learning, innovation, labor supply, and social protection. Higher investment can also help lower Germany’s large external imbalances. Structural increases in spending for strategic priorities should be integrated into the core budget over time, which may require a review of the fiscal framework, including expenditure and revenue policies, and the fiscal rule.
> Contingency planning for a gas shutoff scenario. Staff’s analysis suggests that a full and permanent Europe-wide shutoff could lower annual German GDP by 1–3 percent in 2022, 2023, and 2024, which would not be recovered later, and could raise inflation by about 2 percentage points on average. A cold winter, economic frictions, and inefficient rationing could increase these losses. Cooperation with other EU countries to prepare contingency plans for possible gas shortages is key. The authorities should clarify infrastructure needs and potential rationing plans in various cut-off scenarios, to encourage further preparation and investment. Most of the existing measures to help vulnerable households and firms cope with spiking energy costs and potential gas shortages are generally well-designed. However, tax cuts on fossil fuels and subsidies for firms’ energy bills reduce incentives to conserve energy at a critical time, and should be phased out as planned; other support facilities for firms need clear termination dates.
> Public investment and structural reforms. Germany needs to boost public investment in energy security and decarbonization; digitalization; and transportation infrastructure. The authorities should rapidly and decisively overcome the long-standing obstacles to ramping up public investment—burdensome administrative procedures, legal hurdles, limited planning capacity, labor and material shortages, and imperfect coordination across different levels of government. Structural reforms should focus on boosting labor supply, skills, and business dynamism.
> Financial stability. The 2022 FSAP assesses the German banking sector generally resilient to shocks, but points to pockets of vulnerability and downside risks that require close monitoring and call for some additional buffers for less capitalized banks. Given continued rapid house price gains, the recently activated capital-based
measures should be supplemented with borrower-based measures, such as supervisory guidance on a loan-to-value cap. The authorities are also urged to accelerate the closure of data gaps, strengthen guidance on lending standards and add income-based measures to their macroprudential toolkit. The authorities should also consolidate the existing mandatory deposit insurance schemes into a single scheme with a government liquidity backstop.
The crisis could leave permanent scars on the income distribution as it hit amid uneven access to opportunities and persistent income gaps in many economies. Not only have income inequalities risen in many countries during the past quarter century, economies with high levels of inequality often also have low social mobility across generations owing to unequal access to opportunities. Moreover, the greater the pre-existing inequalities, the more unequal are likely to be the impact of the pandemic. In the absence of strong policy action to protect vulnerable groups, the crisis thus risks having a lasting impact on the income distribution.
The impact of COVID-19 has reinforced the need to shed light on the uneven access to opportunities. Policy design needs to take into account that gaps can be present throughout life.
• Uneven access to health care, early childhood development, and education perpetuates throughout life. Differences in long-term outcomes often reflect that children born into low socioeconomic
status more often are exposed to poor nutrition and health risks. Furthermore, while educational attainment has increased across the G-20, gaps persist, including as people in advanced economies tend to have more years of schooling than in emerging market economies. A larger share of individuals in emerging market economies also exhibits “learning poverty”—that is, an inability to read and comprehend a simple text by age 10.
• Youth and women face sizable gaps in the labor market. Many young people face joblessness, and female labor force participation is often well below that of men. In addition, the informal sector accounts for a large share of activity, particularly among women, leaving many people with fewer safety nets than in the formal sector. Disparities also exist across space within countries, as lagging regions tend to have worse experiences in terms of health, education, and labor market outcomes.
• Many people do not have full access to financial services and technology. This impacts payments, savings, credit, and insurance, and constrains access to education, starting a business, and coping with shocks. Many small enterprises have difficulties obtaining credit to grow, which hinders firm dynamism and job creation.
Uneven access to the full benefits from technological advances and structural impediments to the entry of new firms hold back competition and, in turn, job creation. Uneven access to opportunities, low intergenerational mobility, and persistent income inequality weigh on growth. An empirical analysis shows that uneven access to opportunities is associated with low intergenerational mobility in income and education. In turn, it hampers growth through suboptimal levels of education, and inequality tends to hold back the strength and durability of growth. Where intergenerational mobility is low, the analysis also shows that benefits from structural reforms may not be distributed evenly to all individuals.
To ensure that any increase in inequality from the crisis does not become permanent and to foster a durable and inclusive recovery, action is required to level the playing field for all.
• Focus on health, early childhood development, and education is essential. Interventions should help ensure adequate health care and improve maternal health and the early childhood environment. This includes ensuring adequate nutrition, access to water and sanitation, and social protection for disadvantaged groups. Improving educational outcomes should focus not only on spending levels but also on the quality of education, including to address learning poverty. In this respect, model simulations show that increasing educational attainment in emerging market economies can benefit growth and reduce inequality. To complement national policies for systemic change, place-based policies targeted to disadvantaged communities—such as interventions to improve the quality of schooling, health, childcare, safety, housing, and infrastructure—can improve the prospects of upward mobility for children growing up in these communities.
• Policymakers should level the playing field across age and gender. Labor market policies and structural reforms to strengthen competition in product markets can be instrumental in leveling the playing field for all, so that the post-pandemic recovery expands economic opportunities
across all groups. Considerations should be given to active labor market policies, training, as well as the design of labor market regulations. Complementary product market reforms can be particularly important in ensuring a business environment that encourages innovation and growth
to help generate additional employment opportunities, including for youth. Leveling the playing field across gender would also require removing legal restrictions on women.
• Enhancing access to financial services and technology is vital for inclusive growth. This would require encouraging the availability of low-cost products and improving financial information and capabilities. Small and medium-sized enterprises would have better opportunities to grow if information gaps were closed, allowing for better assessment of their creditworthiness. While Fintech has helped expand access to financial services, more can be done by using the widespread availability of mobile phones to alleviate gaps in traditional financial account ownership.
Fiscal policy can also facilitate enhancing access to opportunities and reducing inequality. As we move forward from the immediate crisis response, fiscal policy would need to consider not only if there is fiscal space and a need to expand overall spending to enhance access to opportunities, as well as health care and social protection, but also if reprioritization can help enhance spending efficiency. Gender budgeting can help address gender inequality, in addition to improving access to affordable and high-quality childcare and parental leave policies. Removing tax policy provisions that discriminate against the second earner can help lift female labor force participation. More progressive taxation by increasing the tax rate for high-income earners can have the dual impact of generating revenue for additional expenditure and reducing ex-post inequality. Public transfers and safety nets can facilitate income and wealth redistribution and support families’ investment in children. Reducing barriers to spatial mobility would raise social mobility by helping people move to better jobs, opportunities, and services. Policies include improving infrastructure and reducing explicit or implicit costs of internal migration, such as by ensuring that safety net programs are portable across space.
[Free access to the entire thesis is available through the accompanying link to the Oxford University Research Archive.]
[Free access to the entire thesis is available through the accompanying link to the Oxford University Research Archive.]
[Free access to the entire thesis is available through the accompanying link to the Oxford University Research Archive.]