Digitalization presents both opportunities and risks for fiscal policy. It has the potential to improve the design and implementation of fiscal policy, but it also creates new challenges.

The Analytical Chapter 2: Digital Government first analyzes improvements in policy implementation with illustrative examples on tax compliance and spending efficiency. The analysis suggests that adopting digital tools could increase indirect tax collection at the border by up to 2 percent of GDP per year. In the future, digitalization could also help governments track down taxes on wealth sheltered in offshore financial centers, estimated at 10 percent of world GDP. On the spending side, country case studies show how digitalization can play a role in improving social protection and the delivery of public services.

The chapter also discusses the design of future policy, focusing on the implications of the rapid expansion of digital firms whose business model—for example, sales with little physical presence and reliance on online customers to generate commercially valuable information—raises new questions about the allocation of international taxing rights. Finally, while digitalization offers many potential benefits, the chapter also discusses how it can create opportunities for fraud and increase government vulnerabilities—important challenges governments must address to reap its dividends.

The Fiscal Monitor is prepared twice a year by the IMF’s Fiscal Affairs Department. Its projections are based on the same database used for the World Economic Outlook (WEO) and the Global Financial Stability Report (GFSR). The fiscal projections for individual countries have been prepared by IMF desk economists, and, in line with the WEO guidelines, assume that announced policies will be implemented.

(Source: Chapter Intro | IMF Blog | Infographic | Read the Report)


Further reading:

Sharing the Burden: Taxation of the Peer-to-Peer Economy, by Aqib Aslam and Alpa Shah

International Taxation in the Digital Economy: Challenge Accepted?, by Marcel Olbert and Christoph Spengel

The ‘Netflix Tax’: What Can We Learn from the EU-MOSS Scheme?, by Teck Chi Wong

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