Israel

   

Economic Policies

#11
Key Findings
Showing steady economic growth, Israel receives comparatively high rankings (rank 11) in the area of economic policies. Its score on this measure has improved by 0.5 points relative to 2014.

Growth rates are robust, reaching 3.6% in 2018, and a similar level expected in 2019. The inflation rate has risen to a marginally positive level after several years of negative figures. The budget deficit has jumped to 3.3 percent, exceeding a legally mandated deficit ceiling. A recently created capital authority oversees the financial sector.

Unemployment rates are low, with the economy hovering near full employment. Employment rates are slightly lower for Israeli-Arab men than for the general population, though jobs in this population skew toward lower wages. Employment rates among Israeli-Arab women are very low. The cost of living is high, with housing and rental prices showing clear increases in recent years.

Taxation policy is deliberately somewhat regressive, involving VAT and an income tax that applies disproportionately high rates to middle-income earners. Research and development funding is extraordinarily strong, and a new Innovation Authority began work in early 2017. Computer-science degrees are subsidized for students with disenfranchised backgrounds.

Economy

#23

How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?

10
 9

Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 8
 7
 6


Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 5
 4
 3


Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
 2
 1

Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Economic Policy
7
As in previous years, while Israel’s economic policy has some shortcomings, it is fundamentally strong. It largely provides for a reliable economic environment, renders the country internationally competitive and ensures it remains attractive as a location for economic activity.

According to the OECD, Israel’s economic growth rate was 3.6% in 2018 and is expected to be 3.5% in 2019. The economic growth rate in 2018 was up by 0.5 percentage point from 2017’s growth rate. The inflation rate in 2017 was 0.4% and 2018’s average inflation rate was 0.6%, up from the negative inflation of 2014 to 2016. In addition, the general unemployment rate (3.7% in January 2018) remains one of the lowest in the western world. The budget deficit has declined in recent years, from 3.9% in 2012 to 2.2% in 2017. While Israel’s growth rates have improved over the last decade, productivity performance has been weak. As stated in the 2018 OECD economy survey, “overall productivity growth remains slow, and the cost of living is currently somewhat higher than the OECD average despite GDP per capita being more than 15% lower.” Product-market regulation and competition, particularly in the food, banking and electricity sectors, has undermined economic productivity.

In addition, poverty rates are still high, especially among the elderly. Income inequality ratios are also high. According to the annual report of Israel’s social security institute, 1,802,800 people in 462,100 families were living in poverty in 2016, including 838,500 children. Although the incidence of poverty declined from 19.1% in 2015 to 18.6% in 2016 to 17.7% in 2017, Israel has the second highest poverty rate within the OECD (after the United States). The cost of living also remains high relative to the OECD average, particularly for housing. Housing prices have increased in recent years, making home ownership hard to attain for young and middle-class people. Yet, the rate of growth declined in 2017, which might have been as a result of aggressive government housing subsidies for middle-class buyers. In addition, rent costs also increased, though not as sharply as ownership costs. This trend mostly affects the middle and lower classes, and was one of the main causes of the 2011 social-justice protest. According to a 2018 OECD report, public transport deficiencies also play a role in worsening the cost of living, as residents of Israel’s peripheral areas cannot easily commute to central regions for work despite Israel being a relatively small country.

Citations:
OECD Economic Outlook, Volume 2018, Issue 2 – Preliminary Version, November 2018: http://www.oecd.org/eco/outlook/economic-forecast-summary-israel-oecd-economic-outlook.pdf

Amit, Hagai, “Israel’s Unemployment Rate Falls to Lowest Rate in Decades,” Haaretz, 21.8.2017: https://www.haaretz.com/israel-news/business/1.808252

Endeweld, Miri, et al. “Poverty and Social Gaps Annual Report.” National Insurance Institute. https://www.btl.gov.il/English%20Homepage/Publications/Poverty_Report/Pages/default.aspx, Accessed September 13 (2016): 2018.

Arlosoroff, Meirav, “Israel May Raise 2019 Budget Deficit to 2.9%,” Haaretz, 23.11.2017: https://www.haaretz.com/israel-news/1.824538

Barkat, Amiram, “Israel’s poverty remains worst in OECD,” Globes, 6.12.2017: http://www.globes.co.il/en/article-israels-poverty-remains-worst-in-oecd-1001214592

“Economic Survey of Israel 2018” OECD Website. http://www.oecd.org/eco/surveys/economic-survey-israel.htm

“Economic Survey of Israel 2016” OECD Website. http://www.oecd.org/eco/surveys/economic-survey-israel.htm

“Israel’s statistical profile,” OECD Data website:
https://data.oecd.org/israel.htm

“Israel central bank to keep key interest at 0.1% as inflation tame: Reuters poll,” Reuters, 23.11.2017: https://www.reuters.com/article/us-israel-cenbank-rates/israel-central-bank-to-keep-key-interest-at-0-1-percent-as-inflation-tame-reuters-poll-idUSKBN1DN1CZ

Filut, Adrian, “Israel goes down to the second place in poverty rates in the west,” Calcalist website, 05.08.2018:
https://www.calcalist.co.il/local/articles/0,7340,L-3743662,00.html (Hebrew)

Klein, Zeev, “OECD: Israeli economy will grow 3.4% in each of next two years,” Israel Hayom, 29.11.2017: http://www.israelhayom.com/2017/11/29/oecd-israeli-economy-will-grow-3-4-in-each-of-next-two-years/

Milman, O. and Zinger, R., “2015 budget: A high deficit and no growth engines,” Calcalist website, 28.9.20
14: http://www.calcalist.co.il/local/articles/0,7340,L-3641611,00.html (Hebrew).

Yeshayahou, Kobi, 2017, “Merrill Lynch sees weaker shekel in 2018,” Globes, 6.12.2017: http://www.globes.co.il/en/article-merrill-lynch-sees-weaker-shekel-in-2018-1001214643

The Marker and Israel Fisher, “Israel’s GDP Growth to Exceed 3% in 2019, OECD Says,” Haaretz, 29.11.2017: https://www.haaretz.com/israel-news/business/1.825553

Inflation over the past year December, 2016 to December, 2017, Bank of Israel website, http://www.boi.org.il/en/MonetaryPolicy/Data/Pages/Default.aspx

Barkat, Amiram, “Israel’s economy grew 3% in 2017,” Globes, 31.12.2017, http://www.globes.co.il/en/article-israels-economy-grew-3-in-2017-1001217569

Tali Heruti-Sover, “Israel’s Unemployment Rate Drops to 3.7%, Part-time Jobs on the Rise“, Haaretsz, 28.2.2018:
https://www.haaretz.com/israel-news/business/israel-s-unemployment-rate-drops-to-3-7-part-time-jobs-on-the-rise-1.5865222

Labor Markets

#11

How effectively does labor market policy address unemployment?

10
 9

Successful strategies ensure unemployment is not a serious threat.
 8
 7
 6


Labor market policies have been more or less successful.
 5
 4
 3


Strategies against unemployment have shown little or no significant success.
 2
 1

Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Labor Market Policy
8
Labor-market indicators are still strong, as the economy is hovering around full employment, with the January 2018 unemployment rate at 3.7%.

Israel’s labor policy focuses on providing incentives for both members of two-adult households to work, and on expanding job-training services for low-skilled workers. The government has recently reformed the “earning potential” scale used for purposes such as calculating taxes and day care subsidies; increased funding for working mothers and labor-training programs; and introduced a negative tax for low-income workers. However, the OECD maintains that implementation of policies in this area is slow and underfunded. The Ministry of Economy is promoting programs to encourage and assist members of ultra-Orthodox communities to obtain academic educations, which will help them fit into modern workplaces. Currently, while 73% of ultra-Orthodox women aged 25 to 64 years old participate in the labor force, only 52% of ultra-Orthodox men are employed. This latter figure represents a decline after a decade of continuous increases, from 40% in 2003 to 54% in 2014. The respective employment rates for Israel’s general population are 87% for men and 83% for women. However, Israeli-Arabs exhibit lower rates of employment due to a lack of education and job opportunities. The employment rate for Israeli-Arab men is only slightly lower than that of the general population, but they work mainly in low-productivity jobs with low wages. However, employment rates for Israeli-Arab women are much lower than that of Israeli-Arab men, with an employment rate of around 21% and high unemployment even for educated Israeli-Arab women.

Israeli government largely supports the free market, and its labor-protection laws are seen by the OECD as reasonably flexible. The government has adopted the Danish “flexicurity model” of labor-market regulation. Based on trilateral agreements between the government, employers and unions, this aims to improve the economic status of both unionized workers and the unemployed by ensuring that workers receive severance packages and unemployment benefits when they lose jobs, while still allowing employers considerable hiring-and-firing flexibility. From 2014 to 2017, the monthly minimum wage in Israel was raised from ILS 4,300 to ILS 5,300 as part of an agreement between the Histadrut Labor Federation and business leaders.

After years of increase in the number of foreign workers in Israel, especially in the nursing, agriculture and construction sectors, the government sought to slow the flow of foreign workers. These efforts began to bear fruit, but given the need for more construction to address Israel’s housing crisis, Israel has again changed this policy, and the number of foreign workers is again on the rise – increasing from 71,281 legal foreign workers in December 2013 to 93,214 in June 2018. In April 2017, Israel signed a deal to bring in 6,000 Chinese construction workers, but only 3,500 workers had arrived by July 2018, with 700 more on their way.

In May 2018, the Ministry of Labor, Social Affairs and Social Services approved a Plan for Expanding the Skilled Workforce for the High-Tech Industry by subsidizing computer science degrees for individuals from peripheral or disenfranchised backgrounds. The plan aims to provide a solution to the high-tech labor shortage in Israel.

Citations:
Tali Heruti-Sover, “Israel’s Unemployment Rate Drops to 3.7%, Part-time Jobs on the Rise“, Haaretz, 28.2.2018 (Hebrew): https://www.haaretz.com/israel-news/business/israel-s-unemployment-rate-drops-to-3-7-part-time-jobs-on-the-rise-1.5865222

“Foreigners in Israel Data,” Administration of Border Crossings, Population and Immigration report, 2.2018 (Hebrew): https://www.gov.il/BlobFolder/generalpage/foreign_workers_stats/he/q2_2018.pdf

Levi, Dotan, “How Did It Happen That 1,800 Chinese Workers Assigned To Israel – Are Unrequired?, Calcalist website, 26.07.18 (Hebrew):
https://www.calcalist.co.il/real_estate/articles/0,7340,L-3743113,00.html

” Globes correspondent, “Bank of Israel keeps rate at historic low,” Globes, 27.11.2017 (Hebrew): http://www.globes.co.il/en/article-bank-of-israel-keeps-rate-at-historic-low-1001213442

Toi Staff and AFP, “Israel signs deal to bring Chinese laborers, but they won’t work in West Bank,” Times of Israel, 23.4.2017: https://www.timesofisrael.com/israel-signs-deal-to-bring-chinese-construction-workers-but-they-wont-work-in-west-bank/

Weissberg, Hila, “Why has the number of ultra-Orthodox men employees been halted?,” Israeli Broadcasting Corporation, 26.9.2017 (Hebrew): http://www.kan.org.il/Item/?itemId=23023

Workers in Israel. How Ethno-Nationalism prevents Structures of Representation. In: Journal for Societal Progress, vol 5 (2), p. 88-96. www.momentum-quarterly.org

CBS: “Labour Force Survey Data, December, 4th Quarter and Annual data of 2017,” 31.01.2018, http://www.cbs.gov.il/reader/newhodaot/hodaa_template_eng.html?hodaa=201820029

Yefet, Nati, “Israel eases entry of foreign tech experts,” 01.01.2018 (Hebrew), http://www.globes.co.il/en/article-israel-eases-entry-of-foreign-tech-experts-1001217775

Cahaner, Malach and Hoshen, “Israel’s ultra-orthodox society’s yearbook 2017,” Israel Democracy Institute, 31.12.2017:
https://www.idi.org.il/media/9930/the-yearbook-of-haredi-society-in-israel-2017.pdf

“The Ministry of Labor and Social Services initiate new program – study and work in high-tech in less than a year – for free,” Ministry of Labor, Social Affairs and Social Services website, 07/05/2018 (Hebrew):
http://www.molsa.gov.il/Dover/Pages/NewsPage.aspx?ListID=76c73ffb-5c7e-40f4-bdc1-20a68f9aa9e8&WebId=57bafbcd-ffba-4897-85eb-c3379813c505&ItemID=873

Jabareen Yousef, “Israeli-arab employment: the challenge of Israel’s economy,” Israel Democracy Institute, 12/08/2012 (Hebrew): https://www.idi.org.il/media/4618/%D7%AA%D7%A2%D7%A1%D7%95%D7%A7%D7%AA-%D7%A2%D7%A8%D7%91%D7%99%D7%9D-%D7%91%D7%99%D7%A9%D7%A8%D7%90%D7%9C.pdf

Taxes

#31

To what extent does taxation policy realize goals of equity, competitiveness and the generation of sufficient public revenues?

10
 9

Taxation policy fully achieves the objectives.
 8
 7
 6


Taxation policy largely achieves the objectives.
 5
 4
 3


Taxation policy partially achieves the objectives.
 2
 1

Taxation policy does not achieve the objectives at all.
Tax Policy
6
Israel’s taxation policy is somewhat regressive. A large share of taxes in Israel are indirect. This includes VAT, which is levied equally on all products. Furthermore, although the direct income tax is progressively structured, and a large portion of the population makes too little money to pay any income tax at all, the system creates a curve that forces middle-income individuals to pay proportionately more tax than high-income individuals. This apparent distortion is an intentional economic strategy meant to induce growth by reducing the tax burden associated with investments and companies. While controversial, it is not necessarily unfair as such.

Like most other countries, Israel utilizes its tax system as a political instrument. For example, it offers tax reductions to army veterans. However, in most instances the Israeli tax system has a valid rationale for tax reductions that appear to violate the principle of horizontal or vertical equality. The Encouragement of Capital Investments Law (ECIL) provides tax discounts for factories and businesses that invest in peripheral areas. This is done both to keep Israel’s taxes competitive in the global market and to incentivize the creation of jobs in disenfranchised regions. The ECIL has been criticized in recent years, especially at the end of 2017 following the large layoff of Teva employees – an Israeli pharmaceutical company that received large tax benefits.

The current minister of finance, Moshe Kahlon, is opposed to rising taxes and has cut many taxes while simultaneously spending generously on plans to lower housing and living costs. Notably, his flagship program “Price for the House-Buyers” (initiated in 2013) has so far cost the government more than ILS 5 billion. This policy was criticized for being short-sighted by the former governor of the central bank of Israel, Karnit Flug.

Over the last five years, Israel has had annual tax surpluses, relative to forecasts. The surpluses stemmed largely from the sale of large companies – including the sale of the government’s controlling stake in Keter Plastic and the sale of Mobileye – in addition to increased Israel Tax Authority operations that yielded more tax revenue than forecast. Although a recent OECD report advised policymakers to devote tax revenues to improving social services, the current government has advocated tax cuts. In December 2017, Finance Minister Moshe Kahlon announced the abolishment of customs and purchase taxes totaling ILS 800 million per year.

In addition, in September 2018, Israel signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Instrument,” MLI), a multilateral agreement that updates previous bilateral agreements between signatory countries in a way that will make tax evasion harder for global corporations. Time will tell if the agreement will have broader effects on Israel’s tax policy.

Citations:
Barket, Amiram, “BoI research chief warns against tax cuts,” Globes, 11.12.2017: http://www.globes.co.il/en/article-boi-research-chief-warns-against-tax-cuts-1001215058

Barket, Amiram, “Israel’s budget surpluses are becoming a habit,” Globes, 15.10.2017: http://www.globes.co.il/en/article-israels-budget-surpluses-are-becoming-a-habit-1001207772

Barket, Amiram, “Israel thinks it’s an open economy. It isn’t.,” Globes, 14.02.16: http://www.globes.co.il/en/article-israel-thinks-its-an-open-economy-it-isnt-1001102598


“Economic Survey of Israel 2016.,” OECD Website.http://www.oecd.org/eco/surveys/economic-survey-israel.html

Solomon, Shoshanna, “Israel cuts product tariffs in bid to lower cost of living,” The Times of Israel, 11.12.2017: https://www.timesofisrael.com/israel-cuts-product-tariffs-in-bid-to-lower-cost-of-living/

Solomon, Shoshanna, “Netanyahu hints at Israeli corporate tax cut after US slashes rate,” The Times of Israel, 3.12.2017: https://www.timesofisrael.com/netanyahu-hints-at-israeli-corporate-tax-cut-after-us-slashes-rate/

Waksman, Avi, “Wanted: A Tax Policy for Israel’s Economy, Not for Elections,” Haaretz, 20.09.2018:
https://www.haaretz.com/israel-news/business/wanted-a-tax-policy-for-israel-s-economy-not-for-elections-1.6492218

Neuman Efrat and Waksman Avi, “Israel gets a new weapon in the fight against tax evasion,” The Marker, 17.09.2018:
https://www.themarker.com/law/.premium-1.6479399

Vaxman, Avi, “End to the tax surplus celebration? 600 million shekels forcast miss,” The Marker, 09.07.2018:
https://www.themarker.com/news/macro/1.6249613

Budgets

#22

To what extent does budgetary policy realize the goal of fiscal sustainability?

10
 9

Budgetary policy is fiscally sustainable.
 8
 7
 6


Budgetary policy achieves most standards of fiscal sustainability.
 5
 4
 3


Budgetary policy achieves some standards of fiscal sustainability.
 2
 1

Budgetary policy is fiscally unsustainable.
Budgetary Policy
7
Israeli’s history of successful budgetary reform continues to contribute to the stabilization of the Israeli economy. Along with prudent monetary policies, budgetary reform measures helped the country weather the recent global economic crisis relatively successfully.

After the economic crises of the mid-1980s, key steps were taken to reduce Israel’s budgetary deficit and to build a set of objectives and guidelines enabling sustainable budgetary planning. Strict budgetary-discipline laws were enacted: The Budget Foundations Law set scrupulous spending procedure regulations and implemented deficit-reporting requirements, and another law prohibited the central bank from providing loans to the government, ensuring that future deficits would be financed by borrowing from the public and abroad rather than through direct monetary injections. Consequently, fiscal power was centralized, giving the Ministry of Finance’s budget department the power to impose a policy of budgetary discipline.

Two crucial additional tools, the Arrangements Law (Hok Ha-Hesderim) and the Budget Deficit Reduction Law, redefined the financial and economic structure of the Israeli government. The Arrangements Law is an omnibus law passed in parallel with each budget, consisting of numerous restrictions and amendments designed to secure the state’s financial goals. Since 2009, the budget has been converted to a biennial budget plan, which many regard as having a positive influence on planning capabilities. Though in September 2017 Israel’s Supreme Court ordered the government to either formally legislate the change to biennial budget or return to an annual budget plan.


Regarding the budget deficit, according to recent preliminary reports (October 2018), the Israeli government has exceeded the deficit ceiling set by the Budget Deficit Reduction Law following a jump of almost one percentage point (from 2.5% to 3.3%) in the deficit. If Israel exceeds the deficit ceiling, Israel’s credit rating might suffer, with serious repercussions on the interest rate of its external deficit.

Citations:
Hattis Rolef, Susan, Two-Year (Biennial) Budgets, The Knesset Research and Information Center, 15.7.2009: https://www.knesset.gov.il/mmm/data/pdf/me02392.pdf

“Mission Concluding Statement,” International Monetary Fund, 8.2.2017: http://www.imf.org/en/News/Articles/2017/02/08/mcs02082017-Israel-Staff-Concluding-Statement-Of-The-2017-Article-IV-Mission

Barkat, Amiram, ”Rising budget deficit threatens Israel’s credit rating,” Calcalist, 9.10.18 :
https://en.globes.co.il/en/article-rising-budget-deficit-threatens-israels-credit-rating-1001255656

Milman, Omri, “The Supreme Court have ‘gave a red ticket’ to the biennial budget,” Calcalist 06.09.17 (Hebrew):
https://www.calcalist.co.il/local/articles/0,7340,L-3720651,00.html

Research, Innovation and Infrastructure

#2

To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?

10
 9

Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
 8
 7
 6


Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
 5
 4
 3


Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
 2
 1

Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
R&I Policy
10
Israel’s research and development (R&D) sector is based on three pillars: scientific research performed primarily in academia, research conducted in government institutes, and research conducted by civil-industrial partnerships overseen the by Ministry of Finance. For many years, Israel has led the world in research and development (R&D) investment, spending more on R&D as share of GDP than any other developed country. The country was ranked 11 out of 126 countries in the 2018 Global Innovation Index, a considerable improvement over the 16th place it held in 2017.

In 2014 the government’s social-economic cabinet approved the establishment of aimed to encourage technological innovation. The Israel Innovation Authority began its activity in early 2017. The authority was established based on the model of the Office of the Chief Scientist in the Israeli Ministry of Economy and Industry, with the goal of implementing the R&D law, and providing high-quality and effective services for the Israeli innovation ecosystem. The authority had a budget of close to ILS 200 million in 2017, but used only ILS 100 million of it.

A large portion of Israel’s R&D policy is directed toward international cooperation. In 2011, Israel was engaged in 30 different international cooperative research ventures with a variety of European countries and organizations. These resulted in 250 grant applications and projects with a total budget of €1.35 billion by 2017, while the return to Israeli entities in the form of grants reached €1.7 billion. Israel is also signatory to 29 bilateral R&D agreements, which fund around 100 new projects each year, and is involved in five EU programs, including Eureka, Eurostars, the Competitive and Innovation Program – Enterprise Europe Network (CIP-EEN), Galileo, and Sesar. In terms of both policy and budgets, the most significant international involvement is through framework programs, such as Horizon 2020, which are managed by the Israel-Europe R&D Directorate (ISERD).

Israel produces a large number of new and important patents every year, mainly in the fields of science and technology. It is a signatory to the Patent Cooperation Treaty. In 2017, the number of patents approved in Israel decreased by 19% - from 813 in 2016 to 660 in 2017.

Although the state of innovation in Israel is good, a comparative study from the Samuel Neaman Institute found that the rate at which research output grows in Israel is lower than in similar small, high-innovation countries like Belgium and Singapore. This trend might lead to a future decline in Israel’s status as a highly innovative country. The study points to the declining share that academic research accounts for within total (civilian) R&D investment as a possible cause for this development.

Citations:
Cocco, Federica, “How Israel is leading the world in R&D investment,” Financial Times, 8.2.2017: https://www.ft.com/content/546af0b2-ede5-11e6-930f-061b01e23655

Public announcement from Israel central statistics bureau, “Survey of Knowledge Commercialization Companies in Israel 2017 Reports on Inventions, Patents, License Agreements, Income and Startup Companies,” 27.08.2018 (Hebrew):
http://www.cbs.gov.il/reader/newhodaot/hodaa_template.html?hodaa=201812257

“The CEO of the social-economic cabinet approved the establishment of an authority for technological innovation,” Minister of the Economy website 15.9.2014: http://economy.gov.il/Publications/PressReleases/Pages/CabinetForTechnologicalIn novation.aspx (Hebrew)

The R&D fund – Support to Research and Technological Innovations, ”The Ministry of Economy and Industry website (Hebrew)

Robin, Aliran, “The Budget of the Israel Innovation Authority will be cut in 100 Million Shekels,” The Marker, 11.8.16: (Hebrew) http://www.themarker.com/technation/1.3036681 “2016 Israel Innovation Authority Report Presented to Prime Minister,” 29.6.2016: http://www.imra.org.il/story.php3?id=70918

Israel Innovation Authority. “Innovation Report 2018.”
https://innovationisrael.org.il/en/report/innovation-report-2018

Israel Innovation Authority, “Report 2017,” http://economy.gov.il/English/NewsRoom/PressReleases/Documents/2017IsraelInnovationAuthorityReport.pdf

Dutta, Soumitra, Bruno Lanvin, and Sacha Wunsch-Vincent (Editors), “The Global Innovation Index 2017. Innovation Feeding the World,” https://www.globalinnovationindex.org/gii-2017-report

Cornell University, INSEAD, and WIPO, “The Global Innovation Index 2018: Energizing the World with Innovation,” Ithaca, Fontainebleau, and Geneva, 2018: https://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2018.pdf

Getz, Daphne, Lavid, Noa and Barzani, Ella. “R&D Outputs in Israel: International Comparison of Scientific Publications,” 2017, Haifa: Samuel Neaman Institute, 2018. https://www.neaman.org.il/EN/R-D-Outputs-in-Israel-International-Comparison-of-Scientific-Publications-2017

“Operational budget for the Israel Innovation Authority,” Key to Israel’s Budget, 11.10.2018 (Hebrew):
http://next.obudget.org/i/budget/00383001/2019?li=3

Bilateral Programs, ISRED, 17.10.2018:
http://www.iserd.org.il/binational_programs

“EU – Israel Research and innovation cooperation – 20 years of success, partnership and friendship,” The European Commission, 12.01.2017:
https://ec.europa.eu/research/iscp/index.cfm?pg=israel

Global Financial System

#14

To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?

10
 9

The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
 8
 7
 6


The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
 5
 4
 3


The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
 2
 1

The government does not contribute to improving the regulation and supervision of financial markets.
Stabilizing Global Financial System
8
Israel has several regulatory institutions tasked with supervising financial markets. The most prominent include the Israel Securities Authority (ISA) and the Israel Antitrust Authority (IAA). Recent challenges tackled by the ISA include banning binary options trading, the establishment of a committee to study the regulation of cryptocurrencies, and an investigation into a local telecommunications giant – Bezeq (known as “case 4,000”). These institutions are responsible for insuring market stability and fair competition. In the aftermath of the global financial crisis, different government organizations worked to limit risk in the banking and insurance industry. Actions include tightening the rules on mortgages, adopting Basel III regulation and raising minimum capital ratios. Several committees have been formed to investigate structural reforms and submit policy recommendations. Both OECD and central bank assessments have been cautiously optimistic, with the latter pointing to important regulatory tools that are currently being developed for future implementation.

In 2016, following OECD recommendations, the government approved the creation of a new capital authority. The Department of Capital in the Ministry of Finance has been shuttered, and a new, independent authority put in its place, although the finance minister still oversees this body. Among its fields of responsibility, the new authority is in charge of ensuring the stability of regulated finance institutions and making sure they fulfill their obligations to their customers. According to the 2017 annual report of the authority, it supervises approximately ILS 1.5 trillion in funds and 2,000 finance services providers, and led to many changes in the financial regulatory regime, including the assignment of protected bonds to retired citizens, the return of surplus savings from the national car accident victims fund to insurance-holding car-owners, and tighter controls on money laundering and financing terrorism.

Citations:
“Financial stability report,” Bank of Israel 2014 (Hebrew). “Israel – Economic forecast summary,” November 2014. http://www.oecd.org/economy/israel-economic-forecast-summary.htm.

ISA annual report 2017, ISA website, 27.06.2018:
http://www.isa.gov.il/sites/ISAEng/1489/1512/Documents/ENG-FINAL.pdf

Ministry of Finance, The Authority for Capital Market, Insurance and Savings, Annual report 2017 chapter 1, 01.07.2018(Hebrew):
https://mof.gov.il/hon/documents/report2017_chapter1.pdf

Sasson, Asa, “The government approved the creation of the new finance authority,” The Marker 13.03.2016(Hebrew): http://www.themarker.com/markets/1.2881163
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