or both parents working, which is an outcome of the trend of increase in labor force participation. the picture is essentially of workers whose earning power does not allow them a respectable livelihood, and so there is an increase in the number of poor families in which there are one or two wage - earners. in this context, expanding the earned income tax credit ( negative income tax ) is an efficient policy tool to deal with the problem, as it focuses on the working poor, and in contrast to a policy of allowances, it does not contain negative incentives. in the long term, of course, the main key to solving the problem of poverty is continued investment in education and increasing earning power. the challenges i have presented here will require a significant increase of civilian expenditure on services such as education, healthcare, welfare, and infrastructure, even if only to maintain the current level of services, given the expected changes in composition of the population. in order to ensure that maintaining the civilian expenditure level will not negatively impact on the important effort to continue to reduce the debt burden, there will be a need to continue to increase tax revenues. this can be achieved in 3 ways, each on its own or in some combination of the three : 1. increasing tax rates, which obviously increases the burden on activity and growth. 2. reassessing the tax exemption system. in this regard, it should be remembered that some of the estimates of the cost of existing exemptions are biased upward, since they do not take into account the expected change in activity resulting from the cancellation of the exemption. 3. reducing the shadow economy and enhancing collection. it is clear that from the perspective of statistics bureaus worldwide, estimating the extent of the unreported economy poses a large challenge. a very rough estimate by the world bank, which apparently has a large margin of error, assesses that the unreported economy is about 20 percent of gdp in israel. in this regard, there are several processes which are being discussed : definition, in legislation, of severe tax crimes as source crimes under the prohibition on money laundering law, which would allow the transfer of information between the israel money laundering and terror financing prohibition authority and the israel tax authority, and making punishment for tax crimes more severe ; collaboration between all the enforcement entities and transfer of professional and intelligence information which will make enforcement against tax evaders more efficient ; and a reduction in the use of cash and third - party checks, which is currently being considered by the locker

committee. to the extent that we will be able to do more in increasing the efficiency of the tax exemption system and enhancing tax collection, we will be able to increase overall tax revenues without increasing tax rates. to summarize, the economy faces the challenge of supporting inclusive growth, which integrates population sectors with low participation rates, while increasing their human capital and earning capacity and increasing productivity. to that end, we must formulate a focused strategic plan, which will include integrating population sectors into employment ( ultraorthodox, arabs, older workers ), dealing with increasing human capital, dealing with the factors leading to slow growth of productivity ( infrastructure, business environment, bis central bankers ’ speeches competitiveness ), preparing public services systems ( healthcare, nursing, etc. ), and reducing the unreported economy by collaboration between all entities. the data i presented in the beginning of my remarks showed that an “ automatic pilot ” policy will not lead us to reducing the gaps with other advanced economies ; however, there is some room for optimism, as an effective and well thought - out policy can definitely improve our situation over the long term. bis central bankers ’ speeches