The Short-Term Budgetary Implications of Structural Reforms. Evidence from a Panel of EU Countries
AbstractThe EU fiscal framework has often been criticized for neglecting a possible trade-off between short-term budgetary objectives and the implementation of reforms that could improve public finances in the long term This concern was reflected in the recent reform of the Stability and Growth Pact, which acknowledges that under certain conditions structural reforms can be taken into account both in the preventive and in the corrective arm of the Pact. The aim of the paper is that of making a step forward on the understanding of the empirical relevance of the trade-off between structural reforms in EU countries. The analysis will focus on product and labour market reforms and pension reforms. The main issue investigated will be as follow: which impact do reforms have on budgets in the short term? Results show that, in the aftermath of reforms, budgets do not worsen significantly compared with cases where no reforms occur. However, when the short-term budgetary impact of reforms is evaluated controlling for the response of fiscal authorities to the cycle and debt developments via the estimation of “fiscal reaction functions”, there is evidence that product and market reforms and pension reforms are associated with a deterioration in budgets. The impact appears rather weak (a primary CAB reduced by few decimal GDP points depending on the specific reform considered) and not always statistically significant.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5217.
Date of creation: Sep 2005
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Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
- J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-04 (All new papers)
- NEP-EEC-2005-10-04 (European Economics)
- NEP-MAC-2005-10-04 (Macroeconomics)
- NEP-PBE-2005-10-04 (Public Economics)
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