Is Lisbon far from Maastricht? Trade-offs and Complementarities between Fiscal Discipline and Structural Reforms
AbstractWhile according to the so-called “Brussels-Frankfurt consensus” sound fiscal policies and structural reforms support each other, it is often claimed that the EU fiscal framework, by reducing the budgetary room of manoeuvre and the political capital of governments, may deter reforms. The aim of this paper is to explore which factors determine the relation between fiscal discipline and reforms. By means of a simple model we show that, depending on the time horizon of the government, structural reforms may either be complement or substitute with fiscal discipline. If governments are forward-looking, substitution is more likely; if governments are short-sighted, reforms and fiscal discipline may become complement. We provide empirical evidence supporting this argument. In a sample of EU-15 countries over the past three decades, the introduction of the Maastricht constraints at the beginning of the 1990s does not seem to have affected the probability of labour market reforms on average, but had a positive and significant impact on countries with governments facing elections in the current or forthcoming year (which are hence assumed to behave myopically). Our results suggest that if governments are short-sighted, then the expectation that relaxing fiscal constraints may help to boost structural reforms may be ill-founded.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6204.
Date of creation: Mar 2007
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- Marco Buti & Werner Rüger & Alessandro Turrini, 2009. "Is Lisbon Far from Maastricht? Trade-offs and Complementarities between Fiscal Discipline and Structural Reforms," CESifo Economic Studies, CESifo, vol. 55(1), pages 165-196, March.
- 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-2007-03-31 (All new papers)
- NEP-EEC-2007-03-31 (European Economics)
- NEP-MAC-2007-03-31 (Macroeconomics)
- NEP-PBE-2007-03-31 (Public Economics)
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