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What is the impact of tax and welfare reforms on fiscal stabilisers? A simple model and an application to EMU

Author

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  • Marco Buti
  • Paul Van den Noord

Abstract

Reforms aiming at lowering the tax burden and cutting social benefits may boost efficiency and output, and improve market adjustment to shocks, but, by reducing the size of automatic stabilisers, may also imply less cyclical smoothing. This would be problematic in EMU given the loss of national monetary autonomy. This paper argues that the alleged trade-off between efficiency/flexibility and stabilisation depends on the typology of shocks affecting the economy.

Suggested Citation

  • Marco Buti & Paul Van den Noord, 2003. "What is the impact of tax and welfare reforms on fiscal stabilisers? A simple model and an application to EMU," European Economy - Economic Papers 2008 - 2015 187, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:ecopap:0187
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    Citations

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    Cited by:

    1. Szapáry, György & Orbán, Gábor, 2004. "A stabilitási és növekedési paktum az új tagállamok szemszögéből [The Stabilization and Growth Pact in the light of the new EU member-states]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 810-831.
    2. Orban, Gabor & Szapary, Gyorgy, 2004. "The Stability and Growth Pact from the perspective of the new member states," Journal of Policy Modeling, Elsevier, vol. 26(7), pages 839-864, October.
    3. Eijffinger, Sylvester & Governatori, Matteo, 2004. "Fiscal and Monetary Interaction: The Role of Asymmetries of the Stability and Growth Pact in EMU," CEPR Discussion Papers 4647, C.E.P.R. Discussion Papers.
    4. Antonio Afonso & Ludger Schuknecht & Vito Tanzi, 2010. "Public sector efficiency: evidence for new EU member states and emerging markets," Applied Economics, Taylor & Francis Journals, vol. 42(17), pages 2147-2164.
    5. Raphaël Espinoza, 2007. "Les stabilisateurs automatiques en France," Économie et Prévision, Programme National Persée, vol. 177(1), pages 1-17.
    6. Deborah Mabbett & Waltraud Schelkle, 2007. "Bringing Macroeconomics Back into the Political Economy of Reform: the Lisbon Agenda and the 'Fiscal Philosophy' of EMU," Journal of Common Market Studies, Wiley Blackwell, vol. 45, pages 81-103, March.
    7. Jesus Crespo Cuaresma & Gerhard Reitschuler & Maria Antoinette Silgoner, 2009. "On the effectiveness and limits of fiscal stabilizers," Applied Economics, Taylor & Francis Journals, vol. 43(9), pages 1079-1086.
    8. European Commission, 2010. "Tax Policy after the Crisis: Monitoring Tax Revenues and Tax Reforms in EU Member States 2010 Report," Taxation Papers 24, Directorate General Taxation and Customs Union, European Commission.

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