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

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Author Info

  • 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.

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File URL: http://ec.europa.eu/economy_finance/publications/publication880_en.pdf
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Bibliographic Info

Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 187.

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Length: 28 pages
Date of creation: Jul 2003
Date of revision:
Handle: RePEc:euf:ecopap:0187

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Related research

Keywords: taxation; tax reforms; fiscal policy; social welfare; social benefits; fiscal stabilisers; automatic stabilisers; economic and monetary union; EMU; shocks; Buti; Van den Noord;

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Cited by:
  1. 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.
  2. Eijffinger, S.C.W. & Governatori, M., 2004. "Fiscal and Monetary Interaction: The Role of Asymmetries of the Stability and Growth Pact in EMU," Open Access publications from Tilburg University urn:nbn:nl:ui:12-143035, Tilburg University.
  3. Afonso, António & Schuknecht, Ludger & Tanzi, Vito, 2006. "Public sector efficiency: evidence for new EU member states and emerging markets," Working Paper Series 0581, European Central Bank.

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