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Reconciling Stability and Growth

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  • Roel M. W. J. Beetsma
  • Xavier Debrun

Abstract

This paper analyzes the decision of a government facing electoral uncertainty to implement structural reforms in the presence of fiscal restraints similar to the Stability and Growth Pact. The model shows that a pact may harm structural reforms, sacrificing future growth for present stability. The welfare gains brought about by a pact depend on a trade-off between the reduction in the deficit bias and the induced reduction in the amount of structural reform. A pact becomes more attractive (“smarter”) if it takes into account the fiscal impact of structural reforms, in line with a recent proposal by the European Commission.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/174.

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Length: 34
Date of creation: 01 Sep 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/174

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Related research

Keywords: Economic growth; unemployment; employment; employment protection; fiscal policy; fiscal rules; excessive deficits; fiscal discipline; fiscal impact; budget constraint; fiscal restraints; unemployment benefits; budgetary impact; fiscal policies; excessive deficit procedure; tax wedge; budget position; public spending; fiscal expansion; fiscal costs; tax revenue; unemployment insurance; unemployment benefit; job creation; unemployment risk; fiscal implications; high unemployment; fiscal imbalances; public debt; tax cut; budget constraints; budgetary position; fiscal authorities; unemployed; composition of public spending; tax reforms; taxation; tax cuts; unemployment rates; unemployment rate; budget balance; government budgets; fiscal arrangement; fiscal considerations; fiscal revenues; fiscal profligacy; employment tax; fiscal benefits; cyclical fiscal policies; employability; employment protection legislation; reduction in employment; long-term unemployment; employment creation; beveridge curve; fiscal measures; fiscal decisions; budgetary impacts; fiscal deficits; capital expenditure; fiscal regime; public finances; short-term unemployment; structural unemployment; fiscal expansions; structural fiscal; public expenditure; employment measure; budgetary positions; formal fiscal restraints; budget deficit; natural unemployment rate; fiscal institutions; employment outlook; expansionary fiscal; tax revenues; unemployed individuals; temporary unemployment; fiscal consequences; fiscal deficit; fiscal stabilization; increase in tax revenues; fiscal balance; fiscal rule; job search; fiscal adjustment; government budget constraint; government budget; fiscal restraint; tax reform; budget requirements;

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