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• Paul Joseph Van den Noord
• Khalid Sekkat

It is often claimed that tax and welfare reforms that aim at enhancing efficiency may come at the cost of cyclical stabilisation. Reducing the generosity of welfare systems and lowering taxes may boost efficiency and output, and improve market adjustment to shocks. But, by reducing the size of automatic stabilisers, it may also imply less cyclical smoothing. This would be unwelcome in EMU given the loss of national monetary autonomy and the well-known pitfalls of active fiscal management. This paper argues that the alleged trade-off between efficiency/flexibility and stabilisation may not exist. We show that, if the initial level of the tax burden is high, reducing it may lead to higher output stabilisation in the event of a supply shock and higher inflation stabilisation in the event of a demand shock. The threshold level of taxation depends on the preferences of the central bank over inflation and output. Econometric and numerical simulations show that European countries — ...

Stabilisateurs automatiques et flexibilité de marchés de l'UEM. Y-a-t-il un compromis ?

On a souvent proclamé que les réformes fiscales et sociales ayant pour objectif d'augmenter l'efficacité économique pouvaient se faire au détriment de la stabilisation des cycles économiques. En effet, la réduction de la générosité des systèmes de sécurité sociale et l'abaissement des impôts tendent à accroître l'efficacité de l'activité économique et à améliorer la capacité d'ajustement des marchés aux chocs. Cependant, réduire la taille des stabilisateurs automatiques peut également impliquer une augmentation des oscillations cycliques. Cela serait contrariant au sein de l'UEM, étant donné la perte d'autonomie monétaire au niveau national, ainsi que les problèmes associés à l’activisme fiscal. Cet article établi que la contradiction potentielle entre efficacité/flexibilité et stabilisation peut ne pas exister. Nous montrons que, lorsque le niveau initial des prélèvements obligatoires est élevé, sa réduction peut renforcer la stabilisation de la production en réponse à un choc ...

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Paper provided by OECD Economics Department in its series OECD Economics Department Working Papers with number 335.

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Date of creation: 26 Jul 2002
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Handle: RePEc:oec:ecoaaa:335-en

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Keywords: fiscal policy automatic stabilisers stabilisateurs automatiques politique fiscale Economic and Monetary Union shocks Union économique et monétaire choc

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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1. Christophe Schalck, 2006. "EMU's Fiscal Rules and Economic Stabilization," Economics Bulletin, Economics Bulletin, vol. 5(4), pages 1-8. [Downloadable!]
2. Schalck, Christophe, 2006. "Règles Budgétaires et Gestion du Policy-Mix dans l'UEM Budgetary Rules and Management of the Policy-Mix in the UME," MPRA Paper 1434, University Library of Munich, Germany, revised Oct 2006. [Downloadable!]
3. Markku Kotilainen, 2006. "Economic Shocks, Progressiveness of Taxation, and Indexation of Taxes and Public Expenditure in EMU," Discussion Papers 1011, The Research Institute of the Finnish Economy. [Downloadable!]
4. Christophe Schalck, 2006. "The stability Pact and the coordination of fiscal policies in the EMU," Economics Bulletin, Economics Bulletin, vol. 5(9), pages 1-11. [Downloadable!]
5. Schalck, Christophe, 2006. "Coordination des Politiques Budgétaires dans une Union Monétaires Hétérogène: Modélisation et Application à l'UEM," MPRA Paper 1435, University Library of Munich, Germany. [Downloadable!]
   Other versions:
   • Christophe Schalck, 2007. "Coordination des Politiques Budgétaires dans une Union Monétaire Hétérogène: Modélisation et Application à l'UEM," EconomiX Working Papers 2007-2, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]

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