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The cost of fiscal tightening in Poland on the road to the Euro: does the labour market matter? (CGE model simulations)

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  • Gradzewicz, Michal
  • Jędrzejowicz, Tomasz
  • Żółkiewski, Zbigniew

Abstract

The paper presents an assessment of macroeconomic and also some selected structural consequences of the proposed fiscal consolidation necessary for Poland to fulfil the Maastricht fiscal criteria. The fiscal adjustments are assessed with a CGE model simulated over the 2006–2008 horizon. Two sets of simulations are analysed, namely rigid vs. flexible wages. It is shown that the fiscal tightening programme analysed in this paper does not necessarily incur any costs in terms of aggregate GDP loss in years 2006–2008. On the contrary, it may generate additional growth effects, provided that downward wage adjustments reduce unit labour costs, thus fostering the growth. It is concluded that the condition for the achievement of a smooth and relatively low-cost fiscal adjustment is to supplement it with labour market reform.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28146.

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Date of creation: Apr 2007
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Publication status: Published in Bank i Kredyt 4.2007(2007): pp. 3-17
Handle: RePEc:pra:mprapa:28146

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Keywords: fiscal reform; Maastricht criteria; labour market; CGE model;

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  1. Andrea Bassanini & Jørn Henrik Rasmussen & Stefano Scarpetta, 1999. "The Economic Effects of Employment-Conditional Income Support Schemes for the Low-Paid: An Illustration from a CGE Model Applied to Four OECD Countries," OECD Economics Department Working Papers 224, OECD Publishing.
  2. Antonio Afonso, 2010. "Expansionary fiscal consolidations in Europe: new evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 17(2), pages 105-109.
  3. Bovenberg, A.L. & Graafland, J.J. & Mooij, R.A. de, 2000. "Tax reform and the Dutch labour market: An applied general equilibrium approach," Open Access publications from Tilburg University urn:nbn:nl:ui:12-83974, Tilburg University.
  4. Roberts, Barbara M & Round, Jeffery I & Zolkiewski, Zbigniew, 1998. "Structural Features of Economic Reform in Poland," Review of Development Economics, Wiley Blackwell, vol. 2(2), pages 211-30, June.
  5. Stefano Scarpetta, 1998. "Labor Market Reforms and Unemployment: Lessons from the Experience of the OECD Countries," Research Department Publications 4136, Inter-American Development Bank, Research Department.
  6. Francesco Giavazzi & Marco Pagano, 1995. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," NBER Working Papers 5332, National Bureau of Economic Research, Inc.
  7. Andrew Burns & Kwang-Yeol Yoo, 2002. "Public Expenditure Management in Poland," OECD Economics Department Working Papers 346, OECD Publishing.
  8. Lane, Philip R. & Perotti, Roberto, 2003. "The importance of composition of fiscal policy: evidence from different exchange rate regimes," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2253-2279, September.
  9. Schnabel, Reinhold & Gürtzgen, Nicole & Boeters, Stefan, 2003. "Reforming Social Welfare in Germany: An Applied General Equilibrium Analysis," ZEW Discussion Papers 03-70, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. Francesco Giavazzi & Tullio Jappelli & Marco Pagano, 2000. "Searching for Non-Linear Effects of Fiscal Policy: Evidence from Industrial and Developing Countries," NBER Working Papers 7460, National Bureau of Economic Research, Inc.
  11. Alberto Alesina & Roberto Perotti, 1996. "Fiscal Adjustments in OECD Countries," IMF Working Papers 96/70, International Monetary Fund.
  12. Alberto Alesina & Roberto Perotti, 1996. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," NBER Working Papers 5730, National Bureau of Economic Research, Inc.
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