Labour and Product Market Reforms in the Economy with Distortionary Taxation
AbstractIt is widely accepted that in order to improve the economic position of the EU relative to the USA certain structural reforms need to be undertaken, mainly in the labour market. However few EU countries have undertaken such reforms. The reason lies in the fact that those reforms are going to be costly in terms of economic performance, unemployment and hence the cost of financing them - at least in the short term. Blanchard and Giavazzi (2003) develop a model based on imperfect competition in both product and labour markets in order to show the impact of deregulation on the economy. However they do not consider the question of how to finance such reforms or overcome the short run costs, a key consideration if the short run costs are large relative to the long run gains. We extend their model by including the effects of another inevitable source of imperfections: distortionary taxation - not only the most likely candidate for reform, but also the most likely instrument for financing the restructuring process. By extending the model in this way we can establish formally that reforms imply significant short run costs as well as long run gains; that (political opposition apart) the financing of such reforms will be the main stumbling block. We come to a number of conclusions which reverse the Blanchard and Giavazzi results; and find that, in addition, the composition of the reform package matters, as does the distribution of the tax burden. This model therefore supplies new results on the design and sequencing of reforms.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200604.
Date of creation: 15 Jan 2006
Date of revision:
Contact details of provider:
Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Fax: 01334 462444
Web page: http://www.st-andrews.ac.uk/cdma
More information through EDIRC
Structural Reform; Wage Bargains; Short vs Long Run Sustainability.;
Other versions of this item:
- Bokan, Nikola & Hughes Hallett, Andrew, 2006. "Labour and Product Market Reforms in the Economy with Distortionary Taxation," CEPR Discussion Papers 5431, C.E.P.R. Discussion Papers.
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-04-22 (All new papers)
- NEP-MAC-2006-04-22 (Macroeconomics)
- NEP-PBE-2006-04-22 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Olivier Blanchard & Francesco Giavazzi, 2001.
"Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets,"
NBER Working Papers
8120, National Bureau of Economic Research, Inc.
- Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects Of Regulation And Deregulation In Goods And Labor Markets," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 879-907, August.
- Olivier Blanchard & Francesco Giavazzi, . "Macroeconomic effects of regulation and deregulation in goods and labor markets," Working Papers 187, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Blanchard, Olivier J & Giavazzi, Francesco, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets," CEPR Discussion Papers 2713, C.E.P.R. Discussion Papers.
- Harris Dellas & George Tavlas, 2002.
"Wage Rigidity and Monetary Union,"
dp0219, Universitaet Bern, Departement Volkswirtschaft.
- André Sapir & Philippe Aghion & Giuseppe Bertola & Martin Hellwig & Jean Pisani-Ferry & Bernard Lange & José Viñals & Helen Wallace & Marco Buti & Mario Nava & Peter Smith, 2004.
"An agenda for a growing Europe: the Sapir report,"
ULB Institutional Repository
2013/8070, ULB -- Universite Libre de Bruxelles.
- Hughes Hallett, Andrew & Viegi, Nicola, 2001. "Labour Market Reform and Monetary Policy in EMU: Do Asymmetries Matter?," CEPR Discussion Papers 2979, C.E.P.R. Discussion Papers.
- Bruno, Michael, 1986. "Aggregate Supply and Demand Factors in OECD Unemployment: An Update," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S35-52, Supplemen.
- Frankel, Jeffrey A & Rose, Andrew K, 1996.
"The Endogeneity of the Optimum Currency Area Criteria,"
CEPR Discussion Papers
1473, C.E.P.R. Discussion Papers.
- Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July.
- Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
- Calmfors, Lars, 1998. "Macroeconomic Policy, Wage Setting, and Employment--What Difference Does the EMU Make?," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 125-51, Autumn.
- Anne C. Sibert & Alan Sutherland, .
"Monetary Regimes and Labour Market Reform,"
97/14, Department of Economics, University of York.
- Koedijk, C.G. & Kremers, J., 1996. "Market opening, regulation and growth in Europe," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3108676, Tilburg University.
- Sibert, Anne, 1999. "Monetary Integration and Economic Reform," Economic Journal, Royal Economic Society, vol. 109(452), pages 78-92, January.
- Torben M. Andersen & Niels Haldrup & Jan Rose Sørensen, 2000. "Labour market implications of EU product market integration," Economic Policy, CEPR & CES & MSH, vol. 15(30), pages 105-134, 04.
- Hallett, Andrew Hughes & Jensen, Svend E. Hougaard & Richter, Christian, 2005. "The European economy at the cross roads: Structural reforms, fiscal constraints, and the Lisbon Agenda," Research in International Business and Finance, Elsevier, vol. 19(2), pages 229-250, June.
- Dobbelaere, Sabien, 2004. "Estimation of price-cost margins and union bargaining power for Belgian manufacturing," International Journal of Industrial Organization, Elsevier, vol. 22(10), pages 1381-1398, December.
- Bokan, Nikola & Hughes Hallett, Andrew, 2008. "The Impact of Tax and Market Distortions on the Phillips Curve and the Natural Rate of Unemployment," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(27), pages 1-28.
- Andrew Hughes Hallett, 2010. "Why Do Some Countries Undertake Structural Reforms When Others Do Not? Evidence From The Oecd And Emerging Market Economies," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 81-103.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bram Boskamp).
If references are entirely missing, you can add them using this form.