Reconciling Stability and Growth: Smart Pacts and Structural Reforms
This Paper analyses 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. We provide suggestive evidence that structural reforms - in particular labour market reforms - may lead to substantial outlays by the government, for example to buy political support. To the extent that the reform package entails up-front costs, the model shows that a pact may harm structural reforms, sacrificing future growth for present stability. Since electoral uncertainty creates an expansive fiscal bias, 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. Imposing a pact becomes more attractive if it takes into account the up-front costs from structural reforms when evaluating the member states' fiscal stance. Therefore, the analysis lends support to a recent proposal by the European Commission for a more flexible implementation of the Stability and Growth Pact in this respect.
|Date of creation:||Jun 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
References listed on IDEAS
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.:
- Sibert, Anne & Sutherland, Alan, 2000. "Monetary union and labor market reform," Journal of International Economics, Elsevier, vol. 51(2), pages 421-435, August.
- Gert Schnabel, 2002. "Output trends and Okun's law," BIS Working Papers 111, Bank for International Settlements.
- Saint-Paul, Gilles, 2004.
"Macroeconomic Fluctuations and the Timing of Labor Market Reform,"
IDEI Working Papers
314, Institut d'Économie Industrielle (IDEI), Toulouse.
- Saint-Paul, Gilles, 2002. "Macroeconomic Fluctuations and the Timing of Labor Market Reform," IDEI Working Papers 146, Institut d'Économie Industrielle (IDEI), Toulouse.
- Saint-Paul, Gilles, 2002. "Macroeconomic Fluctuations and the Timing of Labour Market Reforms," CEPR Discussion Papers 3646, C.E.P.R. Discussion Papers.
- Saint-Paul, Gilles, 2002. "Some Thoughts on Macroeconomic Fluctuations and the Timing of Labor Market Reform," IZA Discussion Papers 611, Institute for the Study of Labor (IZA).
- Gilles Saint Paul, 1999.
"The political economy of employment protection,"
Economics Working Papers
355, Department of Economics and Business, Universitat Pompeu Fabra.
- Kenneth Rogoff, 1987.
"Equilibrium Political Budget Cycles,"
NBER Working Papers
2428, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:3930. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.