Labour and Product Market Reforms in the Economy with Distortionary Taxation
It 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.
|Date of creation:||Jan 2006|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
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, Oxford University Press, vol. 118(3), pages 879-907.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Sapir, Andre & Aghion, Philippe & Bertola, Giuseppe & Hellwig, Martin & Pisani-Ferry, Jean & Rosati, Dariusz & Vinals, Jose & Wallace, Helen, 2004.
"An Agenda for a Growing Europe: The Sapir Report,"
Oxford University Press, number 9780199271498, December.
- 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.
- 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.
- 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.
- Harris Dellas & George Tavlas, 2005.
"Wage Rigidity and Monetary Union,"
Royal Economic Society, vol. 115(506), pages 907-927, October.
- Dellas, Harris & Tavlas, George, 2003. "Wage Rigidity and Monetary Union," CEPR Discussion Papers 3679, C.E.P.R. Discussion Papers.
- Harris Dellas & George Tavlas, 2004. "Wage Rigidity and Monetary Union," Working Papers 12, Bank of Greece.
- Harris Dellas & George Tavlas, 2002. "Wage Rigidity and Monetary Union," Diskussionsschriften dp0219, Universitaet Bern, Departement Volkswirtschaft.
- 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.
- 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.
- Calmfors, Lars, 1998. "Macroeconomic Policy, Wage Setting and Employment - What Difference Does the EMU Make?," Seminar Papers 657, Stockholm University, Institute for International Economic Studies.
- Calmfors, L., 1998. "Macroeconomic Policy, Wage Setting and Employment -What Differences Does the EMU Make?," Papers 657, Stockholm - International Economic Studies.
- Sibert, Anne & Sutherland, Alan, 1997.
"Monetary Regimes and Labour Market Reform,"
CEPR Discussion Papers
1731, C.E.P.R. Discussion Papers.
- Sibert, Anne, 1999. "Monetary Integration and Economic Reform," Economic Journal, Royal Economic Society, vol. 109(452), pages 78-92, January.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:5431. 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: ()
If references are entirely missing, you can add them using this form.