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Anatomy of Policy Complementarities

Author

Listed:
  • Orszag, J. Michael

    (Department of Economics, Birkbeck College, University of London)

  • Snower, Dennis J.

    (Department of Economics, Birkbeck College, University of London)

Abstract

The analysis provides a new explanation for two widespread problems concerning European unemployment policy: the disappointingly small effect of many past reform measures on unemployment, and the political difficulties in implementing more extensive reform programs. We argue that the heart of the difficulty may be the failure of many European governments to implement broad-based reform strategies. Our analysis suggests that major unemployment policies are characterized by economic complementarities (in the sense that the effectiveness of one policy depends on the implementation of other policies) and political complementarities (in that the ability to gain political consent for one policy depends on the acceptance of other policies). Under these circumstances, incremental, small-scale adjustments of existing policy packages are doomed to failure. Our analysis suggests, instead, that the European unemployment problem should be tackled through "broad" reforms that manage to exploit the salient economic and political complementarities among individual policy measures.

Suggested Citation

  • Orszag, J. Michael & Snower, Dennis J., 1998. "Anatomy of Policy Complementarities," Working Paper Series 500, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0500
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    References listed on IDEAS

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    1. Feldstein, Martin, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," American Economic Review, American Economic Association, vol. 86(2), pages 1-14, May.
    2. Hassler, John & Lindbeck, Assar, 1997. "Optimal actuarial fairness in pension systems: A note," Economics Letters, Elsevier, vol. 55(2), pages 251-255, August.
    3. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467-467.
    4. Smith, Alasdair, 1982. "Intergenerational transfers as social insurance," Journal of Public Economics, Elsevier, vol. 19(1), pages 97-106, October.
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    More about this item

    Keywords

    Unemployment; Complementarities; Political economy; Employment policy; Unemployment benefits; Taxation; Inequality;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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