Reconciling Stability and Growth; Smart Pacts and Structural Reforms
This paper analyzes 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. The model shows that a pact may harm structural reforms, sacrificing future growth for present stability. 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. A pact becomes more attractive (“smarter”) if it takes into account the fiscal impact of structural reforms, in line with a recent proposal by the European Commission.
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- Gilles Saint-Paul, 2002.
"The Political Economy of Employment Protection,"
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IDEI Working Papers
314, Institut d'Économie Industrielle (IDEI), Toulouse.
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- Gert Schnabel, 2002. "Output trends and Okun's law," BIS Working Papers 111, Bank for International Settlements.
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