IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Automatic Stabilisers and Market Flexibility in EMU: Is There A Trade-Off?

  • Marco Buti
  • Carlos Martinez-Mongay
  • Khalid Sekkat
  • Paul van den Noord

It is often claimed that tax and welfare reforms that aim at enhancing efficiency may come at the cost of cyclical stabilisation. Reducing the generosity of welfare systems and lowering taxes may boost efficiency and output, and improve market adjustment to shocks. But, by reducing the size of automatic stabilisers, it may also imply less cyclical smoothing. This would be unwelcome in EMU given the loss of national monetary autonomy and the well-known pitfalls of active fiscal management. This paper argues that the alleged trade-off between efficiency/flexibility and stabilisation may not exist. We show that, if the initial level of the tax burden is high, reducing it may lead to higher output stabilisation in the event of a supply shock and higher inflation stabilisation in the event of a demand shock. The threshold level of taxation depends on the preferences of the central bank over inflation and output. Econometric and numerical simulations show that European countries — ... Stabilisateurs automatiques et flexibilité de marchés de l'UEM. Y-a-t-il un compromis ? On a souvent proclamé que les réformes fiscales et sociales ayant pour objectif d'augmenter l'efficacité économique pouvaient se faire au détriment de la stabilisation des cycles économiques. En effet, la réduction de la générosité des systèmes de sécurité sociale et l'abaissement des impôts tendent à accroître l'efficacité de l'activité économique et à améliorer la capacité d'ajustement des marchés aux chocs. Cependant, réduire la taille des stabilisateurs automatiques peut également impliquer une augmentation des oscillations cycliques. Cela serait contrariant au sein de l'UEM, étant donné la perte d'autonomie monétaire au niveau national, ainsi que les problèmes associés à l’activisme fiscal. Cet article établi que la contradiction potentielle entre efficacité/flexibilité et stabilisation peut ne pas exister. Nous montrons que, lorsque le niveau initial des prélèvements obligatoires est élevé, sa réduction peut renforcer la stabilisation de la production en réponse à un choc ...

If 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.

File URL: http://dx.doi.org/10.1787/642866215738
Our checks indicate that this address may not be valid because: 403 Forbidden (http://dx.doi.org/10.1787/642866215738 [303 See Other]--> http://www.oecd-ilibrary.org/economics/automatic-stabilisers-and-market-flexibility-in-emu_642866215738). If this is indeed the case, please notify ()


Download Restriction: no

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 335.

as
in new window

Length:
Date of creation: 26 Jul 2002
Date of revision:
Handle: RePEc:oec:ecoaaa:335-en
Contact details of provider: Postal: 2 rue Andre Pascal, 75775 Paris Cedex 16
Phone: 33-(0)-1-45 24 82 00
Fax: 33-(0)-1-45 24 85 00
Web page: http://www.oecd.org
Email:


More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:oec:ecoaaa:335-en. 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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.