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The GDP Impact of Reform: A Simple Simulation Framework

Author

Listed:
  • Sebastian Barnes

    (OECD)

  • Romain Bouis

    (OECD)

  • Philippe Briard

    (Ministry of Employment)

  • Sean Dougherty

    (OECD)

  • Mehmet Eris

    (OECD)

Abstract

This paper presents a framework to assess the impact of a wide range of structural policy reforms on GDP per capita at various horizons by linking together previous empirical studies mostly carried out by the OECD. The simple accounting framework consists of reduced-form equations and offers a more tractable and realistic alternative to an estimated general equilibrium model. Though this involves some risks of double counting the effects of certain reforms and omits interactions across different policy areas, the plausible scenarios suggest that the largest long-run GDP per capita gains may be obtained from reforms that would raise the quantity and quality of education, strengthen competition in product markets, reduce the level and/or duration of unemployment benefits, cut labour tax wedges and relax employment protection legislation. Past reforms in these areas might also have contributed to as much as half of GDP per capita growth in OECD countries in the decade prior to the recent financial and economic crisis. Simulations further indicate that addressing all policy weaknesses in each OECD country by aligning policy settings on the OECD average could raise GDP per capita by as much as 25% in the typical country. L'impact des réformes sur le PIB : un cadre simple de simulation Cet article présente un cadre d’analyse pour évaluer l’impact sur le PIB par tête à différents horizons d’un large éventail de réformes de politiques structurelles en reliant ensemble des études empiriques précédemment réalisées pour la plupart par l’OCDE. Le cadre comptable simplifié est constitué d’équations sous forme réduite et offre une alternative plus flexible et plus réaliste qu’un modèle estimé d’équilibre général. Bien que cela implique des risques de double comptage des effets de certaines réformes et l’omission des interactions au sein des différents domaines de politiques, les scénarios plausibles suggèrent que les gains en PIB par tête à long terme les plus élevées pourraient provenir des réformes augmentant la quantité et la qualité de l’éducation, renforçant la concurrence sur le marché des produits, réduisant le niveau et/ou la durée des allocations chômage, diminuant le coin salarial et assouplissant la législation sur la protection de l’emploi. Les réformes passées dans ces domaines pourraient avoir contribué jusqu’à la moitié de la croissance du PIB par tête dans les pays de l’OCDE au cours de la décennie précédant la crise financière et économique récente. Les simulations indiquent en outre que traiter l’ensemble des points faibles de chaque pays de l’OCDE en alignant les positions des politiques sur la moyenne de l’OCDE pourrait accroître le PIB par tête jusqu’à 25% dans le pays moyen.

Suggested Citation

  • Sebastian Barnes & Romain Bouis & Philippe Briard & Sean Dougherty & Mehmet Eris, 2013. "The GDP Impact of Reform: A Simple Simulation Framework," OECD Economics Department Working Papers 834, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:834-en
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    File URL: http://dx.doi.org/10.1787/5kgk9qjnhkmt-en
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    References listed on IDEAS

    as
    1. Andrea Bassanini & Luca Nunziata & Danielle Venn, 2009. "Job protection legislation and productivity growth in OECD countries," Economic Policy, CEPR;CES;MSH, vol. 24, pages 349-402, April.
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    Citations

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    Cited by:

    1. Chrysafis Iordanoglou & Manos Matsaganis, 2017. "Why Grexit cannot save Greece (but staying in the Euro area might)," LEQS – LSE 'Europe in Question' Discussion Paper Series 123, European Institute, LSE.
    2. Nicholas Crafts, 2013. "Long-Term Growth in Europe: What Difference does the Crisis Make?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 224(1), pages 14-28, May.
    3. International Monetary Fund, 2014. "Finland; Selected Issues," IMF Staff Country Reports 14/140, International Monetary Fund.
    4. Angelini, Elena & Dieppe, Alistair & Pierluigi, Beatrice, 2013. "Learning about wage and price mark-ups in euro area countries," Working Paper Series 1512, European Central Bank.
    5. Anna R Bordon & Christian H Ebeke & Kazuko Shirono, 2016. "When Do Structural Reforms Work? On the Role of the Business Cycle and Macroeconomic Policies," IMF Working Papers 16/62, International Monetary Fund.
    6. Crafts, Nicholas, 2012. "Western Europe's Growth Prospects: an Historical Perspective," CEPR Discussion Papers 8827, C.E.P.R. Discussion Papers.
    7. Moshammer, Edmund & Pierluigi, Beatrice & Masuch, Klaus, 2016. "Institutions, public debt and growth in Europe," Working Paper Series 1963, European Central Bank.
    8. repec:bla:jcmkts:v:55:y:2017:i:6:p:1221-1238 is not listed on IDEAS
    9. Lusine Lusinyan & Dirk V Muir, 2013. "Assessing the Macroeconomic Impact of Structural Reforms The Case of Italy," IMF Working Papers 13/22, International Monetary Fund.
    10. Ansgar Belke & Jens Klose, 2017. "Equilibrium Real Interest Rates and Secular Stagnation: An Empirical Analysis for Euro Area Member Countries," Journal of Common Market Studies, Wiley Blackwell, vol. 55(6), pages 1221-1238, November.
    11. Crafts, Nicholas, 2016. "The Growth Effects of EU Membership for the UK: a Review of the Evidence," CAGE Online Working Paper Series 280, Competitive Advantage in the Global Economy (CAGE).
    12. Nicholas Crafts, 2014. "Ireland’s Medium-Term Growth Prospects: a Phoenix Rising?," The Economic and Social Review, Economic and Social Studies, vol. 45(1), pages 87-112.
    13. Robert P. Hagemann, 2012. "Fiscal Consolidation: Part 6. What Are the Best Policy Instruments for Fiscal Consolidation?," OECD Economics Department Working Papers 937, OECD Publishing.
    14. repec:ipf:psejou:v:41:y:2017:i:2:p:159-205 is not listed on IDEAS
    15. Romain Bouis & Romain Duval, 2011. "Raising Potential Growth After the Crisis: A Quantitative Assessment of the Potential Gains from Various Structural Reforms in the OECD Area and Beyond," OECD Economics Department Working Papers 835, OECD Publishing.
    16. Masuch, Klaus & Moshammer, Edmund & Pierluigi, Beatrice, 2016. "Institutions and Growth in Europe," CEPS Papers 11482, Centre for European Policy Studies.

    More about this item

    Keywords

    croissance; emploi; employment; growth; productivity; productivité; réforme structurelle; structural reforms;

    JEL classification:

    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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