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The cost of fiscal tightening in Poland on the road to the Euro: does the labour market matter? (CGE model simulations)

  • Gradzewicz, Michal
  • Jędrzejowicz, Tomasz
  • Żółkiewski, Zbigniew

The paper presents an assessment of macroeconomic and also some selected structural consequences of the proposed fiscal consolidation necessary for Poland to fulfil the Maastricht fiscal criteria. The fiscal adjustments are assessed with a CGE model simulated over the 2006–2008 horizon. Two sets of simulations are analysed, namely rigid vs. flexible wages. It is shown that the fiscal tightening programme analysed in this paper does not necessarily incur any costs in terms of aggregate GDP loss in years 2006–2008. On the contrary, it may generate additional growth effects, provided that downward wage adjustments reduce unit labour costs, thus fostering the growth. It is concluded that the condition for the achievement of a smooth and relatively low-cost fiscal adjustment is to supplement it with labour market reform.

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File URL: http://mpra.ub.uni-muenchen.de/28146/1/MPRA_paper_28146.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28146.

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Date of creation: Apr 2007
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Publication status: Published in Bank i Kredyt 4.2007(2007): pp. 3-17
Handle: RePEc:pra:mprapa:28146
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  1. Stefano Scarpetta, 1998. "Labour Market Reforms and Unemployment: Lessons from the Experience of the OECD Countries," IDB Publications (Working Papers) 6444, Inter-American Development Bank.
  2. Andrew Burns & Kwang-Yeol Yoo, 2002. "Public Expenditure Management in Poland," OECD Economics Department Working Papers 346, OECD Publishing.
  3. Philip R. Lane & Roberto Perotti, 2001. "The Importance of Composition of Fiscal Policy: Evidence from Different Exchange Rate Regimes," CEG Working Papers 200111, Trinity College Dublin, Department of Economics.
  4. Alberto Alesina & Roberto Perotti, 1996. "Fiscal Adjustments in OECD Countries; Composition and Macroeconomic Effects," IMF Working Papers 96/70, International Monetary Fund.
  5. A. Lans Bovenberg & Johan J. Graafland & Ruud A. de Mooij, 1998. "Tax Reform and the Dutch Labor Market: An Applied General Equilibrium Approach," NBER Working Papers 6693, National Bureau of Economic Research, Inc.
  6. Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for non-linear effects of fiscal policy: Evidence from industrial and developing countries," European Economic Review, Elsevier, vol. 44(7), pages 1259-1289, June.
  7. Giavazzi, Francesco & Pagano, Marco, 1995. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," CEPR Discussion Papers 1284, C.E.P.R. Discussion Papers.
  8. Andrea Bassanini & Jørn Henrik Rasmussen & Stefano Scarpetta, 1999. "The Economic Effects of Employment-Conditional Income Support Schemes for the Low-Paid: An Illustration from a CGE Model Applied to Four OECD Countries," OECD Economics Department Working Papers 224, OECD Publishing.
  9. António Afonso, 2010. "Expansionary fiscal consolidations in Europe: new evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 17(2), pages 105-109, January.
  10. Schnabel, Reinhold & Gürtzgen, Nicole & Boeters, Stefan, 2003. "Reforming Social Welfare in Germany: An Applied General Equilibrium Analysis," ZEW Discussion Papers 03-70, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  11. Roberts, Barbara M & Round, Jeffery I & Zolkiewski, Zbigniew, 1998. "Structural Features of Economic Reform in Poland," Review of Development Economics, Wiley Blackwell, vol. 2(2), pages 211-30, June.
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