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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. 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.
  2. Stefan Boeters & Reinhold Schnabel & Nicole Gürtzgen, 2006. "Reforming Social Welfare in Germany: An Applied General Equilibrium Analysis," German Economic Review, Verein für Socialpolitik, vol. 7, pages 363-388, November.
  3. 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.
  4. Afonso, António, 2006. "Expansionary fiscal consolidations in Europe: new evidence," Working Paper Series 0675, European Central Bank.
  5. Francesco Giavazzi & Marco Pagano, 1995. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," NBER Working Papers 5332, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.
  8. Lane, Philip R. & Perotti, Roberto, 2003. "The importance of composition of fiscal policy: evidence from different exchange rate regimes," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2253-2279, September.
  9. Bovenberg, A.L. & Graafland, J.J. & de Mooij, R.A., 2000. "Tax reform and the Dutch labour market : An applied general equilibrium approach," Other publications TiSEM a22f887a-ce1a-4aa2-ad01-6, School of Economics and Management.
  10. Andrew Burns & Kwang-Yeol Yoo, 2002. "Public Expenditure Management in Poland," OECD Economics Department Working Papers 346, OECD Publishing.
  11. repec:ner:tilbur:urn:nbn:nl:ui:12-83974 is not listed on IDEAS
  12. Alberto Alesina & Roberto Perotti, 1996. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," NBER Working Papers 5730, National Bureau of Economic Research, Inc.
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