IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Automatic fiscal stabilisers in EMU: a conflict between efficiency and stabilization?

  • Khalid Sekkat
  • Marco Buti
  • Carlos Martinez-Mongay
  • 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. Simulations show that European countries - especially small ones - might have a tax burden close to or even higher than the threshold level. (JEL E52, E61, F42)

(This abstract was borrowed from another version of this item.)

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: https://dipot.ulb.ac.be/dspace/bitstream/2013/7354/1/ks-0029.pdf
File Function: ks-0029
Download Restriction: no

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/7354.

as
in new window

Length:
Date of creation: 2003
Date of revision:
Publication status: Published in: C E S - I F O Economic Studies (2003) v.49 n° 1,p.123-140
Handle: RePEc:ulb:ulbeco:2013/7354
Contact details of provider: Postal:
CP135, 50, avenue F.D. Roosevelt, 1050 Bruxelles

Web page: http://difusion.ulb.ac.be

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Paul van den Noord & Chistopher Heady, 2001. "Surveillance of Tax Policies: A Synthesis of Findings in Economic Surveys," OECD Economics Department Working Papers 303, OECD Publishing.
  2. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
  3. Peter Hoeller & Claude Giorno & Christine de la Maisonneuve, 2002. "Overheating in Small Euro Area Economies: Should Fiscal Policy React?," OECD Economics Department Working Papers 323, OECD Publishing.
  4. Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
  5. André Sapir, 2002. "EMU in the early years: differences and credibility," ULB Institutional Repository 2013/8134, ULB -- Universite Libre de Bruxelles.
  6. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
  7. Christopher Pissarides, 1997. "The impact of employment tax cuts on unemployment and wages : the role of unemployment benefits and tax structure," LSE Research Online Documents on Economics 2332, London School of Economics and Political Science, LSE Library.
  8. Gali, Jordi, 1994. "Government size and macroeconomic stability," European Economic Review, Elsevier, vol. 38(1), pages 117-132, January.
  9. Marco Buti & Carlos Martinez-Mongay & Khalid Sekkat & Paul van den Noord, 2002. "Automatic Stabilisers and Market Flexibility in EMU: Is There A Trade-Off?," OECD Economics Department Working Papers 335, OECD Publishing.
  10. von Hagen, Jürgen & Brückner, Matthias, 2001. "Monetary policy in unknown territory: The European Central Bank in the early years," ZEI Working Papers B 18-2001, University of Bonn, ZEI - Center for European Integration Studies.
  11. Alan J. Auerbach & Daniel R. Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 37-56, Summer.
  12. Hairault, Jean-Olivier & Langot, Francois & Portier, Franck, 2001. "Efficiency and stabilization: reducing Harberger triangles and Okun gaps," Economics Letters, Elsevier, vol. 70(2), pages 209-214, February.
Full references (including those not matched with items on IDEAS)

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:ulb:ulbeco:2013/7354. 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: (Benoit Pauwels)

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.