Fiscal consequences of structural reform under constrained monetary policy

Rana Sajedi

No 620, Bank of England working papers from Bank of England

Abstract: Given the weak economic performance of many countries since the recent crisis, there is an increasing need for structural reforms aimed at promoting long-run economic growth. Structural reforms can entail short-run output costs unless offset by a demand expansion. When monetary policy is constrained and cannot carry out this short-run expansion, there is a potential role for fiscal policy. In this case, reforms can go against fiscal consolidation in the short run, although they are expected to improve public finances in the long run. The aim of this paper is to quantify the short-run fiscal costs and long-run fiscal benefits of reforms, and investigate how the design of reforms can affect this trade-off. The focus is on the euro area, which has been particularly affected by high unemployment. In the model, both the costs and benefits of reforms are generally small, although increasingly large reforms entail larger rises in deficit-to-GDP in the short run. Results suggest that reforms in labour markets have little effect on public finances in the long run, but their short-run costs can be ameliorated by combining them with product market reforms.

Keywords: Structural reform; fiscal policy; effective lower bound (search for similar items in EconPapers)
JEL-codes: E65 H20 H63 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2016-10-07
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... 0D098305AE781822FE10 Full text (application/pdf)

Related works:
Journal Article: Fiscal consequences of structural reform under constrained monetary policy (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0620

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().