Labor and Product Market Reforms in Advanced Economies: Fiscal Costs, Gains, and Support

Angana Banerji, Valerio Crispolti, Era Dabla-Norris, Romain Duval, Christian Hubert Ebeke (), Davide Furceri, Takuji Komatsuzaki and Tigran Poghosyan

No 2017/003, IMF Staff Discussion Notes from International Monetary Fund

Abstract: Product and labor market reforms are needed to lift persistently sluggish growth in advanced economies. But reforms have progressed slowly because of concerns about their distributive and short-term economic effects. Our analysis, based on new empirical and numerical analysis and country case-studies shows that most labor and product market reforms can improve public debt dynamics over the medium-term. This because reforms raise output by boosting employment and/or labor productivity. But the effect of some labor market reforms on budgetary outcomes and fiscal sustainability depends critically on business cycle conditions. Our evidence also suggests that some temporary and well-designed up-front fiscal stimulus can help enhance the economic impact of reforms. In the past, countries have used fiscal incentives in the past to facilitate reforms by alleviating transition and social costs. But strong ownership of reforms was crucial for their successful implementation.

Keywords: SDN; product market reform; Fiscal Policy; Structural Reforms; Public Debt; Labor Market; Product Market; Deregulation; Employment Protection; Unemployment Benefits; Labor Tax; Active Labor Market Policy; self-financing condition; financing burden; product market deregulation; Fiscal stimulus; Labor market reforms; Employment; Global (search for similar items in EconPapers)
Pages: 120
Date: 2017-03-13
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Citations: View citations in EconPapers (15)

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