EconPapers    
Economics at your fingertips  
 

Fiscal consequences of structural reform under constrained monetary policy

Rana Sajedi

Journal of Economic Dynamics and Control, 2018, vol. 93, issue C, 22-38

Abstract: Structural reforms, in particular reductions in mark-ups in product and labour markets, 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. Although this idea has received a lot of attention in the policy debate, there has been little formal study of the fiscal consequences of reforms under constrained monetary policy. This paper uses a model to quantify the short run fiscal costs and long run fiscal benefits of reforms, in order to see to what extent the latter justify the former. The fiscal costs and benefits of reforms are both generally found to be small, although larger 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 if combined with product market reforms.

Keywords: Structural reform; Fiscal policy; Monetary policy constraints (search for similar items in EconPapers)
JEL-codes: H20 H63 E65 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188918300514
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Fiscal consequences of structural reform under constrained monetary policy (2016) Downloads
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:eee:dyncon:v:93:y:2018:i:c:p:22-38

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-09-12
Handle: RePEc:eee:dyncon:v:93:y:2018:i:c:p:22-38