Unleashing potential: Model-based reform benchmarking for EU Member States

Philipp Pfeiffer, Janos Varga and Jan in 't Veld

European Journal of Political Economy, 2024, vol. 83, issue C

Abstract: Supply-side policies take centre stage in the EU's post-pandemic recovery plans. This paper employs a benchmarking approach to quantify the potential impact of structural reforms in the EU Member States. Based on a comprehensive collection of structural indicators and a rich endogenous growth model, we evaluate reforms in five policy areas: (i) market competition and regulation; (ii) taxation; (iii) skills and education; (iv) labour markets; and (v) research and development. For each indicator and Member State, we simulate the closing of half of the gap with the EU's best performers, implying ambitious reforms for countries with significant distance to the frontier. For these stylised reforms, we find significant potential gains in employment and output, raising EU GDP by around 2% and 8% after five and twenty years, respectively. In the long run, the policies can increase EU GDP by over 20%. The policies also reduce economic disparities between countries, given different scope for reform. For countries with a sizable distance to the best performers, increases in potential GDP could exceed 40% when halving the gap across all indicators. Among the reforms considered here, human capital investment emerges as central for enhancing growth potential. In addition, we find synergies across reforms and countries and assess the sensitivity to alternative assumptions on technology dynamics in our model.

Keywords: Structural reforms; Benchmarking; Supply-side policies; General equilibrium models; European Union convergence (search for similar items in EconPapers)
JEL-codes: E02 E24 E61 F43 O41 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Working Paper: Unleashing Potential: Model-Based Reform Benchmarking for EU Member States (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:83:y:2024:i:c:s0176268024000375

DOI: 10.1016/j.ejpoleco.2024.102535

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