Fiscal and Structural Policy Challenges Created by the Economic Crisis of 2008–2009

Bernhard Grossmann (), Jürgen Janger and Lukas Reiss ()
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Bernhard Grossmann: Oesterreichische Nationalbank
Lukas Reiss: Oesterreichische Nationalbank, Economic Analysis Division

Monetary Policy & the Economy, 2009, issue 4, 33–60

Abstract: The economic crisis of 2008–2009 has greatly compounded the challenge of economic policymaking at the EU level and at the national level. This study focuses on the related real economy aspects, namely on fiscal and structural policies. Judging from current trends, Austria will most probably not be able to reduce its high deficits of 2009 and 2010 via economic growth alone. Furthermore, the repercussions of the crisis on public finances are going to be exacerbated in the medium term by the implications of demographic change. These developments result in a considerable need for consolidation, which will go significantly beyond the need to finance the economic stimulus packages ex post – but by how much cannot be estimated precisely as yet. At any rate, it will be important to coordinate the necessary consolidation measures internationally, not to undertake consolidation before the economic recovery becomes self-sustained, and to avoid conflicts with other economic policy goals. Having analyzed the medium- to long-term structural growth potential which may support fiscal consolidation, we find Austria to have got some catching-up potential in terms of labor supply and productivity compared with typical comparison countries. This catching-up potential is good news, as this means that Austria should find it easier than other countries to revive growth. With a view to offsetting the crisis-related loss in potential growth in the medium term, which would materially support consolidation efforts, policymakers could leverage growth above all by raising employment, improving the education system, enhancing competition policies and reforming innovation funding. Economic policymakers in Austria and elsewhere have indeed got the power to influence the growth path after the crisis.

Keywords: economic growth; structural reforms; financial crisis; fiscal consolidation (search for similar items in EconPapers)
JEL-codes: H6 O38 O52 (search for similar items in EconPapers)
Date: 2009
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