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Fiscal policy, structural reforms and external imbalances: a quantitative evaluation for Spain

Ángel Gavilán (), Pablo Hernández de Cos, Juan F Jimeno () and Juan Rojas ()
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Ángel Gavilán: Banco de España

No 1107, Working Papers from Banco de España, Working Papers Homepage

Abstract: This paper builds a large overlapping generations model of a small open economy featuring imperfect competition in the labor and product markets to understand i) which were the main determinants of the large expansionary phase experienced in Spain from the mid-1990s until the arrival of the global financial crisis in 2007-2008, ii) what role fiscal policy and structural reforms could have played to avoid the build-up of large external imbalance over this period, and iii) how these policies could affect the recovery of economic activity in Spain after the crisis. Our results indicate that falling interest rates and demographic changes were the main drivers of the Spanish expansionary phase. As for the macroeconomic behavior of the Spanish economy after the crisis, our results suggest that a front-loading in fiscal consolidation together with structural reforms that eliminate distortions in the goods and labor markets could make the recovery of economic activity in Spain more successful.

Keywords: overlapping generations; imperfect competition; fiscal consolidation; demographic change; structural reforms (search for similar items in EconPapers)
JEL-codes: E62 H30 J11 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2011-04
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1107

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