Macroeconomic effects of simultaneous implementation of reforms after the crisis

Andrea Gerali (), Alessandro Notarpietro and Massimiliano Pisani

No 997, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper evaluates the macroeconomic effects of simultaneously implementing fiscal consolidation and competition-friendly reforms in a country of the euro area by simulating a large-scale dynamic general equilibrium model. We find, first, that the joint implementation of reforms has additional expansionary effects on long-run economic activity. Increasing competition in the service sector favors a higher income tax base. Given the targeted public debt-to-GDP ratio, labor and capital income tax rates can be reduced more than with fiscal consolidation alone. Second, fiscal consolidation has non-negligible medium-run costs; however, they are reduced by joint implementation with the services reform. The results are robust to alternative assumptions that capture the impact of financial crisis on the financing conditions of households.

Keywords: competition; fiscal policy; markups; monetary policy; public debt; spread. (search for similar items in EconPapers)
JEL-codes: C51 E30 E63 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-dge, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_997_14

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