Is Lisbon Far from Maastricht? Trade-Offs and Complementarities between Fiscal Discipline and Structural Reforms

42 Pages Posted: 21 May 2008

See all articles by Marco Buti

Marco Buti

European Commission, DG II

Werner Roeger

European Commission, DGECFIN

Alessandro Turrini

European Commission; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2007

Abstract

While according to the so-called "Brussels-Frankfurt consensus" sound fiscal policies and structural reforms support each other, it is often claimed that the EU fiscal framework, by reducing the budgetary room of manoeuvre and the political capital of governments, may deter reforms. The aim of this paper is to explore which factors determine the relation between fiscal discipline and reforms. By means of a simple model we show that, depending on the time horizon of the government, structural reforms may either be complement or substitute with fiscal discipline. If governments are forward-looking, substitution is more likely; if governments are short-sighted, reforms and fiscal discipline may become complement. We provide empirical evidence supporting this argument. In a sample of EU-15 countries over the past three decades, the introduction of the Maastricht constraints at the beginning of the 1990s does not seem to have affected the probability of labour market reforms on average, but had a positive and significant impact on countries with governments facing elections in the current or forthcoming year (which are hence assumed to behave myopically). Our results suggest that if governments are short-sighted, then the expectation that relaxing fiscal constraints may help to boost structural reforms may be ill-founded.

Keywords: Economic effects of deficits, Stability and Growth Pact, structural reforms

JEL Classification: E62, H50, H55, H62, J58, L50

Suggested Citation

Buti, Marco and Roeger, Werner and Turrini, Alessandro, Is Lisbon Far from Maastricht? Trade-Offs and Complementarities between Fiscal Discipline and Structural Reforms (March 2007). CEPR Discussion Paper No. DP6204, Available at SSRN: https://ssrn.com/abstract=1135446

Marco Buti (Contact Author)

European Commission, DG II ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium
+32 2 296 2246 (Phone)
+32 2 299 3505 (Fax)

Werner Roeger

European Commission, DGECFIN ( email )

Economic and Financial Affairs
BU1-3/159, 200 Rue de la Loi
B-1049 Brussels
Belgium

Alessandro Turrini

European Commission ( email )

Office BU-10/113
B-1049 Brussels
Belgium
+32 2 299 5072 (Phone)
+32 2 299 3505 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
4
Abstract Views
548
PlumX Metrics