Short-Term Pain for Long-Term Gain: The Impact of Structural Reform on Fiscal Outcomes in EMU

16 Pages Posted: 15 Feb 2012

See all articles by Paul van den Noord

Paul van den Noord

Organization for Economic Co-Operation and Development (OECD)

Boris Cournede

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Date Written: March 30, 2006

Abstract

This paper discusses one particular aspect of the reform of the Stability and Growth Pact: the possibility of temporarily breaching the 3 percent deficit limit in the event of an effective but initially expensive structural reform. Van den Noord and Cournède use econometric techniques to provide evidence that the upfront budgetary cost of structural reform is small compared with the longer-term benefits for expenditure and revenue levels. On the basis of their findings, the authors claim that there is a need for caution when using the greater margins for flexibility provided by the revised Stability and Growth Pact and argue that, since the fiscal costs of successful structural reform tend to be small and short-lived compared with the long-run benefit, any breaching of the 3 per cent deficit threshold should be limited, temporary and conditional on a detailed assessment of the short-term costs and long-term gains of the reform.

Suggested Citation

van den Noord, Paul and Cournede, Boris, Short-Term Pain for Long-Term Gain: The Impact of Structural Reform on Fiscal Outcomes in EMU (March 30, 2006). Available at SSRN: https://ssrn.com/abstract=2005212 or http://dx.doi.org/10.2139/ssrn.2005212

Paul Van den Noord (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

Economics Department (ECO)
2 rue Andre Pascal
75775 Paris Cedex 16
France

Boris Cournede

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France
+33145249037 (Phone)

HOME PAGE: http://www.oecd.org/eco

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