Fiscal Consolidation in the Euro Area: How Much Can Structural Reforms Ease the Pain?

33 Pages Posted: 30 Oct 2013

See all articles by Derek Anderson

Derek Anderson

International Monetary Fund (IMF)

Ben Hunt

International Monetary Fund (IMF) - Research Department

Stephen Snudden

Wilfrid Laurier University

Date Written: October 2013

Abstract

The IMF’s Global Integrated Monetary and Fiscal model (GIMF) is used to examine the scope for structural reforms in the euro area to offset the negative impact of fiscal consolidation required to put public debt back on a sustainable path. The results suggest that structural reforms in core countries could quite reasonably be expected to offset the near term negative impact on activity arising from the required fiscal consolidation that uses a plausible mix of instruments to achieve the permanent improvement in the deficit. However, for the periphery, where the required consolidation is roughly twice as large as that required in the core, the results suggest that it would take several years before structural reforms could return the level of output back to its pre-consolidation path.

Keywords: Fiscal consolidation, Euro Area, Fiscal policy, Fiscal reforms, Labor market reforms, Monetary policy, General equlibrium models, Structural reforms., real wages, public debt, labor force, real interest, government debt, fiscal balance, interest rates, private consumption, real interest rates, public expenditures, financial sector, financial assets, central bank, public finances, fiscal authorities, economic outlook, pension reform, empirical evidence, relative prices, international monetary fund, fiscal sustainability, private investment, public spending, exchange rates, fiscal measures, international trade, exogenous shocks, rate of inflation, pension systems, government spending, economic

JEL Classification: E24, E27, E62, F41, F42, O43

Suggested Citation

Anderson, Derek and Hunt, Benjamin and Snudden, Stephen, Fiscal Consolidation in the Euro Area: How Much Can Structural Reforms Ease the Pain? (October 2013). IMF Working Paper No. 13/211, Available at SSRN: https://ssrn.com/abstract=2347274

Derek Anderson

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Benjamin Hunt

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Stephen Snudden

Wilfrid Laurier University ( email )

75 University Avenue West
Waterloo, Ontario N2L 3C5
Canada
N2L1H7 (Fax)

HOME PAGE: http://https://stephensnudden.com/research/

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