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

By Derek Anderson, Benjamin L Hunt, Stephen Snudden

October 16, 2013

Preview Citation

Format: Chicago

Derek Anderson, Benjamin L Hunt, and Stephen Snudden. Fiscal Consolidation in the Euro Area: How Much Can Structural Reforms Ease the Pain?, (USA: International Monetary Fund, 2013) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Expenditure, Labor, Labor market reforms, Labor supply, Macrostructural analysis, Public debt, Structural reforms

Keywords: Adjustment cost, Anti-competitive product market regulation, B. labor market, Cost, Cost of capital, Debt-service cost, Euro, Fiscal consolidation, Fiscal policy, GDP, GDP outcome, General equlibrium models, Global, Labor market reforms, Labor supply, Product market, Product market market sector, Product market reform, Reforms aim, Regulation index, Spending, Structural reforms, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/211
Stock No:

WPIEA2013211
ISBN:

9781475573879
ISSN:

1018-5941

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