Reconciling Stability and Growth: Smart Pacts and Structural Reforms

This paper analyzes the decision of a government facing electoral uncertainty to implement structural reforms in the presence of fiscal restraints similar to the Stability and Growth Pact. The model shows that a pact may harm structural reforms, sacrificing future growth for present stability. The w...

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Bibliographic Details
Main Author: Beetsma, Roel M. W. J. (Author)
Format: Electronic eBook
Language:English
Published: Washington, D.C International Monetary Fund 2003
Series:IMF Working Papers Working Paper No. 03/174
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Summary:This paper analyzes the decision of a government facing electoral uncertainty to implement structural reforms in the presence of fiscal restraints similar to the Stability and Growth Pact. The model shows that a pact may harm structural reforms, sacrificing future growth for present stability. The welfare gains brought about by a pact depend on a trade-off between the reduction in the deficit bias and the induced reduction in the amount of structural reform. A pact becomes more attractive ("smarter") if it takes into account the fiscal impact of structural reforms, in line with a recent proposal by the European Commission
Physical Description:1 Online-Ressource (34 p)
ISBN:145185871X
9781451858716

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