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

Author/Editor:

Derek Anderson ; Benjamin L Hunt ; Stephen Snudden

Publication Date:

October 16, 2013

Electronic Access:

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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.

Series:

Working Paper No. 2013/211

Subject:

Expenditure Labor Labor market reforms Labor supply Macrostructural analysis Public debt Structural reforms

English

Publication Date:

October 16, 2013

ISBN/ISSN:

9781475573879/1018-5941

Stock No:

WPIEA2013211

Pages:

32

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