What is the impact of tax and welfare reforms on fiscal stabilisers? A simple model and an application to EMU

Author (Corporate)
Series Title
Series Details No.187, July 2003
Publication Date July 2003
ISBN 92-894-5835-6
ISSN 1016-8060
EC KC-AI-03-008-EN-C
Content Type ,

Abstract:

Reforms aiming at lowering the tax burden and cutting social benefits may boost efficiency and output, and improve market adjustment to shocks, but, by reducing the size of automatic stabilisers, may also imply less cyclical smoothing. This would be problematic in EMU given the loss of national monetary autonomy. This paper argues that the alleged trade-off between efficiency/flexibility and stabilisation depends on the typology of shocks affecting the economy.
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