THE MACROECONOMIC IMPACT OF STRUCTURAL REFORMS IN PRODUCT AND LABOUR MARKETS: TRADE-OFFS AND COMPLEMENTARITIES
Dimitris Papageorgiou
Bank of Greece
Evangelia Vourvachaki
Bank of Greece
ABSTRACT
This paper studies the impact of product and labour market structural reforms and the effects of their joint implementation with alternative debt consolidation strategies. The set-up is a DSGE model calibrated for the Greek economy. The results show that structural reforms produce important long-run GDP gains that materialize earlier, the faster the reforms are implemented. When implemented jointly with fiscal consolidations, structural reforms may amplify the short-run costs of fiscal tightening. The GDP dynamics depend on the fiscal instrument used for public debt consolidation. In the long run, however, there are complementarity gains irrespective of the fiscal instrument used.
JEL Classification Codes: E27, E62, O4.
Keywords: Structural reforms, Debt consolidation, Small open economy, General equilibrium model
Acknowledgements: The authors would like to thank Heather Gibson, Tryphon Kollintzas and Apostolis Philippopoulos for comments and suggestions. Helpful comments by participants at the Bank of Greece seminar series, the First Workshop on Public Sector Reforms / AUEB, and conference participants of the International Conference on Public Policy and Public Sector Reforms (Delphi, 2015) and CRETE (Chania, 2015) are greatly appreciated. We are grateful to Heather Gibson and Dimitrios Sideris for their support throughout this project. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of Greece.
Correspondence:
Dimitris Papageorgiou
Economic Analysis and Research Department
Bank of Greece,
21 El. Venizelos Av. 10250 Athens, Greece
Email: DPapageorgiou@bankofgreece.gr / dpapag@aueb.gr
Tel: +30 2103203826