{ "title": "Fiscal Policy And Structural Reform", "publication": "IMF Blog, March 27, 2015", "sourceUrl": "https://www.imf.org/en/blogs/articles/2015/03/27/fiscal-policy-and-structural-reform", "canonical": "https://www.imf.org/en/blogs/articles/2015/03/27/fiscal-policy-and-structural-reform", "overlayPath": "/en/blogs/articles/2015/03/27/fiscal-policy-and-structural-reform/index.md", "summary": "Publication: March 27, 2015", "sections": [ { "heading": "Context and central question", "content": "- Publication: March 27, 2015\n- Author: Vitor Gaspar\n- Central question: What is the relation between fiscal consolidation and structural reform, particularly how to raise a country’s potential growth while restoring healthy public finances amid high public debt and tepid potential growth (example: the euro area)?" }, { "heading": "Roles of fiscal policy in supporting growth and structural reform", "content": "- Fiscal structural reform can build sound, strong, resilient and growth-friendly fiscal institutions.\n- Fiscal frameworks are a crucial part of macroeconomic risk management.\n- Prudent conduct of fiscal policy is a cornerstone for stable and sustainable growth." }, { "heading": "Three specific roles fiscal policy can play", "content": "- Fiscal instruments for implementation:\n - Example: Reducing labor taxes and social security contributions can positively impact employment and economic activity.\n - Acknowledged budgetary costs can be reduced by targeting reductions to specific groups.\n - Figure 1 (referenced) illustrates effectiveness of targeted employer social security contributions—elderly in Germany and youth in Sweden—where employment growth in targeted segments outpaced that of the broader population.\n- Helping build political consensus:\n - Fiscal policy can compensate groups adversely affected by proposed structural reform.\n - Example: In the 1990s, Sweden and Finland enacted labor tax cuts in parallel with reductions in employment protection (Figure 2 referenced).\n- Managing timing of benefits and smoothing transitions:\n - Fiscal policy can offset short-term detrimental effects of reform, buying time for long-term benefits to materialize.\n - Short-run demand support can be achieved through productive public investment, with guidance to be provided in the forthcoming IMF policy paper on “Making Public Investment More Efficient.”\n - Particularly appropriate when interest rates are close to zero (the zero lower bound), when fiscal multipliers are larger and negative short-term impacts of some reforms may be more pronounced.\n - Figure 3 (referenced) presents implications of a reduction in employment protection legislation, showing particularly costly output losses and simulations suggesting fiscal policy can offset short-term economic costs of reform while slightly increasing public debt in the near term." }, { "heading": "Principles for assessing macroeconomic support role of fiscal policy for structural reform", "content": "- Ensure debt sustainability and market confidence.\n- Maintain a credible commitment to see the structural reform through to fruition.\n- Obtain a good estimate of the costs and benefits of the reform and how they will materialize over time.\n- Conduct an overall assessment of the macroeconomic situation and prospects." }, { "heading": "Notable timings and references in text", "content": "- IMF Fiscal Monitor spring edition referenced to be issued on April 8 (for more details on stability impacts).\n- Upcoming IMF policy paper on “Making Public Investment More Efficient” referenced for conditions under which public investment can support demand.\n\nSource: Fiscal Policy And Structural Reform — Vitor Gaspar, March 27, 2015.\n\n---\n\n\n References\n\n- Dams and Dikes for Public Finances\n- https://www.imf.org/wp-content/uploads/2015/03/slide12.jpg\n- https://www.imf.org/wp-content/uploads/2015/03/slide21.jpg\n- https://www.imf.org/wp-content/uploads/2015/03/slide31.jpg\n\nSource: https://www.imf.org/en/blogs/articles/2015/03/27/fiscal-policy-and-structural-reform" } ], "bullets": [ "[Markdown version](/en/blogs/articles/2015/03/27/fiscal-policy-and-structural-reform/index.md)", "[Structured JSON version](/en/blogs/articles/2015/03/27/fiscal-policy-and-structural-reform/index.json)", "[Bundle manifest](/en/blogs/articles/2015/03/27/fiscal-policy-and-structural-reform/bundle-manifest.json)", "Authors: Vitor Gaspar", "Published: March 27, 2015", "Publication: March 27, 2015", "Author: Vitor Gaspar", "Central question: What is the relation between fiscal consolidation and structural reform, particularly how to raise a country’s potential growth while restoring healthy public finances amid high public debt and tepid potential growth (example: the euro area)?", "Fiscal structural reform can build sound, strong, resilient and growth-friendly fiscal institutions.", "Fiscal frameworks are a crucial part of macroeconomic risk management.", "Prudent conduct of fiscal policy is a cornerstone for stable and sustainable growth.", "Fiscal instruments for implementation:", "Helping build political consensus:", "Managing timing of benefits and smoothing transitions:", "Ensure debt sustainability and market confidence.", "Maintain a credible commitment to see the structural reform through to fruition.", "Obtain a good estimate of the costs and benefits of the reform and how they will materialize over time.", "Conduct an overall assessment of the macroeconomic situation and prospects.", "IMF Fiscal Monitor spring edition referenced to be issued on April 8 (for more details on stability impacts).", "Upcoming IMF policy paper on “Making Public Investment More Efficient” referenced for conditions under which public investment can support demand.", "[Dams and Dikes for Public Finances](http://blogs.imf.org/2015/03/18/dams-and-dikes-for-public-finances/)", "[https://www.imf.org/wp-content/uploads/2015/03/slide12.jpg](https://www.imf.org/wp-content/uploads/2015/03/slide12.jpg)", "[https://www.imf.org/wp-content/uploads/2015/03/slide21.jpg](https://www.imf.org/wp-content/uploads/2015/03/slide21.jpg)", "[https://www.imf.org/wp-content/uploads/2015/03/slide31.jpg](https://www.imf.org/wp-content/uploads/2015/03/slide31.jpg)" ], "alternates": { "markdown": "/en/blogs/articles/2015/03/27/fiscal-policy-and-structural-reform/index.md", "json": "/en/blogs/articles/2015/03/27/fiscal-policy-and-structural-reform/index.json", "bundleManifest": "/en/blogs/articles/2015/03/27/fiscal-policy-and-structural-reform/bundle-manifest.json" }, "generatedAtUtc": "2026-08-28T01:41:34.704Z" }