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15/07/2003

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

ECFIN/261/03-EN

European Economy. Economic Papers - n. 187/July 2003 ISSN 1725-3187

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

author(s): European Commission - DG for Economics and Financial Affairs, M. Buti,and P. Van den Noord
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