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The Case for Fiscal Policy to Support Structural Reforms

Banerji, Angana, Dabla-Norris, Era, Duval, Romain, Furceri, Davide, (2017), “The Case for Fiscal Policy to Support Structural Reforms”,IMF Direct, 13 Μαρτίου

Many advanced countries need  structural reforms to make their economies more productive and raise long-term living standards.  Our new research shows that provided countries can afford it, fiscal policy, through spending or tax incentives, can help governments overcome some obstacles to the reforms, particularly in the early stages.  

Structural reforms help boost employment, encourage business start-ups, and raise productivity. For example, reforms to product markets, such as deregulation in industries like energy and transportation, can boost competition among firms. Reforms to labor markets, such as lower employment taxes and changes to unemployment benefits can help workers join the labor force and find jobs.

At the same time, some of these reforms can entail short-term economic costs, and often face strong political opposition from vested interests.

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