The cost of fiscal tightening in Poland on the road to the Euro: does the labour market matter? (CGE model simulations)

Gradzewicz, Michal and Jędrzejowicz, Tomasz and Żółkiewski, Zbigniew (2007): The cost of fiscal tightening in Poland on the road to the Euro: does the labour market matter? (CGE model simulations). Published in: Bank i Kredyt , Vol. 2007, No. 4 (April 2007): pp. 3-17.

Abstract

The paper presents an assessment of macroeconomic and also some selected structural consequences of the proposed fiscal consolidation necessary for Poland to fulfil the Maastricht fiscal criteria. The fiscal adjustments are assessed with a CGE model simulated over the 2006–2008 horizon. Two sets of simulations are analysed, namely rigid vs. flexible wages. It is shown that the fiscal tightening programme analysed in this paper does not necessarily incur any costs in terms of aggregate GDP loss in years 2006–2008. On the contrary, it may generate additional growth effects, provided that downward wage adjustments reduce unit labour costs, thus fostering the growth. It is concluded that the condition for the achievement of a smooth and relatively low-cost fiscal adjustment is to supplement it with labour market reform.

• Item Type: MPRA Paper
• Language: English
• Keywords: fiscal reform, Maastricht criteria, labour market, CGE model
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J38 - Public Policy; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General

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