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7 - Structural Reforms and Fiscal Sustainability

from Part II - Macroeconomic Implications of Reforms

Published online by Cambridge University Press:  31 March 2020

By
Davide Furceri  and
João Tovar Jalles
Edited by
Nauro F. Campos ,
Paul De Grauwe  and
Yuemei Ji
Nauro F. Campos
Affiliation:
University College London
Paul De Grauwe
Affiliation:
London School of Economics and Political Science
Yuemei Ji
Affiliation:
University College London
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Summary

This paper examines the effect of structural (domestic and external finance, trade and product market) reforms on public debt. It applies the local projection method to a dataset of major reforms and regulatory changes for a sample of 90 advanced and developing countries spanning between 1973 and 2003. The results suggest that over the medium term – that is, four to six years after the reform takes place – reforms contribute to lower the debt-to-GDP ratio. This effect depends on the initial debt-to-GDP at the time of the reform. The findings are robust to the inclusion of all reforms simultaneously and to an instrumental variable approach, which uses political economy drivers of reforms as instruments.

Keywords

public debtgrowthderegulationimpulse responseslocal projection methodnonlinearitiesinstrumental variables
Type
Chapter
Information
Economic Growth and Structural Reforms in Europe , pp. 214 - 238
Publisher: Cambridge University Press
Print publication year: 2020

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