Silvia Ardagna

Regulation and Investment

One commonly held view about the difference between continental European countries and other OECD economies, especially the United States, is that the heavy regulation of Europe reduces its growth. Using newly assembled data on regulation in several sectors of many OECD countries, we provide substantial and robust evidence that various measures of regulation in the product market, concerning in particular entry barriers, are negatively related to investment. The implications of our analysis are clear: regulatory reforms, especially those that liberalize entry, are very likely to spur investment.

Tales of fiscal adjustment

This paper examines the evidence on fiscal adjustments in OECD countries from the early 1960s to today. The results shed light on the recently observed phenomenon of fiscal tightening that produces (non-Keynesian) expansionary effects. One interpretation is that a serious fiscal tightening increases demand Wealth rises when future tax burdens decline, and when interest rates decline credibility is restored and inflation or default risks abate. Both consumption and investment rise. For this effect to produce an expansion, the tightening must be sizeable and occur after a period of stress when the budget is quickly deteriorating and public debt is building up. Another interpretation emphasizes the supply side. Typically, a fiscal consolidation based on tax increases is short-lived. To be long lasting, it must include cuts in public employment, transfers and government wages. lo be politically possible, such a policy must be supported by trade unions. These measures result in more efficient labour markets and boost the supply side. Based both on statistical evidence and on a detailed analysis often cares of major fiscal adjustment, this article provides cautious support to the supply-side view, without denying a more limited role for the demand-side channel. The definitive version is available at www.blackwell-synergy.com

The design of fiscal adjustments

This paper offers three results. First, in line with the previous literature, we confirm that fiscal adjustments based mostly on the spending side are less likely to be reversed. Second, spending-based fiscal adjustments have caused smaller recessions than tax-based fiscal adjustments. Finally, certain combinations of policies have made it possible for spending-based fiscal adjustments to be associated with growth in the economy even on impact rather than with a recession. Thus, expansionary fiscal adjustments are possible.

Who Adjusts and When?The Political Economy of Reforms

Why do countries delay stabilizations of large and increasing budget deficits and inflation? And what explains the timing of reforms? We use the war-of-attrition model to guide our empirical study on a vast sample of countries. We find that stabilizations are more likely to occur when times of crisis occur, when new governments take office, when governments are “strong” (that is, presidential systems and unified governments with a large majority of the party in office), and when the executive branch faces fewer constraints. The role of external inducements like IMF programs has at best a weak effect, but problems of reverse causality are possible. [JEL H11, H61, H62]