The Political Economy of Structural Reforms in Europe

Abstract

Reforms in labour and product markets play a central role in government policies. The issue of whether structural reforms lead to higher economic growth remains controversial. Researchers in this field tend to agree on the positive role that reforms could play in driving growth as a result of efficiency gains and technological progress. However, reforms may have some negative impacts. One concern is about the timing: structural reforms may not be effective but turn out to be negative when the economy is in a recession and demand is weak. The other concern is structural reforms may lead to income inequality which weakens political support for further reforms. These topics have, in the context of globalization and European integration, attracted great research interest among scholars. This book provides an assessment of past progress and takes stock of current frontier work. It brings together leading contributions from academia, the central banks in Europe, and the OECD. We are convinced that some structural reforms can make a fundamental contribution to improving economic performance across Europe as well as to promoting European integration. Yet we believe that comprehensive, critical, and non-dogmatic assessments of the costs and benefits of different reform programmes are key to guiding future policies. This will allow us to identify the conditions under which structural reforms are beneficial. We believe that future research requires a substantial shift from evaluating generalized direct impacts of structural reforms on economic growth to a broader set of issues and research questions.