the granting of temporary deviations from countries’ medium-term objectives? How to define the
size of the granted deviation from the MTO? How to assess the adjustment path towards the MTO
in light of implemented reforms? A better understanding of the short-term link between structural
reforms and budget balances is key for addressing the above questions.
3. The short-term link between structural reforms and budget deficits: evidence from EU
panel data
3.1. Data
A first necessary step for the analysis is the measurement of economic reforms. Such measurement
involves the major difficulty of having to quantify the degree of intensity of policies of very
different types. Several attempts have been made in recent times by the academia and policy
institutions to collect data on economic reforms and to develop indicators for the measurement of
the effectiveness of such reforms.
A first approach to measure reforms consists of constructing indicators based on information on
actual policies that have been implemented in given sectors, periods, and countries. Information is
generally provided on the number of policy measures of certain types, possibly accompanied by an
evaluation of such policies according to pre-defined criteria. This approach permits to obtain
information on the action taken by governments with the purpose of reforming the functioning of
markets or state institutions.28 A second approach consists of constructing indicators measuring
the extent of existing distortions associated with government policies, for instance, the distortions
associated with taxation or with the presence regulations in particular markets.29 The impact of
reforms is measured in this case by the change in the level of the indicator measuring the degree of
distortions. This second approach does not account directly for government reform initiatives, but
permits to gauge the impact of such initiatives on the structural conditions of the different sectors
considered. This approach also permits to assess the extent to which reforms are needed.
relevant factors” which needs to be taken in the corrective arm of the SGP, this is subject to the overarching principle that the deficit in excess of
the Maastricht reference value remains close to this value and that such excess is deemed to be temporary.
28 Databases on policy measures of different types are constructed an maintained by national and international policy
institutions and by independent research centres (e.g., Rodolfo de Benedetti Foundation (FRDB) for what concerns
labour market policies).
29 Abundant work in this area has been done by the OECD. See, for instance, Nicoletti and Prior (2001) and Nicoletti
and Scarpetta (2003). For international data on various types of government regulations in the economic field see
also Fraser Institute, Economic Freedom of the World Annual Report, Vancouver, various issues.
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