Proceedings from the ECFIN Workshop "The budgetary implications of structural reforms" - Brussels, 2 December 2005

market restrictions, data on pension reforms implemented). Finally, our empirical analysis of
structural reforms suffers from an inevitable problem of self-selection bias. The reforms observed
are only those that have not been blocked in the political process. However, many reforms project
may have been blocked exactly because of their budgetary impact, but the analysis does not take
into account of that.

Overall, there is a strong indication that generalizations are not easy to make for what concerns the
link between structural reforms and budgets in the short-run. Results differ depending on the
specific type of reforms considered. Also within a given type of reforms (e.g., pension reforms) the
fiscal implications are likely to differ considerably depending on the main elements of the reform
and on how reforms are designed. Furthermore, the weak statistical significance of results reveals
in general a high degree of dispersion in results across the sample, i.e., each reform case cannot be
easily assimilated to the average.

These results point to some lessons for policy. In the implementation of the EU fiscal framework
there are reasons for taking better into account the role of economic reforms, especially when there
is a strong ex-ante expectations that reforms may have a positive impact on public finances in the
long run coupled with budgetary costs in the short term. However, a mechanistic, one-size-fits-all
approach whereby all reforms or all reforms belonging to some broad categories are judged the
same way should be avoided. Judgement should be used on a case-by-case basis, on the ground of
information on the relevant specificities of the various reforms at stake.

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