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

How Distant is Lisbon from Maastricht?
The Short-run Link Between Structural
Reforms and Budgetary Performance

Friedrich Heinemann

Centre for European Economic Research (ZEW)

Paper prepared for the DG ECFIN Workshop
“Budgetary implications of structural reforms”
Brussels, 2 December 2005

Abstract

This study analyzes the mutual short-run link between structural reforms and budgetary
performance. The empirical basis is the reform experience of 20 OECD countries since 1975 with
respect to reforms of product, financial and labour markets and the tax system. The testing
identifies the typical budgetary features both on the eve of reform and over reform cycles.
Furthermore, a dynamic reform model and a model relating reforms to economic sentiments are
estimated.

Overall, the results do not point towards a general short-run trade-off between Maastricht and
Lisbon since the link between budgetary phenomena and structural reforms is rather weak. While
Maastricht and Lisbon tend to be mutually reinforcing for the liberalization of financial and
product markets, there can be short-term conflicts for tax and labour market reforms. For all
covered policy fields, the results indicate that expectation effects may be a more important part of
the link between reforms and the budget compared to other often debated dimensions such as
compensation issues.

JEL-Classification: E 63, H00

Keywords: economic policy reforms, structural reforms, regulation

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