6 Conclusions
Although the different analytical tools applied do not in every case lead to a uniform picture they
convey a certain message concerning the extent of a possible short-run trade-off between
budgetary consolidation and structural reforms.
Overall, this study shows that there are - if at all - only very limited general conflicts between
fiscal prudence (“Maastricht”) and structural reforms (“Lisbon”). Judging on the experience with
OECD reform processes since the mid-seventies, any such trade-off does not exist for product
market reforms. There is no indication that budgets deteriorate over the reform cycle or that
deficits can smooth reform processes. On the contrary, the immediate positive growth and
expectation effects hint to short-run benefits which also should swiftly alleviate budgetary
problems.
The result of helpful short-run growth and expectation effects also holds for tax reforms where,
however, a deterioration of the budgetary balance over the reform cycle appears to be an inherent
part of the reforms. Fortunately, the budgetary challenges of tax reform are alleviated by a
positive short-run growth effect working through a positive impact on economic sentiment. A
good budgetary initial situation is necessary (and typical) for countries trying to reduce the
distorting burden of taxation. Hence, although there is a negative short-run link between tax
reforms and the deficit tendencies, countries with high deficits will be unlikely to embark on tax
reforms in the first place.
The results for financial market deregulation are not particularly pronounced. Positive short-run
effects cannot be detected. The descriptive analysis even indicates a deterioration of business
sentiment in times of financial deregulation. Only on the basis of this examination it is hard to tell
whether, e.g. transitory adjustments of companies towards new capital supply structures may
possibly be behind that finding.
The findings for labour market reforms are of high policy relevance since numerous EU countries
still have a long way to go on this field. Here, a certain contrast exists between different analytical
tools. The reform cycle analysis has brought no indication of an increasing deficit in the course of
the implementation of labour market deregulation measures. However, prior to reforms social
benefits tend to be slightly at an above average level. Furthermore, the estimation of the dynamic
labour market reform equation show that the level and the change in the deficit tends to be
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