The cross-country correlation between the change in cyclically-adjusted primary fiscal
balances over 1993-199784 and reform intensity over 1994-2004 is insignificant across the
OECD (Figure 9, Panel A), but becomes significant when only EU countries are considered
(Figure 9, Panel B).85 Furthermore, it is worth noting that most top reformers have gone through
a smaller fiscal adjustment process than other OECD countries during the first half of the period
1993-2004 (Denmark, Netherlands and, to a lesser extent, Finland and Germany). Likewise, weak
reform intensity in certain euro-area countries might to some extent reflect the limited political
capital governments were left with during the period of fiscal adjustment in the run-up to EMU
(Greece and Spain over the 1993-1997 period; Italy in the late 1990s (not apparent in Figure 9).
84. The change in the primary balance is used here in order to get a more accurate measure of fiscal adjustment. Also, fiscal adjustment is
measured over 1993-1997 instead of 1993-2004 in order to minimise endogeneity problems that arise from the gradual, positive feedback effects
of structural reforms on fiscal positions.
85. Other combinations (correlations over various periods, lagged correlations) also yield insignificant correlation coefficients.
185
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