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462 - Fiscal consolidation in reformed and unreformed labour markets: A look at EU countries

Author(s): Alessandro Turrini

Fiscal consolidation in reformed and unreformed labour markets: A look at EU countriespdf(566 kB) Choose translations of the previous link 

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This paper estimates the impact of fiscal consolidation on unemployment and job market flows across EU countries using a recent database of consolidation episodes built on the basis of a “narrative” approach (Devries et al., 2011). Results show that the impact of fiscal consolidation on cyclical unemployment, is temporary and significant mostly for expenditure measures. As expected, the impact of fiscal policy shocks on job separation rates is much stronger in low-EPL countries, while high-EPL countries suffer from a stronger reduction in the rate at which new jobs are created. Since a reduced job-finding rate corresponds to a longer average duration of unemployment spells, fiscal policy shocks also tend to raise the share of long-term unemployment if EPL is stricter. Results are broadly confirmed when using "top-down" fiscal consolidation measures based on adjusting budgetary data for the cycle.

(European Economy. Economic Papers 462. September 2012. Brussels. PDF. 34pp. Tab. Graph. Ann. Free.)

KC-AI-12-462-EN-N (online)
ISBN ISBN 978-92-79-22983-1 (online)
doi: 10.2765/27170 (online)

Economic Papers are written by the staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission.

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