Business Cycles and Macroeconomic Stability

The future of built-in stabilizers is currently a matter of concern due to the various challenges arising from the processes of fiscal consolidation, international integration and the reflux from the welfare state. This text gathers relevant material for assessing the issue from both theoretical and empirical research. This volume describes the stabilization properties of fiscal policies on business cycles and growth within dynamic equilibrium models. It also gives attention to automatic stabilization within an economic union. Both the loss of control over monetary policy and the restraints on the use of fiscal policy for countries entering the EMU are sources of concern about the possibilities of stabilizing fluctuations affecting the members of the Union. Furthermore, attention is given to stabilization and labour market policies. The contribution of labor market institutions to automatic stabilizers is often advocated. Post World War II institutions have brought protection to employment, wages and unemployed substitution revenues which involve stabilization of actual income. Recent institutional changes towards more labor market flexibility, mainly motivated by efficiency purposes, may be costly in terms of stabilization. The final part is on empirical evidence, recent trends and problems in stabilization. It is devoted to empirical studies of the stabilization effect of alternative fiscal policies, emphasizing the experience of European countries in the 1990s.