macroeconomic policy making lessons from austro keynesianism franz nauschnigg
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Macroeconomic Policy Making: Lessons from Austro-Keynesianism Franz Nauschnigg. Outline. The main features of Austro-Keynesianism Austro-Keynesianism and EU-membership Innovative expansionary demand management measures Economic results of Austro-Keynesianism - unemployment, growth

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macroeconomic policy making lessons from austro keynesianism franz nauschnigg
Macroeconomic Policy Making: Lessons from Austro-KeynesianismFranz Nauschnigg

ETUC Conference: 1-2 March 2005

outline
Outline
  • The main features of Austro-Keynesianism
  • Austro-Keynesianism and EU-membership
  • Innovative expansionary demand management measures
  • Economic results of Austro-Keynesianism - unemployment, growth
  • From Austro-Keynesianism to neo liberal paradigm
  • Economic results of neo liberal paradigm - unemployment, growth
  • Conclusions

ETUC Conference: 1-2 March 2005

austro keynesianism
Austro-Keynesianism
  • 1970s/80s: Replacing the Keynesian demand management by monetarist and neoliberal economic policies almost everywhere in the western world!
  • Everywhere? NO!
  • A small country - Austria - remained wedded to Keynesian thinking: „Austro-Keynesianismus“

ETUC Conference: 1-2 March 2005

austro keynesianism main features
Austro-Keynesianism – main features
  • Counter cyclical demand management - fiscal policy
  • Orthodox hard currency policy peg to DM
  • Supply side policies - especially incentives for investment
  • Strong role of social partners - productivity oriented wage policy
  • Stabilisation of expectations of economic agents
  • Combined use of policy instruments

ETUC Conference: 1-2 March 2005

austro keynesianism and eu membership
Austro-Keynesianism and EU-membership
  • EU-Membership in 1995 - a big challenge for Austro-Keynesianism
  • Biggest structural reform - short term adjustment costs, long term benefits come only later (J-curve)
  • Budget deficit 5,3% of GDP had to be brought down fast for EMU membership - fulfilling the convergence criteria
  • Room of manoeuvre for fiscal policy limited by EU framework

ETUC Conference: 1-2 March 2005

innovative expansionary demand management measures in austro keynesianism
Innovative expansionary demand management measures in Austro-Keynesianism
  • Combining restrictive fiscal policy 100 bn ATS (7,2 bn € over 3% of GDP) with supply and macro policies:
    • Increasing the tax rate on interest income
    • Lowering subsidies for saving and linking it to interest rates
    • using tax exemptions in the housing sector by spending existing reserves
  • Innovative expansionary package in 1996:
    • 90 bn ATS (6,5 bn €)
  • Shifting of public investment to the private sector
  • A particular sort of public private partnership (PPPs)

- creating private entities owned by the state

ETUC Conference: 1-2 March 2005

advantages of ppp demand management
Advantages of PPP demand management
  • Treating investment differently - depreciation over lifetime
  • Gaining efficiency and flexibility
  • No increase of the budget deficit
  • Low financing costs
  • combination of the strength of the private and public sector
  • combination of fiscal consolidation and growth

ETUC Conference: 1-2 March 2005

gross domestic product per inhabitant in purchasing power standards eu 15 100
GROSS DOMESTIC PRODUCT PER INHABITANT (in Purchasing Power Standards) EU-15= 100

ETUC Conference: 1-2 March 2005

from austro keynesianism to neo liberal paradigm
From Austro-Keynesianism to neo liberal paradigm
  • Social democrats lost power (2000)

Austro-Keynesianism replaced by neo liberalism

  • IMF (2004):“Since the turn of the decade, a strategic policy shift has made Austria a showcase of reforms and placed it at the forefront of the EU (in terms of implementing the Lisbon-Agenda).“

ETUC Conference: 1-2 March 2005

economic results of the neo liberal paradigm
Economic results of the neo liberal paradigm
  • Increase in unemployment – faster than EU-average
    • from 3,7% in 2000 to 4,2% in 2004
  • Weak growth performance - Contrary to IMF prognosis
    • Austrian GDP per capita (PPS) from 114% of EU-average in 2000 to 110% in 2005
  • Austrian budget deficit no substantial changes
    • forecasted to increase to 2% in 2005

ETUC Conference: 1-2 March 2005

conclusions
Conclusions
  • Structural reforms bring with them short term costs, the benefits are higher only in the long term - J curve effect
  • Microeconomic reforms should therefore be supported by expansionary macroeconomic policies
  • Innovative demand management policies e.g. PPP demand management, countercyclical use of the tax system and of subsidies
  • In terms of growth and employment Austro-Keynesianism was more successful than the current economic policy approach of Austria

ETUC Conference: 1-2 March 2005

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