A low growth path in Austria: potential causes, consequences and policy options

This paper reports on an Austrian research project that deals with the question of how the Austrian society could cope with long-lasting low economic growth. Various causes of low growth that are relevant for Austria (a deteriorating balance of trade, increasing resource prices, consumer restraint of households and less immigration) have been identified, leading to an only moderate gross domestic product growth of 0.55 percent per year. The resulting impact on the economy is substantial: the labour market suffers from a shortage of labour supply (due to reduced migration) and from a reduced demand for labour (due to reduced demand in consumption, investments and exports). Subsequently, less employment decreases the development of the disposable income of private households (tax rates and social security contributions held constant). Related to this, public debt is higher due to reduced tax incomes and slightly growing public expenditures. From an ecological perspective, resource consumption increases at a slower rate, however, no absolute reduction can be reached. CO2 emissions also slightly increase. Therefore, it cannot be assumed that low growth necessarily leads to the achievement of energy and environmental policy goals. Based on these results, a policy scenario was used to analyse whether and how policy measures are able to cope with the negative consequences of persistent low growth. The results reveal that the selected measures are suitable to reduce negative economic effects: the implementation of reduced working time and an eco-social reform of levies might improve the labour market situation. The negative effects on the national budget can be diminished by a reduction of environmentally harmful subsidies. Induced behaviour changes of private households can reduce energy and resource-intensive consumption.