Substudy 22: Model Simulations of Selected Economic Policy Measures

The short-, medium- and long-term effects on growth and employment obtainable from some of the economic policy measures proposed in the WIFO White Paper (increasing public research expenditures, promoting education to improve workers' qualifications, raising public investment in infrastructure, reducing wage tax, corporate tax, VAT and social insurance contributions) are evaluated using model simulations. It was found that three fiscal policy measures on the expenditure side (raising spending on research, improving qualifications and increasing investment in infrastructure) have, in the short run, about double the effect on GDP and employment that the four fiscal policy interventions on the revenue side have (reducing tax rates and social insurance contributions). In the long term, the potential output will grow only when spending on R&D and education is boosted.