Fiscal consolidation and unemployment: does EPL matter?: A look at EU countries

Table 9 Impact of consolidations on the share of long-term unemployment, distinguishing by EPL strictness

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
Dependent variable: long-term unemployment ratio	Budget balance		Revenue		Expenditure		“Top-down” change in structural balance
	Action-based		Action-based		Action-based		“Top-down” change in structural balance
Explanatory variables	13 EU countries, 1992-2009		13 EU countries, 1992-2009		13 EU countries, 1992-2009		21 EU countries, 1992-2010
	Low EPL	High EPL	Low EPL	High EPL	Low EPL	High EPL	Low EPL	High EPL
Long-term unemployment share (1 lag)	0.832**	0.798**	0.839**	0.804**	0.831**	0.796**	0.791**	0.688**
	[13.05]	[13.71]	[16.20]	[12.77]	[12.69]	[13.45]	[19.70]	[10.42]
Fiscal policy variable	−0.333	1.026	−0.425	1.683+	0.617	−1.179	−0.893*	0.934
	[−0.587]	[1.161]	[−0.483]	[2.028]	[0.682]	[−0.708]	[−2.377]	[0.721]
Constant	3.134	11.08*	3.651*	10.95*	3.168	12.84**	10.71**	14.36**
	[1.395]	[3.765]	[2.492]	[3.765]	[1.400]	[4.239]	[5.371]	[3.987]
Observations	116	90	116	90	116	90	168	143
R-squared	0.901	0.843	0.901	0.842	0.901	0.841	0.831	0.689
Number of countries	7	6	7	6	7	6	11	10

+, *, ** denote statistical significance at the 10, 5, 1 per cent level respectively. T tests are reported in square brackets.
Specification. All regressions include country and year fixed effects.
Estimation method. Action-based fiscal policy: fixed effect panel OLS. Top-down fiscal policy measures: fixed effect panel instrumental variables (the fiscal policy variable is instrumented with its own lag, the lagged output gap, and the lagged government debt/GDP ratio). Standard errors are robust with respect to hetereoschedasticity and non-independence within country clusters.
Legend. Fiscal variables: see footnote to Table 1. The grouping of countries with respect to the OECD overall EPL indicator for permanent employment is built on the basis of the median country-specific average value of the indicator over the sample period.