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  Assessment and Recommendations

  Economic growth has fallen more sharply in the Netherlands since 2001 than in most other European countries. Domestic factors that boosted growth in the late 1990s – wealth effects from housing and stock markets and pension fund developments – have since turned around, accentuating the effects of the international business cycle. A number of institutional arrangements – residential zoning laws and tax subsidies for owner occupiers, plus weaknesses in pension fund regulation – have contributed to these developments as well as undermining economic efficiency. Output has thus fallen ...

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  Economic Developments and Policy Challenges

  Economic growth has been anaemic since the boom of the late 1990s came to an end – growth has gone from well above the euro area average to well below it. The amplitude of the current business cycle is large both by historical and international comparison. A number of factors beyond the control of the Dutch authorities – such as developments in world trade, stock prices and the euro-dollar exchange rate – boosted growth in the late 1990s but have since been a drag on growth. But some structural economic policies – pension fund regulation and housing market policies in particular – have also amplified the business cycle while at the same time undermining economic efficiency. From a longer term perspective, economic growth has also ...

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  Reforms to Housing and Pension Funds to Increase Economic Efficiency and Reduce Business Cycle Fluctuations

  Housing market polices and pension fund regulation have undermined economic efficiency and amplified the current business cycle. Policies that have the effect of restricting housing supply and high tax subsidies for owner-occupied housing have underpinned large increases in house prices relative to disposable income, reducing living standards, and have contributed to macroeconomic volatility stemming from housing wealth effects. Pension fund regulation allowed pension funds to set past contribution rates too low to cover the costs of the promises being made, leading (together with some other developments, notably the fall in interest rates and the worldwide fall in equity prices) to the current ...

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  Fiscal Policy

  There has been a very substantial deterioration in public finances, from a surplus of 1½ per cent of GDP in 2000 (excl. UMTS) to an expected deficit of almost 3¼ per cent of GDP in 2003. Indeed, it has been necessarily to implement consolidation measures during the economic downturn to avoid the budget deficit from exceeding the 3 per cent limit imposed by the Stability and Growth Pact (SGP). While most of the deterioration in the general government budget balance appears to have been cyclical, the structural budget balance has nevertheless also fallen considerably. The government is actively addressing the need for further consolidation, and measures are aimed at putting public finances on a sustainable path – meaning that it is possible to keep up social security and government ...

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  Increasing Labour Force Participation

  The activation of potential labour inputs represents an important element of the policy mix to limit the fall in potential growth associated with the demographic ageing process. Women will continue to make the largest contributions to growth in labour inputs over the next ten years, albeit smaller ones than between 1985 and 2000. While this trend is to a large extent autonomous, there is scope for increasing employment in the second largest group of the inactive population, persons with a disability benefit. The government has embarked on a comprehensive reform of the disability system, complemented with associated measures to strengthen work incentives for unemployed persons, which together ...

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  Product Market Competition and Economic Performance

  There is a well-identified empirical connection between the intensity of competition in product markets and better productivity performance (OECD, 2002a). Indeed, over the past decade the Netherlands has undertaken a number of structural reforms in product markets, primarily aimed at increasing its productivity growth. These reforms, even those implemented only recently, have been assessed as resulting in a more competitive environment for businesses, stimulating economic efficiency and technological progress.1 The service sector, where competitive pressures are weaker, has experienced relatively poor labour productivity growth over the 1990s. Planning restrictions are inhibiting competition in the retail sector and there is considerable scope to eliminate practices that restrict competition in professional services, even though both are relatively liberalised in the Netherlands. Reforms in some ...

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  Policies to Enhance Innovation and Productivity Growth

  In view of labour inputs growing more slowly owing to demographic ageing, fostering productivity growth, the slowness of which has been a major concern of the government, is a key challenge for the Dutch economy. As described in Chapter 1, raising the volume and effectiveness of innovative activities and improving the quality of human capital under growing public financing constraints are very important means to achieve this goal. Improving corporate governance, which is a major reform project for the government, would also help to increase productivity by ensuring that managers get better incentives to reach ...

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  Sustainable Development in the Netherlands

  There is a growing concern that long-run sustainable development may be compromised unless measures are taken to achieve balance between economic, environmental and social outcomes both domestically and on a global basis. This section looks at three specific issues of sustainable development that are of particular importance for the Netherlands: climate change, water pollution, and sustainable use of natural resources. In each case, indicators are presented to measure progress and the evolution of potential problems, and an assessment is made of government policies in that area. The section also considers whether institutional ...

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  Annexes
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