Empirical research has uncovered an equity-efficiency trade-off in alternative fiscal consolidation strategies. Spending-based adjustments are associated with more limited output losses but greater inequality than tax-based adjustments. Moreover, spending-based adjustments are less likely to be reversed, but an increase in inequality reduces the likelihood of achieving a successful consolidation. We investigate the issue of designing a debt consolidation plan which is achieved through a reduction in public consumption and yet is equitable because temporary targeted transfers and tax reductions stabilize consumption of the poorer part of the population. This causes a limited slow-down in the pace of debt reduction because fiscal multipliers associated to the tax/transfer policies are large.

Ferrara, M., Tirelli, P. (2017). Equitable fiscal consolidations. ECONOMIC MODELLING, 61, 207-223 [10.1016/j.econmod.2016.11.022].

Equitable fiscal consolidations

Tirelli, P
2017

Abstract

Empirical research has uncovered an equity-efficiency trade-off in alternative fiscal consolidation strategies. Spending-based adjustments are associated with more limited output losses but greater inequality than tax-based adjustments. Moreover, spending-based adjustments are less likely to be reversed, but an increase in inequality reduces the likelihood of achieving a successful consolidation. We investigate the issue of designing a debt consolidation plan which is achieved through a reduction in public consumption and yet is equitable because temporary targeted transfers and tax reductions stabilize consumption of the poorer part of the population. This causes a limited slow-down in the pace of debt reduction because fiscal multipliers associated to the tax/transfer policies are large.
Articolo in rivista - Articolo scientifico
DSGE modelling; Fiscal Consolidation; Fiscal Policy; Monetary Policy; Rule of Thumb Consumers; Zero Lower Bound; Economics and Econometrics
English
2017
61
207
223
none
Ferrara, M., Tirelli, P. (2017). Equitable fiscal consolidations. ECONOMIC MODELLING, 61, 207-223 [10.1016/j.econmod.2016.11.022].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/185579
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