Fiscal Consolidation: Welfare Effects of the Adjustment Speed

Authors

  • Miguel Fonseca Nova School of Business and Economics

DOI:

https://doi.org/10.14195/2183-203X_51_3

Keywords:

Fiscal consolidation, wealth inequality, incomplete markets

Abstract

This article studies the response of social welfare to fiscal consolidations, by focusing on a less debated characteristic of fiscal plans: the speed of deleveraging. A neoclassical overlapping generations model is calibrated to the German economy, and a sequence of reductions of the same size in the debt‘ to GDP ratio are simulated considering different adjustment periods. Welfare gains are found to be larger in slow, delayed fiscal consolidations, due to the presence of incomplete markets. It is also found that the aggregate welfare response depends on the distribution of wealth and the type of fiscal instrument used.

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Published

2020-12-11

Issue

No. 51 (2020): Special Issue: Essays on Inequality, Structural Change and Optimal Taxation

Section

Articles

License

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows sharing the work with recognition of authorship and initial publication in Antropologia Portuguesa journal.