Arbeitspapier

Public debt consolidation and its distributional effects

We build a dynamic general equilibrium model with heterogeneous households, namely Rich and Poor, and capital skill complementarity structure in the production function, to study aggregate and distributional implications of fiscal consolidation policies when the government uses a rich set of spending and tax instruments. Fiscal policy is conducted through constrained optimized fiscal rules. Our results show that, in the long run, fiscal consolidation enhances both aggregate efficiency and equity; however, it may hurt Rich households depending on which fiscal instrument takes advantage of the fiscal space created. Along the transition, wage inequality significantly increases due to the capital skill complementarity structure of the production function. Specifically, this happens because debt consolidation crowds in capital and this favours Rich (skilled) households. On the other hand, the reduction in interest rates and government bonds lead to a decrease in Rich households income coming from capital and government bonds which eventually decrease income inequality. Finally, a rather novel finding is that the combination of asset and skill heterogeneity amplifies the increase in wage inequality in the early phase of fiscal consolidation.

Sprache
Englisch

Erschienen in
Series: ESRI Working Paper ; No. 629

Klassifikation
Wirtschaft
Fiscal Policy
National Government Expenditures and Education
National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock
National Debt; Debt Management; Sovereign Debt
Thema
Debt consolidation
distributional effects
fiscal policy
optimized fiscal rules

Ereignis
Geistige Schöpfung
(wer)
Varthalitis, Petros
Sakkas, Stelios
Ereignis
Veröffentlichung
(wer)
The Economic and Social Research Institute (ESRI)
(wo)
Dublin
(wann)
2019

Handle
Letzte Aktualisierung
10.03.2025, 11:42 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Varthalitis, Petros
  • Sakkas, Stelios
  • The Economic and Social Research Institute (ESRI)

Entstanden

  • 2019

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