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Debt Hangover in the Aftermath of the Great Recession

Stéphane Auray, Aurélien Eyquem and Paul Gomme ()

No 2016-02, Working Papers from Centre de Recherche en Economie et Statistique

Abstract: During the Great Recession, U.S. government de cits and debt levels rose sharply. What are the consequences of using alternative scal policy instruments to return government debt-output ratios to their pre-Great Recession values, especially in terms of welfare? This question is addressed within a dynamic general equilibrium model. The model captures key macroeconomic fluctuations from 2008 to 2014 - labor market dynamics by virtue of incorporating search and matching frictions. Armed with this model, we then contrast the e ects of a post-2014 reduction of the debt-output ratio through public spending, the consumption tax rate, the labor income tax rate or the capital income tax rate. The resulting dynamics and welfare e ects are very di erent depending on the scal instrument used. The welfare ranking also crucially depends on the shape of preferences for the public good in the utility function of households.

Keywords: Fiscal policies; tax reforms; government debt; government de cits (search for similar items in EconPapers)
JEL-codes: E24 E37 E62 (search for similar items in EconPapers)
Date: 2016-01
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Related works:
Working Paper: Debt Hangover in the Aftermath of the Great Recession (2016)
Working Paper: Debt Hangover in the Aftermath of the Great Recession (2016)
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