Debt Consolidation and Financial Stability

Ignazio Angeloni (), Ester Faia and Roland Winkler ()

Revue économique, 2011, vol. 62, issue 6, 1067-1079

Abstract: We compare three alternative post-crisis public debt consolidation policies (respectively based on expenditure cuts, labour tax or consumption tax increases) in their effects on key macro variables and on bank stability. Labor tax-based policies attain a rapid debt adjustment and low intertemporal debt costs, but at the expense of higher oscillations in bank leverage and risk. Expenditure based and consumption tax-based strategies perform better and similarly between themselves.

Date: 2011
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