Short-run fiscal policy: Welfare, redistribution and aggregate effects in the short and long-run

Sagiri Kitao

Journal of Economic Dynamics and Control, 2010, vol. 34, issue 10, 2109-2125

Abstract: This paper quantifies the effects of two short-run fiscal policies, a temporary tax-cut and rebate transfer, that are intended to stimulate economic activities. A reduction in income taxation provides immediate incentives to work and save more, raising aggregate output and consumption. A temporary rebate is mostly saved and increases consumption marginally. Both policies improve the overall welfare of households and the rebate policy benefits especially low-income households. In the long-run, however, the debt accumulated to finance the stimulus and a higher tax to service the debt can crowd out capital and lower output and consumption, causing welfare to deteriorate.

Keywords: Short-run; fiscal; policy; Life-cycle; model; General; equilibrium (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (8)

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Working Paper: Short-run fiscal policy: welfare, redistribution, and aggregate effects in the short and long run (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:34:y:2010:i:10:p:2109-2125

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