Fiscal Consolidation: Welfare Effects of the Adjustment Speed

Miguel Fonseca ()
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Miguel Fonseca: Nova School of Business and Economics

Notas Económicas, 2020, issue 51, 39-67

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.

Keywords: Fiscal consolidation; wealth inequality; incomplete markets. (search for similar items in EconPapers)
JEL-codes: E13 E21 E62 H63 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:gmf:journl:y:2020:i:51:p:39:67

DOI: 10.14195/2183-203X_50_3

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