Paces of fiscal consolidations, fiscal sustainability, and welfare: An overlapping generations approach

Noritaka Maebayashi

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates expenditure- and tax-based consolidations under the rule of reductions in debt-to-GDP ratios to the target level as well as the effects of these consolidations on fiscal sustainability and welfare, using an overlapping generations model with exogenous growth settings. We derive (i) the global transition dynamics of the economy, (ii) a threshold (ceiling) of public debt to ensure fiscal sustainability, (iii) sustainable paces of these consolidations, and (iv) optimal pace of consolidations from viewpoints of both social welfare and fairness of each generation's welfare. We find that higher paces or lower targets of debt-to-GDP ratio make fiscal policies more sustainable. The pace required of tax-based consolidation to ensure fiscal sustainability is higher than that required of expenditure-based consolidation. As for welfare, countries may differ in their choice of the type of consolidation. It depends on how large outstanding debts relative to capital are and how large the utility derived by individuals from public goods and services is. By contrast, a common result from the viewpoints of both social welfare and fair distribution of welfare across generations is that very slow pace of fiscal consolidation cannot be supported.

Keywords: Fiscal consolidation; Paces of consolidation; Fiscal sustainability; Welfare (search for similar items in EconPapers)
JEL-codes: E62 H40 H60 (search for similar items in EconPapers)
Date: 2021-08-05
New Economics Papers: this item is included in nep-dge, nep-isf and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/109059/1/MPRA_paper_109059.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:109059

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().