The macroeconomics of fiscal consolidations in a Monetary Union: the case of Italy

Massimiliano Pisani, Andrea Gerali (andrea.gerali@bancaditalia.it) and Lorenzo Forni

No 863, 2008 Meeting Papers from Society for Economic Dynamics

Abstract: Our main results are: (1) reducing tax distortions would entail significant welfare gains; (2) among expenditures, it is preferable to cut purchases of good and services or public employment than transfers to households; (3) it is preferable to cut taxes and expenditures at the same time: tax cuts more than compensate for the welfare costs of reducing expenditures; (4) cutting taxes immediately rather than with a delay entails only a negligible slowdown in the pace of public debt reduction and might deliver a higher level of welfare during the transition.

Date: 2008
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Working Paper: The macroeconomics of fiscal consolidations in a monetary union: the case of Italy (2010)
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