Tax Austerity: Does it avert solvency crises?

Christos Shiamptanis

LCERPA Working Papers from Laurier Centre for Economic Research and Policy Analysis

Abstract: Many countries are adopting austerity measures, whereby governments aggressively raise taxes, with the hope to dispel future solvency crisis. This paper investigates the implications of tax austerity on the likelihood of a solvency crisis. We derive the maximum level of debt consistent with solvency, labeled as the effective fiscal limit on debt, and we show that its position depends on tax austerity. We find that countries like Italy that undergo strict tax austerity could lower their effective fiscal limit and induce a solvency crisis in the near future.

Keywords: Fiscal limit; Austerity; Solvency Crisis; Default (search for similar items in EconPapers)
JEL-codes: E62 F34 H30 H60 (search for similar items in EconPapers)
Pages: 42
Date: 2019-11-13
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Citations: View citations in EconPapers (2)

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http://www.lcerpa.org/public/papers/LCERPA_2019_3.pdf

Related works:
Journal Article: Tax Austerity: Does It Avert Solvency Crises? (2024)
Working Paper: Tax Austerity: Does it Avert Solvency Crises? (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:wlu:lcerpa:ec0119

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