Munich Personal RePEc Archive

Fiscal Consolidations: Welfare Effects of the Adjustment Speed

Fonseca, Miguel (2020): Fiscal Consolidations: Welfare Effects of the Adjustment Speed.

[img]
Preview
PDF
MPRA_paper_98902.pdf

Download (379kB) | Preview

Abstract

This work 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.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.