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Distributional Effects of Fiscal Consolidation

Author

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  • Svend E. Hougaard Jensen
  • Thomas F. Rutherford

Abstract

If public goods and transfers are relatively more valuable to the poor, the elderly poor stand to lose from public debt reduction achieved through spending cuts. When long–term surpluses produced by debt reduction are recycled into higher provision of public goods and transfers, future generations of poor could gain. If future surpluses are recycled through lower labour taxes, working households in the future would be positively affected. The impact of debt reduction on vertical equity is ambiguous, yet inter– rather than intragenerational equity is likely to pose the greatest obstacle to fiscal consolidation. Based on majority voting by self–interested households, debt reduction is unlikely to occur. JEL classification: D91; E62; H23; H63

Suggested Citation

  • Svend E. Hougaard Jensen & Thomas F. Rutherford, 2002. "Distributional Effects of Fiscal Consolidation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 471-493, September.
    • Handle: RePEc:bla:scandj:v:104:y:2002:i:3:p:471-493
    DOI: 10.1111/1467-9442.00297
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    Cited by:

    1. Rausch, Sebastian & Yonezawa, Hidemichi, 2023. "Green technology policies versus carbon pricing: An intergenerational perspective," European Economic Review, Elsevier, vol. 154(C).
    2. Sebastian Rausch & Thomas Rutherford, 2010. "Computation of Equilibria in OLG Models with Many Heterogeneous Households," Computational Economics, Springer;Society for Computational Economics, vol. 36(2), pages 171-189, August.
    3. Richard McManus & F Gulcin Ozkan & Dawid Trzeciakiewicz, 2021. "Fiscal consolidations and distributional effects: which form of fiscal austerity is least harmful?," Oxford Economic Papers, Oxford University Press, vol. 73(1), pages 317-349.
    4. Rausch, Sebastian, 2013. "Fiscal consolidation and climate policy: An overlapping generations perspective," Energy Economics, Elsevier, vol. 40(S1), pages 134-148.
    5. T. Buyse & F. Heylen, 2012. "Leaving the empirical (battle)ground: Output and welfare effects of fiscal consolidation in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/826, Ghent University, Faculty of Economics and Business Administration.
    6. Rasmussen, Tobias N. & Rutherford, Thomas F., 2004. "Modeling overlapping generations in a complementarity format," Journal of Economic Dynamics and Control, Elsevier, vol. 28(7), pages 1383-1409, April.
    7. World Bank, 2008. "Montenegro : Beyond the Peak, Growth Policies and Fiscal Constraints, Public Expenditure and Institutional Review," World Bank Publications - Reports 7831, The World Bank Group.
    8. Mr. Thomas Fox Rutherford & Mr. Svend E. Hougaard Jensen & Mr. Tobias N. Rasmussen, 2002. "Economic Transition, Entrepreneurial Capacity, and Intergenerational Distribution," IMF Working Papers 2002/180, International Monetary Fund.
    9. Keshab Bhattarai, 2016. "Growth and Income Distributions in Four EU Economies," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(3), pages 263-277, August.
    10. Keshab Raj BHATTARAI, 2009. "Dynamic Multi-Household General Economic Models for Policy Simulations: France, Germany, Spain and UK," EcoMod2009 21500014, EcoMod.

    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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