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An Evaluation of the Revenue side as a source of fiscal consolidation in high debt economies

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  • Ritwik Banerjee

    (Department of Economics and Business, Aarhus University)

Abstract

Unsustainable levels of debt in some European economies are causing considerable strain in the Euro area. Successful debt consolidation in high debt economies is one of the most important important objective for the European policy makers. I use a dynamic general equilibrium closed economy model to compute the dynamic Laffer Curves for Portugal, Ireland, Greece and Spain for different class of taxes. The general equilibrium effects of the interaction of labor tax, consumption tax and capital tax is demonstrated. Location of each economy on its Laffer curve suggests that there exists a scope for considerable revenue generation by raising consumption and labor tax rates but no such possibilities exist for capital tax rate. Thus revenue generation with certain tax rates as instruments, may hold a key to successful and sustained debt reduction.

Suggested Citation

  • Ritwik Banerjee, 2013. "An Evaluation of the Revenue side as a source of fiscal consolidation in high debt economies," Economics Working Papers 2013-23, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2013-23
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Laffer Curve; Public Debt; Portugal; Ireland; Greece; Spain;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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