IDEAS home Printed from https://ideas.repec.org/p/aee/wpaper/1302.html
   My bibliography  Save this paper

Alternative strategies to reduce public deficits: Taxes vs. spending

Author

Listed:
  • Oscar Bajo-Rubio

    (Universidad de Castilla-La Mancha)

  • Antonio G. Gómez-Plana

    (Universidad Pública de Navarra)

Abstract

In this paper, we examine the effects of several alternative measures intended to reduce government deficits, distinguishing between those acting through either taxes or spending, for the case of Spain. The empirical methodology is based on a computable general equilibrium model. All the simulated policies lead to a decrease in the levels of output and employment, and to a higher unemployment rate. Spending cuts show greater contractionary effects than tax increases, and are associated with a worsening in the distribution of income for labour. These effects are stronger in the case of spending cuts in Public education.

Suggested Citation

  • Oscar Bajo-Rubio & Antonio G. Gómez-Plana, 2013. "Alternative strategies to reduce public deficits: Taxes vs. spending," Working Papers 13-02, Asociación Española de Economía y Finanzas Internacionales.
    • Handle: RePEc:aee:wpaper:1302
    as

    Download full text from publisher

    File URL: http://www.aeefi.com/RePEc/pdf/defi13-02.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    2. Alberto Alesina & Silvia Ardagna, 1998. "Tales of fiscal adjustment," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 13(27), pages 488-545.
    3. Oscar Bajo-Rubio & Antonio G. Gómez-Plana, 2004. "Reducing Social Contributions for Unskilled Labor as a Way of Fighting Unemployment: An Empirical Evaluation for the Case of Spain," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(2), pages 160-185, August.
    4. Kehoe, Timothy J & Polo, Clemente & Sancho, Ferran, 1995. "An Evaluation of the Performance of an Applied General Equilibrium Model of the Spanish Economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 115-141, June.
    5. J. Bradford DeLong & Lawrence H. Summers, 2012. "Fiscal Policy in a Depressed Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(1 (Spring), pages 233-297.
    6. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
    7. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 75-122, National Bureau of Economic Research, Inc.
    8. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
    9. Bajo-Rubio, Oscar & Gomez-Plana, Antonio G., 2005. "Simulating the effects of the European Single Market: A CGE analysis for Spain," Journal of Policy Modeling, Elsevier, vol. 27(6), pages 689-709, September.
    10. Ballard, Charles L. & Kang, Kiwon, 2003. "International ramifications of US tax-policy changes," Journal of Policy Modeling, Elsevier, vol. 25(8), pages 825-835, November.
    11. Kemal Dervis & Jaime de Melo & Sherman Robinson, 2015. "A General Equilibrium Analysis Of Foreign Exchange Shortages In A Developing Economy," World Scientific Book Chapters, in: Modeling Developing Countries' Policies in General Equilibrium, chapter 4, pages 71-86, World Scientific Publishing Co. Pte. Ltd..
    12. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
    13. Rutherford, Thomas F, 1999. "Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax," Computational Economics, Springer;Society for Computational Economics, vol. 14(1-2), pages 1-46, October.
    14. repec:hal:spmain:info:hdl:2441/1769 is not listed on IDEAS
    15. Alberto Alesina & Roberto Perotti, 1997. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 210-248, June.
    16. Antonio Gómez Gómez-Plana & Pedro Pascual Arzoz, 2011. "Fraude fiscal e IVA en España: incidencia en un modelo de equilibrio general," Hacienda Pública Española / Review of Public Economics, IEF, vol. 199(4), pages 9-52, December.
    17. Howe, Howard, 1975. "Development of the extended linear expenditure system from simple saving assumptions," European Economic Review, Elsevier, vol. 6(3), pages 305-310, July.
    18. Burfisher,Mary E., 2011. "Introduction to Computable General Equilibrium Models," Cambridge Books, Cambridge University Press, number 9780521139779, December.
    19. repec:hal:wpspec:info:hdl:2441/1769 is not listed on IDEAS
    20. Burfisher,Mary E., 2011. "Introduction to Computable General Equilibrium Models," Cambridge Books, Cambridge University Press, number 9780521766968, December.
    21. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521266550.
    22. Jérôme Creel & Bruno Ducoudré & Catherine Mathieu & Henri Sterdyniak, 2005. "Doit-on oublier la politique budgétaire ?. Une analyse critique de la nouvelle théorie anti-keynésienne des finances publiques," Revue de l'OFCE, Presses de Sciences-Po, vol. 92(1), pages 43-97.
    23. Lars Mathiesen, 1985. "Computational Experience in Solving Equilibrium Models by a Sequence of Linear Complementarity Problems," Operations Research, INFORMS, vol. 33(6), pages 1225-1250, December.
    24. Kehoe,Timothy J. & Srinivasan,T. N. & Whalley,John (ed.), 2005. "Frontiers in Applied General Equilibrium Modeling," Cambridge Books, Cambridge University Press, number 9780521825252.
    25. J. Bradford DeLong & Lawrence H. Summers, 2012. "Fiscal Policy in a Depressed Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(1 (Spring), pages 233-297.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sergey Zhavoronkov & Konstantin Yanovskiy & Kirill Rodionov, 2015. "Political Factors of the Cuts and Surges in Government Spending: The Effects on Old Market Democracies and Post-Communist Countries," Working Papers 146, Gaidar Institute for Economic Policy, revised 2015.
    2. P. Campoy-Muñoz & M. A. Cardenete & F. J. De Miguel-Vélez & J. Pérez-Mayo, 2022. "How does fiscal austerity impact on poverty and inequality? The Spanish case," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 39(3), pages 715-737, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oscar Bajo‐Rubio & Antonio G. Gómez‐Plana, 2022. "A multi‐country analysis of austerity policies in the European Union," The World Economy, Wiley Blackwell, vol. 45(1), pages 4-35, January.
    2. Reinhart, Carmen M. & Reinhart, Vincent & Rogoff, Kenneth, 2015. "Dealing with debt," Journal of International Economics, Elsevier, vol. 96(S1), pages 43-55.
    3. Christoph A. Schaltegger & Martin Weder, 2014. "Fiscal adjustment and the costs of public debt service: evidence from OECD countries," Applied Economics, Taylor & Francis Journals, vol. 46(22), pages 2593-2610, August.
    4. Javier Ferri & Antonio G. Gómez-Plana & Joan A. Martín-Montaner, 2006. "Illegal immigration booms and welfare in the host country," European Journal of Population, Springer;European Association for Population Studies, vol. 22(4), pages 353-370, December.
    5. Christoph A. Schaltegger & Martin Weder, 2015. "Fiscal Adjustments and the Probability of Sovereign Default," Kyklos, Wiley Blackwell, vol. 68(1), pages 81-110, February.
    6. Salvador Barrios & Sven Langedijk & Lucio Pench, 2010. "EU fiscal consolidation after the financial crisis. Lessons from past experiences," European Economy - Economic Papers 2008 - 2015 418, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    7. António Afonso & Jaromír Baxa & Michal Slavík, 2018. "Fiscal developments and financial stress: a threshold VAR analysis," Empirical Economics, Springer, vol. 54(2), pages 395-423, March.
    8. El Mostafa Bentour, 2022. "The effects of public debt accumulation and business cycle on government spending multipliers," Applied Economics, Taylor & Francis Journals, vol. 54(19), pages 2231-2256, April.
    9. Petra Došenoviæ Bonèa & Maks Tajnikar, 2018. "Austerity policies, economic growth and fiscal balance: lessons from Slovenia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(1), pages 287-308.
    10. Roberto Tamborini & Matteo Tomaselli, 2020. "When does public debt impair economic growth? A literature review in search of a theory," DEM Working Papers 2020/7, Department of Economics and Management.
    11. Andrea Boitani & Salvatore Perdichizzi & Chiara Punzo, 2022. "Nonlinearities and expenditure multipliers in the Eurozone [Tales of fiscal adjustment]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 31(2), pages 552-575.
    12. Nicholas Oulton, 2013. "Medium and long run prospects for UK growth in the aftermath of the financial crisis," Discussion Papers 1307, Centre for Macroeconomics (CFM).
    13. Sebastian Dellepiane & Niamh Hardiman, 2012. "Fiscal Politics In Time: Pathways to Fiscal Consolidation, 1980-2012," Working Papers 201228, Geary Institute, University College Dublin.
    14. Agnello, Luca & Castro, Vitor & Sousa, Ricardo M., 2013. "What determines the duration of a fiscal consolidation program?," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 113-134.
    15. Perugini, Cristiano & Žarković Rakić, Jelena & Vladisavljević, Marko, 2016. "Austerity and gender wage inequality in EU countries," MPRA Paper 76306, University Library of Munich, Germany.
    16. Paulo André Camuri & Frederico G. Jayme Jr. & Ana Maria Hermeto, 2015. "Fiscal consolidation in developed and emerging economies [Fiscal consolidation in developed and emerging economies]," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 25(spe), pages 835-861, December.
    17. Szilágyi, Katalin & Kiss, Áron, 2014. "Miért más ez a válság, mint a többi?. Az adósságleépítés szerepe a nagy recesszióban [Why is this crisis different?. The role of deleveraging in the great recession]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 949-974.
    18. Christoph A. Schaltegger & Martin Weder, 2010. "Are Fiscal Adjustments Bad for Investment?," CREMA Working Paper Series 2010-17, Center for Research in Economics, Management and the Arts (CREMA).
    19. Dave Reifschneider & William Wascher & David Wilcox, 2015. "Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(1), pages 71-109, May.
    20. Bajo-Rubio, Oscar & Gomez-Plana, Antonio G., 2005. "Simulating the effects of the European Single Market: A CGE analysis for Spain," Journal of Policy Modeling, Elsevier, vol. 27(6), pages 689-709, September.

    More about this item

    Keywords

    Computable general equilibrium; Government deficit; Taxes; Spending;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aee:wpaper:1302. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Luis Miguel del Corral Cuervo (email available below). General contact details of provider: https://edirc.repec.org/data/aeefiea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.