Advanced Search
MyIDEAS: Login to save this paper or follow this series

Restoring Fiscal Sustainability in the Euro Area Raise Taxes or Curb Spending?

Contents:

Author Info

  • Cournède, Boris
  • Gonand, Frédéric

Abstract

With population ageing, fiscal consolidation has become of paramount importance for euro area countries. Consolidation can be pursued in various ways, with different effects on potential growth, which itself will be dragged down by ageing. A dynamic general equilibrium model with overlapping generations and a public finance block (including a pay-as-you-go pension regime, a health care system, non ageingrelated public spending and a stock of debt to be repaid) is used to compare the macroeconomic impact of four scenarios: a) increasing taxes to finance unchanged pensions and repay public debt, b) lowering future pension replacement rates and repaying public debt through a lower ratio of non ageing-related outlays to GDP, c) raising the retirement age by 1.25 years per decade and increasing taxes only to pay off debt, and d) increasing the retirement age by 1.25 years per decade and paying off debt through a lower ratio of non ageing-related expenditure to GDP. This last scenario is the one where growth is strongest: with gradual increases in the retirement age and spending restraint, average GDP growth in the 2010s would be 0.34 percentage point stronger than in a scenario where fiscal consolidation is achieved exclusively through tax hikes. The appropriate conclusion from the model is not that public spending is bad per se, but that cuts to lower-priority spending items can deliver surprisingly large income gains compared with the alternative of raising taxes.

Download Info

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Bibliographic Info

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/11047.

as in new window
Length:
Date of creation: Oct 2006
Date of revision:
Publication status: Published in OECD Economics Department Working Papers, 2006
Handle: RePEc:dau:papers:123456789/11047

Contact details of provider:
Web page: http://www.dauphine.fr/en/welcome.html
More information through EDIRC

Related research

Keywords: Public debt; potential growth; fiscal consolidation; ageing; general equilibrium; euro area; fiscal sustainability; public expenditure;

Other versions of this item:

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Does UK Double-Dip Prove that Austerity Doesn’t Work?
    by Matt Mitchell in Neighborhood Effects on 2012-04-26 14:28:22
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. 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.
  2. Rob Euwals & Marike Knoef & Daniel Vuuren, 2011. "The trend in female labour force participation: what can be expected for the future?," Empirical Economics, Springer, vol. 40(3), pages 729-753, May.
  3. Frédéric Gonand, 2006. "Une politique budgétaire keynésienne neutralisant les stabilisateurs automatiques en haut de cycle : le cas de la France en 2000-2001," Working Papers hal-00243038, HAL.
  4. Kenichiro Kashiwase & Masahiro Nozaki & Kiichi Tokuoka, 2012. "Pension Reforms in Japan," IMF Working Papers 12/285, International Monetary Fund.
  5. Andersen, Torben M, 2008. "Fiscal Sustainability and Demographics - Should We Save or Work More?," CEPR Discussion Papers 7044, C.E.P.R. Discussion Papers.
  6. Daniel van Vuuren, 2011. "Flexible Retirement," CPB Discussion Paper 174, CPB Netherlands Bureau for Economic Policy Analysis.
  7. Luca Agnello & Ricardo M. Sousa, 2012. "Fiscall Adjustments and Income Inequality:A First Assessment," NIPE Working Papers 19/2012, NIPE - Universidade do Minho.
  8. Miriam Steurer, 2009. "Fertility Decisions and the Sustainability of Defined Benefit Pay-as-You-Go Pension Systems," Discussion Papers 2009-06, School of Economics, The University of New South Wales.
  9. Boris Cournède & Antoine Goujard & Álvaro Pina, 2013. "How to Achieve Growth- and Equity-friendly Fiscal Consolidation?: A Proposed Methodology for Instrument Choice with an Illustrative Application to OECD Countries," OECD Economics Department Working Papers 1088, OECD Publishing.
  10. Joana Pereira & Philippe D Karam & Dirk Muir & Anita Tuladhar, 2010. "Macroeconomic Effects of Public Pension Reforms," IMF Working Papers 10/297, International Monetary Fund.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:dau:papers:123456789/11047. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alexandre Faure).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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