Fiscal Policy Composition, Public Debt, and Economic Activity
AbstractThis paper uses a dynamic general equilibrium model i) to investigate how changes to different spending and revenue items of the budget affect economic activity and public finance; and ii) to evaluate the welfare costs of alternative fiscal policy maneuvers. The paper shows that,unlike an increase in government purchases of final goods, an increase in public employment and transfers can have a contractionary effect on the economy in the same way as a rise in tax rates. It also suggests that fiscal adjustments implemented by cutting spending items increase households' welfare and are more effective in reducing the primary deficit and public debt than are increases in tax rates.
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Bibliographic InfoPaper provided by Harvard University Department of Economics in its series Scholarly Articles with number 2579823.
Date of creation: 2001
Date of revision:
Publication status: Published in Public Choice
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