Budget Consolidation: Short-Term Pain and Long-Term Gain
AbstractThe paper evaluates the costs and benefits of fiscal consolidation using simulations based on the IMFs global DSGE model GIMF. Over the longer run, well-targeted permanent reductions in budget deficits lead to a considerable increase in both the growth rate and the level of output. The gains may be enhanced by shifting some of the tax burden from incomes to consumption. In the short run, credibility plays a crucial role in determining the size of initial output loses. Global current account imbalances would be significantly reduced if budget consolidation was larger in countries with current account deficits.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 10/163.
Date of creation: 01 Jul 2010
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-31 (All new papers)
- NEP-CBA-2010-07-31 (Central Banking)
- NEP-DGE-2010-07-31 (Dynamic General Equilibrium)
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- Bertrand Gruss & Jose L. Torres, 2012. "Macroeconomic and Welfare Costs of U.S. Fiscal Imbalances," IMF Working Papers 12/38, International Monetary Fund.
- Senay Agca & Deniz Igan, 2013. "Fiscal Consolidation and the Cost of Credit: Evidence from Syndicated Loans," IMF Working Papers 13/36, International Monetary Fund.
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- Jan Hagemejer & Tomasz Jedrzejowicz & Zbigniew Zolkiewski, 2011. "Fiscal tightening after the crisis. A scenario analysis for Poland," Bank i Kredyt, National Bank of Poland, Economic Institute, vol. 42(3), pages 33-66.
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