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Budget Consolidation

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Author Info

  • Douglas Laxton
  • Susanna Mursula
  • Kevin Clinton
  • Michael Kumhof

Abstract

The 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 Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/163.

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Length: 33
Date of creation: 01 Jul 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/163

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Related research

Keywords: Budgets; Budget deficits; Current account deficits; Fiscal consolidation; Fiscal policy; Monetary policy; Economic models; tax reform; income taxes; consumption taxes; fiscal instruments; deficit reduction; lump-sum taxes; budget constraint; tax reforms; tax rates; tax cuts; fiscal package; government spending; fiscal consolidations; government deficit; fiscal deficits; fiscal measures; capital stock; fiscal stimulus; budget consolidation; fiscal space; fiscal model; tax revenue; tax burden; taxes on labor; tax changes; taxation; tax income; higher income; fiscal multipliers; medium-term fiscal frameworks; capital accumulation; public debt; dividend payments; fiscal contraction; fiscal sustainability; budget balances; government budget constraint; tax instruments; fiscal expansion; fiscal consolidation efforts; tax labor; reduction in government spending; substitution effect; tax payment; fiscal shocks; fiscal policy rule; taxes on income; reduction in transfers; fiscal policies; public finance; tax measures; fiscal rule; fiscal side; primary deficit;

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Citations

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Cited by:
  1. Senay Agca & Deniz Igan, 2013. "Fiscal Consolidation and the Cost of Credit," IMF Working Papers 13/36, International Monetary Fund.
  2. 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.
  3. Bertrand Gruss & Jose L. Torres, 2012. "Macroeconomic and Welfare Costs of U.S. Fiscal Imbalances," IMF Working Papers 12/38, International Monetary Fund.
  4. Douglas Sutherland & Peter Hoeller & Rossana Merola, 2012. "Fiscal Consolidation: Part 1. How Much is Needed and How to Reduce Debt to a Prudent Level?," OECD Economics Department Working Papers 932, OECD Publishing.
  5. Borys, Paweł & Ciżkowicz, Piotr & Rzońca, Andrzej, 2011. "Panel data evidence on non-Keynesian efects of fiscal policy in the EU New Member," MPRA Paper 32696, University Library of Munich, Germany.

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