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Distributional Effects of Fiscal Consolidation

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  • Jensen, Svend E Hougaard
  • Rutherford, Thomas F

Abstract

If public goods and transfers are relatively more valuable to the poor, the elderly poor stand to lose from public debt reduction achieved through spending cuts. When long-term surpluses produced by debt reduction are recycled into higher provision of public goods and transfers, future generations of poor could gain. If future surpluses are recycled through lower labour taxes, working households in the future would be positively affected. The impact of debt reduction on vertical equity is ambiguous, yet inter- rather than intragenerational equity is likely to pose the greatest obstacle to fiscal consolidation. Based on majority voting by self-interested households, debt reduction is unlikely to occur. Copyright 2002 by The editors of the Scandinavian Journal of Economics.

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  • Jensen, Svend E Hougaard & Rutherford, Thomas F, 2002. " Distributional Effects of Fiscal Consolidation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 471-493, September.
  • Handle: RePEc:bla:scandj:v:104:y:2002:i:3:p:471-93
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    Cited by:

    1. Thomas Fox Rutherford & Svend E. Hougaard Jensen & Tobias N. Rasmussen, 2002. "Economic Transition, Entrepreneurial Capacity, and Intergenerational Distribution," IMF Working Papers 02/180, International Monetary Fund.
    2. Sebastian Rausch & Thomas Rutherford, 2010. "Computation of Equilibria in OLG Models with Many Heterogeneous Households," Computational Economics, Springer;Society for Computational Economics, vol. 36(2), pages 171-189, August.
    3. Rasmussen, Tobias N. & Rutherford, Thomas F., 2004. "Modeling overlapping generations in a complementarity format," Journal of Economic Dynamics and Control, Elsevier, vol. 28(7), pages 1383-1409, April.
    4. World Bank, 2008. "Montenegro : Beyond the Peak, Growth Policies and Fiscal Constraints, Public Expenditure and Institutional Review," World Bank Other Operational Studies 7831, The World Bank.
    5. Rausch, Sebastian, 2013. "Fiscal consolidation and climate policy: An overlapping generations perspective," Energy Economics, Elsevier, pages 134-148.
    6. 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.
    7. Rausch, Sebastian, 2013. "Fiscal consolidation and climate policy: An overlapping generations perspective," Energy Economics, Elsevier, pages 134-148.
    8. Keshab Bhattarai, 2016. "Growth and Income Distributions in Four EU Economies," International Advances in Economic Research, Springer;International Atlantic Economic Society, pages 263-277.

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