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Can civilian disability pensions overcome the poverty issue? A DSGE analysis for Italian data

Listed author(s):
  • Massimiliano Agovino

    ()

    (University of Naples “Parthenope”)

  • Maria Ferrara

    ()

    (University of Naples “Parthenope”)

Abstract In Italy, poverty and disability are two strictly related issues. Households with disabled members continuously face a poverty risk. We simulate a simple Real Business Cycle model to investigate the macroeconomic effects of a permanent increase of civilian disability pensions. We stress the effectiveness of such a policy to stimulate private consumptions. The exercise is implemented via the reduction—both temporary and permanent—of public spending. Results show both the long- and short-run trade-off the policy maker has to deal with when the disability-poverty dualism becomes a relevant issue. In the long-run, a minimum increase of civilian disability pensions allows households with a disabled member to consume more and to exit from poverty condition. However, while temporary decline of public consumption entails a larger decrease of income inequality between the two groups of households, permanent reduction dampens the unavoidable recessionary effect. In the short-run, a temporary reduction of public spending causes an immediate surge of the consumption of households with a disabled member at a cost of a deep recession. By the opposite, a permanent public spending reduction softens the unavoidable output slump but private consumptions only gradually increase.

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File URL: http://link.springer.com/10.1007/s11135-016-0347-9
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Article provided by Springer in its journal Quality & Quantity.

Volume (Year): 51 (2017)
Issue (Month): 4 (July)
Pages: 1469-1491

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Handle: RePEc:spr:qualqt:v:51:y:2017:i:4:d:10.1007_s11135-016-0347-9
DOI: 10.1007/s11135-016-0347-9
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Order Information: Web: http://www.springer.com/economics/journal/11135

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