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US Fiscal policy during and after the coronavirus

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  • Paul Gomme

Abstract

COVID‐related government outlays will increase the level of government debt. A macroeconomic model, calibrated to the US, quantitatively assesses potential responses to this higher debt. In terms of economic welfare, reducing debt through capital incomes tax hikes is the least desirable option considered: the associated tax base is small, and anticipating such a tax increase reduces capital accumulation. There is little to choose between fiscal austerity through government spending cuts versus raising labour income tax rates. Accommodating higher government debt is welfare‐improving but still requires substantial fiscal austerity owing to higher debt servicing costs. Politique fiscale des États‐Unis avant et après le coronavirus. Les dépenses gouvernementales liées à la COVID‐19 entraîneront une augmentation de la dette publique. Un modèle macroéconomique calibré sur les États‐Unis permet d'évaluer de façon quantitative les possibilités de réaction face à cet accroissement de la dette. En termes de bien‐être économique, augmenter les taxes sur les revenus du capital pour réduire la dette est la solution la moins souhaitable, non seulement parce que l'assiette fiscale correspondante est petite, mais aussi parce que l'anticipation de ces hausses entraîne une diminution de l'accumulation de capital. Il est bien difficile de trancher entre une austérité budgétaire caractérisée par une compression des dépenses publiques d'un côté, et une hausse des taux d'imposition des revenus du travail de l'autre. Faciliter l'augmentation de la dette publique entraînerait une amélioration du bien‐être, mais nécessiterait quand même des mesures d'austérité budgétaire substantielles en raison des coûts de service de la dette plus élevés.

Suggested Citation

  • Paul Gomme, 2022. "US Fiscal policy during and after the coronavirus," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(S1), pages 358-378, February.
  • Handle: RePEc:wly:canjec:v:55:y:2022:i:s1:p:358-378
    DOI: 10.1111/caje.12548
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    References listed on IDEAS

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    Cited by:

    1. Yahong Zhang, 2022. "Unemployment Benefits and Wage Subsidies -- Effects of Labour Market Policies during a Pandemic," Working Papers 2203, University of Windsor, Department of Economics, revised Sep 2022.
    2. Sorin-Ciprian Teiusan & Dorina Plescaci, 2022. "An Insight Into Research Of Tax And Fiscal Policy In Response To Covid-19 Crisis," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 37-47, April.

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