Alternative strategies to reduce public deficits: Taxes vs. spending
In this paper, we examine the effects of several alternative measures intended to reduce government deficits, distinguishing between those acting through either taxes or spending, for the case of Spain. The empirical methodology is based on a computable general equilibrium model. All the simulated policies lead to a decrease in the levels of output and employment, and to a higher unemployment rate. Spending cuts show greater contractionary effects than tax increases, and are associated with a worsening in the distribution of income for labour. These effects are stronger in the case of spending cuts in Public education.
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