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Alternative strategies to reduce public deficits: Taxes vs. spending

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  • Oscar Bajo-Rubio

    (Universidad de Castilla-La Mancha)

  • Antonio G. Gómez-Plana

    (Universidad Pública de Navarra)

Abstract

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.

Suggested Citation

  • Oscar Bajo-Rubio & Antonio G. Gómez-Plana, 2013. "Alternative strategies to reduce public deficits: Taxes vs. spending," Working Papers 13-02, Asociación Española de Economía y Finanzas Internacionales.
    • Handle: RePEc:aee:wpaper:1302
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bajo-Rubio, Oscar & Gómez-Plana, Antonio G., 2025. "Austerity and asymmetries in the fiscal policies of the eurozone," GLO Discussion Paper Series 1592, Global Labor Organization (GLO).
    2. Sergey Zhavoronkov & Konstantin Yanovskiy & Kirill Rodionov, 2015. "Political Factors of the Cuts and Surges in Government Spending: The Effects on Old Market Democracies and Post-Communist Countries," Working Papers 146, Gaidar Institute for Economic Policy, revised 2015.
    3. Moheddine Younsi & Marwa Bechtini, 2024. "Financing Health Systems in Developing Countries: the Role of Government Spending and Taxation," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 13182-13210, September.
    4. P. Campoy-Muñoz & M. A. Cardenete & F. J. De Miguel-Vélez & J. Pérez-Mayo, 2022. "How does fiscal austerity impact on poverty and inequality? The Spanish case," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 39(3), pages 715-737, October.
    5. Oscar Bajo-Rubio & Antonio G. Gómez-Plana, 2025. "Austerity and asymmetries in the fiscal policies of the Eurozone: the case of Southern Europe," International Economics and Economic Policy, Springer, vol. 22(2), pages 1-24, May.

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    More about this item

    Keywords

    Computable general equilibrium; Government deficit; Taxes; Spending;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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