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Debt Hangover in the Aftermath of the Great Recession

Author

Listed:
  • Stephane Auray

    (CREST-Ensai and Universite du Littoral Cote d'Opale)

  • Aurelien Eyquem

    (CREST-Ensai, GATE, UMR 5824, Universite de Lyon, and Universite Lumiere Lyon 2)

  • Paul Gomme

    (Concordia University and CIREQ)

Abstract

Following the Great Recession, U.S. government debt levels exceeded 100% of output. We develop a macroeconomic model to evaluate the role of various shocks during and after the Great Recession; labor market shocks have the greatest impact on macroeconomic activity. We then evaluate the consequences of using alternative fiscal policy instruments to implement a fiscal austerity program to return the debt-output ratio to its pre-Great Recession level. Our welfare analysis reveals that there is not much difference between applying fiscal austerity through government spending, the labor income tax, or the consumption tax; using the capital income tax is welfare-reducing.

Suggested Citation

  • Stephane Auray & Aurelien Eyquem & Paul Gomme, 2017. "Debt Hangover in the Aftermath of the Great Recession," Working Papers 17003, Concordia University, Department of Economics.
    • Handle: RePEc:crd:wpaper:17003
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    References listed on IDEAS

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    Cited by:

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    3. Paul Gomme, 2020. "Labor Market and Fiscal Policy During and After the Coronavirus," Cahiers de recherche 12-2020, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    4. Auray Stéphane & Eyquem Aurélien, 2017. "Unemployment, Borrowing Constraints and Stabilization Policies," Working Papers 2017-63, Center for Research in Economics and Statistics.
    5. Klein, Paul & Ventura, Gustavo, 2021. "Taxation, expenditures and the Irish miracle," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 1062-1077.
    6. 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.

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    More about this item

    Keywords

    fiscal policy; fiscal austerity; Great Recession;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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