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Debt Hangover in the Aftermath of the Great Recession

Author

Listed:
  • Stéphane Auray

    () (CREST-ENSAI,Université du Littoral Côte d'Opale)

  • Aurélien Eyquem

    () (CREST-ENSAI, Université de Lyon, GATE-LSE UMR CNRS 5824)

  • Paul Gomme

    () (Concordia University and CIREQ)

Abstract

During the Great Recession, U.S. government de cits and debt levels rose sharply. What are the consequences of using alternative scal policy instruments to return government debt-output ratios to their pre-Great Recession values, especially in terms of welfare? This question is addressed within a dynamic general equilibrium model. The model captures key macroeconomic fluctuations from 2008 to 2014 - labor market dynamics by virtue of incorporating search and matching frictions. Armed with this model, we then contrast the e ects of a post-2014 reduction of the debt-output ratio through public spending, the consumption tax rate, the labor income tax rate or the capital income tax rate. The resulting dynamics and welfare e ects are very di erent depending on the scal instrument used. The welfare ranking also crucially depends on the shape of preferences for the public good in the utility function of households.

Suggested Citation

  • Stéphane Auray & Aurélien Eyquem & Paul Gomme, 2016. "Debt Hangover in the Aftermath of the Great Recession," Working Papers 2016-02, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:2016-02
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    References listed on IDEAS

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    Cited by:

    1. Auray Stéphane & Eyquem Aurélien, 2017. "Unemployment, Borrowing Constraints and Stabilization Policies," Working Papers 2017-63, Center for Research in Economics and Statistics.
    2. Auray, Stéphane & Eyquem, Aurélien & Gomme, Paul, 2018. "Ramsey-optimal tax reforms and real exchange rate dynamics," Journal of International Economics, Elsevier, vol. 115(C), pages 159-169.

    More about this item

    Keywords

    Fiscal policies; tax reforms; government debt; government de cits;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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