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The design of fiscal consolidation measures in the European Union: distributional effects and implications for macroeconomic recovery

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  • Figari, Francesco
  • Paulus, Alari
  • Sutherland, Holly

Abstract

The financial and economic crisis which started in the late 2000s and the fiscal consolidation measures to counter the subsequent government budget deficits have an impact on household income distribution and macroeconomic recovery. We consider the austerity measures in relation to their distributional impact and the potential channels through which fiscal consolidation can affect economic growth. We find notable variation in the size, composition and effects of fiscal consolidation. Richer households tend to bear a greater burden in most countries but spending cuts are more likely to affect liquidity constrained households casting doubts over previous findings in the macro-economic literature about the effectiveness of such measures. This suggests the need to consider more disaggregated evidence to reach robust policy conclusions.

Suggested Citation

  • Figari, Francesco & Paulus, Alari & Sutherland, Holly, 2015. "The design of fiscal consolidation measures in the European Union: distributional effects and implications for macroeconomic recovery," EUROMOD Working Papers EM5/15, EUROMOD at the Institute for Social and Economic Research.
  • Handle: RePEc:ese:emodwp:em5-15
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    Cited by:

    1. Mathias Dolls & Karina Doorley & Alari Paulus & Hilmar Schneider & Eric Sommer, 2019. "Demographic change and the European income distribution," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 17(3), pages 337-357, September.
    2. Mathias Dolls & Clemens Fuest & Andreas Peichl & Christian Wittneben, 2019. "Fiscal Consolidation and Automatic Stabilization: New Results," CESifo Working Paper Series 8021, CESifo.
    3. Alari Paulus & Holly Sutherland & Iva Tasseva, 2020. "Indexing Out of Poverty? Fiscal Drag and Benefit Erosion in Cross‐National Perspective," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(2), pages 311-333, June.
    4. Luigi Bonatti & Andrea Fracasso, 2017. "Addressing the Core-Periphery Imbalances in Europe: Resource Misallocation and Expansionary Fiscal Policies," EconPol Working Paper 6, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    5. Figari Francesco & Gandullia Luca & Lezzi Emanuela, 2018. "Marginal Cost of Public Funds: From the Theory to the Empirical Application for the Evaluation of the Efficiency of the Tax-Benefit Systems," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(4), pages 1-16, October.

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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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