IDEAS home Printed from https://ideas.repec.org/p/kud/epruwp/99-24.html
   My bibliography  Save this paper

Distributional Effects of Fiscal Consolidation

Author

Listed:
  • Svend E. Hougaard Jensen
  • Thomas F. Rutherford

Abstract

This paper examines the distributional consequences of public debt reduction achieved through spending cuts. Under the assumption that public goods and transfers are relatively more valuable to the poor, our calculations indicate that the elderly poor stand to lose from such policies. Debt reduction produces short-term deficits and long-term surpluses, and when future surpluses are recycled into higher provision of public goods and transfers, future generations of poor could gain. If future surpluses are recycled through lower labour taxes, working households in the future would be positively affected. We conclude that debt reduction could have positive or negative impacts on vertical equity, yet inter- rather than intra-generational equity is likely to pose the greatest obstacle to fiscal consolidation. Based on majority voting by self-interested households, debt reduction would never occur. Yet, in a formal social welfare analysis, some debt reduction programmes may be deemed beneficial with social discount factors as high as two percent. When we then consider alternative time profiles for debt reduction, we conclude that slower is better.

Suggested Citation

  • Svend E. Hougaard Jensen & Thomas F. Rutherford, "undated". "Distributional Effects of Fiscal Consolidation," EPRU Working Paper Series 99-24, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:99-24
    as

    Download full text from publisher

    File URL: http://www.econ.ku.dk/epru/files/wp/wp9924.pdf
    Download Restriction: no

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. T. Buyse & F. Heylen, 2012. "Leaving the empirical (battle)ground: Output and welfare effects of fiscal consolidation in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/826, Ghent University, Faculty of Economics and Business Administration.
    2. Thomas Fox Rutherford & Svend E. Hougaard Jensen & Tobias N. Rasmussen, 2002. "Economic Transition, Entrepreneurial Capacity, and Intergenerational Distribution," IMF Working Papers 02/180, International Monetary Fund.
    3. World Bank, 2008. "Montenegro : Beyond the Peak, Growth Policies and Fiscal Constraints, Public Expenditure and Institutional Review," World Bank Other Operational Studies 7831, The World Bank.
    4. Sebastian Rausch & Thomas Rutherford, 2010. "Computation of Equilibria in OLG Models with Many Heterogeneous Households," Computational Economics, Springer;Society for Computational Economics, vol. 36(2), pages 171-189, August.
    5. Rausch, Sebastian, 2013. "Fiscal consolidation and climate policy: An overlapping generations perspective," Energy Economics, Elsevier, vol. 40(S1), pages 134-148.
    6. Rasmussen, Tobias N. & Rutherford, Thomas F., 2004. "Modeling overlapping generations in a complementarity format," Journal of Economic Dynamics and Control, Elsevier, vol. 28(7), pages 1383-1409, April.
    7. Keshab Bhattarai, 2016. "Growth and Income Distributions in Four EU Economies," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(3), pages 263-277, August.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kud:epruwp:99-24. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Hoffmann). General contact details of provider: http://edirc.repec.org/data/epcbsdk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.