Fiscal consolidation strategy

  • In the aftermath of the global financial crisis and great recession, many countries face substantial deficits and growing debts. In the United States, federal government outlays as a ratio to GDP rose substantially from about 19.5 percent before the crisis to over 24 percent after the crisis. In this paper we consider a fiscal consolidation strategy that brings the budget to balance by gradually reducing this spending ratio over time to the level that prevailed prior to the crisis. A crucial issue is the impact of such a consolidation strategy on the economy. We use structural macroeconomic models to estimate this impact. We consider two types of dynamic stochastic general equilibrium models: a neoclassical growth model and more complicated models with price and wage rigidities and adjustment costs. We separate out the impact of reductions in government purchases and transfers, and we allow for a reduction in both distortionary taxes and government debt relative to the baseline of no consolidation. According to the initial model simulations GDP rises in the short run upon announcement and implementation of this fiscal consolidation strategy and remains higher than the baseline in the long run.

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Metadaten
Author:John F. Cogan, John B. Taylor, Volker WielandORCiDGND, Maik Hendrik WoltersORCiDGND
URN:urn:nbn:de:hebis:30:3-347215
URL:http://media.hoover.org/documents/CoganTaylorWielandWolters_120614.pdf
Document Type:Report
Language:English
Year of Completion:2012
Year of first Publication:2012
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2014/10/22
Issue:June 12, 2012
Page Number:32
First Page:1
Last Page:32
HeBIS-PPN:349672237
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Institute for Monetary and Financial Stability (IMFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universit├Ątspublikationen
Licence (German):License LogoDeutsches Urheberrecht