Fiscal consolidation programs and income inequality
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- dc.contributor.author Brinca, Pedroca
- dc.contributor.author Ferreira, Miguel H.ca
- dc.contributor.author Franco, Francescoca
- dc.contributor.author Holter, Hans A.ca
- dc.contributor.author Malafry, Laurenceca
- dc.date.accessioned 2017-12-22T11:03:11Z
- dc.date.available 2017-12-22T11:03:11Z
- dc.date.issued 2017-11
- dc.description.abstract Following the Great Recession, many European countries implemented fiscal consolidation policies aimed at reducing government debt. Using three independent data sources and three different empirical approaches, we document a strong positive relationship between higher income inequality and stronger recessive impacts of fiscal consolidation programs across time and place. To explain this finding, we develop a life-cycle, overlapping generations economy with uninsurable labour market risk. We calibrate our model to match key characteristics of a number of European economies, including the distribution of wages and wealth, social security, taxes and debt, and study the effects of fiscal consolidation programs. We find that higher income risk induces precautionary savings behaviour, which decreases the proportion of credit-constrained agents in the economy. Credit-constrained agents have less elastic labour supply responses to fiscal consolidation achieved through either tax hikes or public spending cuts, and this explains the relationship between income inequality and the impact of fiscal consolidation programs. Our model produces a cross-country correlation between inequality and the fiscal consolidation multipliers, which is quite similar to that in the data.ca
- dc.description.sponsorship The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
- dc.format.mimetype application/pdfca
- dc.identifier.uri http://hdl.handle.net/10230/33565
- dc.language.iso engca
- dc.relation.ispartofseries ADEMU Working Paper Series;78
- dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/649396
- dc.rights This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.ca
- dc.rights.accessRights info:eu-repo/semantics/openAccessca
- dc.rights.uri https://creativecommons.org/licenses/by/4.0/ca
- dc.subject.keyword Fiscal consolidationen
- dc.subject.keyword Income inequalityen
- dc.subject.keyword Fiscal multipliersen
- dc.subject.keyword Public debten
- dc.subject.keyword Income risken
- dc.title Fiscal consolidation programs and income inequalityca
- dc.type info:eu-repo/semantics/workingPaperca