Short-run fiscal policy: Welfare, redistribution and aggregate effects in the short and long-run

Kitao, Sagiri

doi:10.1016/j.jedc.2010.05.011

Cited by 12 publications

(8 citation statements)

References 43 publications

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“…The government is assumed to have three …scal measures to …nance each of the two consolidation plans: (i) the income tax rates, (ii) the consumption tax rate and (iii) transfer payments. 23 The adjustments in income or consumption taxes or transfer payments are made to balance the government budget constraint in (7) from year 2015 onwards. While it is straightforward to implement the consumption tax adjustments via temporary increases in the e¤ective consumption tax rate, c t , additional assumptions need to be made for the other two measures.…”

Section: Methodsmentioning

confidence: 99%

Comparing Budget Repair Measures for a Small Open Economy with Growing Debt

Kudrna

Tran

2016

SSRN Journal

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In this study, we quantify the macroeconomic and welfare effects of alternative fiscal consolidation plans in the context of a small open economy. Using a computable overlapping generations model tailored to the Australian economy, we examine immediate and gradual eliminations of the existing fiscal deficit with (i) temporary income tax hikes, (ii) temporary consumption tax hikes and (iii) temporary transfer payment cuts. The simulation results indicate that all three examined fiscal measures result in favourable long-run macroeconomic and welfare outcomes, but have adverse consequences in the short run that are particularly severe under the immediate fiscal consolidation plan. Moreover, our results show that cutting transfer payments leads to the worst welfare outcome for all generations currently alive, and especially the poor. Increasing the consumption tax rate results in smaller welfare losses, but compared to raising income taxes, the current poor households pay much larger welfare costs. Overall, the welfare trade-offs between current and future generations, as well as between the rich and poor, highlight key political constraints and point to challenging policy choices for the wellbeing of future generations.

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Section: Methodsmentioning

confidence: 99%

Comparing Budget Repair Measures for a Small Open Economy with Growing Debt

Kudrna

Tran

2016

SSRN Journal

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“…It was found that tax incentive would enhance economic growth and development in Nigeria, if such incentives are well focused and extended to all deserving companies in the country. Kitao (2010) found that fiscal policy, tax-reduction and discount transfer enhance the well-being of individuals and the discount policy achieve advantages for low-income individuals.…”

Section: Empirical Reviewmentioning

confidence: 98%

The Effect of Fiscal Policy on Economic Development in Jordan

Al-Shatti¹

2014

IBR

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This research aims to examine the effect of the fiscal policy on economic development in Jordan during the time period ), a mathematical model has been designed to measure this effect on economic development in Jordan. The researcher found that there is a statistically positive significant effect of the current expenses and annual tax revenues on economic development in Jordan, and at the same time there is a statistically negative significant effect of the capital expenditures on economic development in Jordan. The empirical results show that the elements of fiscal policy considered in this study are important variables in explaining economic development in Jordan, and the joint effect of the fiscal policy elements (annual tax revenues, current expenditures and capital expenditures) on economic development is statistically significant. In sum, current expenditures In contrast to taxes, give more per capita income returns. The fiscal adjustments based on capital expenditures reductions accompanied by efficiency in tax revenues collection have been considered as one of the successful forms of policy for increasing per capita income and promoting economic development simultaneously.

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“…Economic slowdown modelled through reduced g directly affects net government debt that increases by additional 19 percentage points of GDP relative to the benchmark model simulation of the baseline transition. 24 The reduced tax revenues and increased expenditures on pensions and interest payments require further cuts in government consumption that is assumed to clear the government budget constraint during the baseline transition.…”

Section: Accepted Manuscriptmentioning

confidence: 99%

“…Similarly to other developed countries, population ageing in Australia is expected to accelerate in the next several decades, reducing population growth and generating a significantly higher proportion of the elderly in the total population. In this subsection, we examine the long run macroeconomic effects of keeping the existing budget deficit to GDP ratio unchanged (as under 24 In the long run steady state, the net government debt to GDP ratio equals to Deficit GDP/ (n + g + ng) , which with g = 1%, n = 1.6% and Deficit GDP = 3.07% implies net government debt of 117.35% of GDP, compared to 98.27% of GDP reported in Section 4.…”

Section: Population Ageingmentioning

confidence: 99%

Comparing budget repair measures for a small open economy with growing debt

Kudrna

Tran

2018

Journal of Macroeconomics

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We quantify the macroeconomic and welfare effects of alternative fiscal consolidation plans in the context of a small open economy. Using an overlapping generations model tailored to the Australian economy, we examine immediate and gradual eliminations of the existing fiscal deficit with (i) temporary income tax hikes, (ii) temporary consumption tax hikes and (iii) temporary transfer payment cuts. The simulation results indicate that all three fiscal measures result in favourable long-run macroeconomic and welfare outcomes, but have adverse consequences in the short run that are particularly severe under the immediate fiscal consolidation plan. Moreover, our results show that cutting transfer payments leads to the worst welfare outcome for all generations currently alive. Increasing the consumption tax rate results in smaller welfare losses, but compared to raising income taxes, the current poor households pay much larger welfare costs. The adverse effects on wellbeing of current generations highlight political constraints when implementing a fiscal consolidation plan. However, after compensating current generations for all welfare losses, there is still an overall efficiency gain. This implies possibilities to devise a fiscal consolidation plan supported by a compensation scheme to improve wellbeing of future generations.

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Short-run fiscal policy: Welfare, redistribution and aggregate effects in the short and long-run

Cited by 12 publications

References 43 publications

Comparing Budget Repair Measures for a Small Open Economy with Growing Debt

Comparing Budget Repair Measures for a Small Open Economy with Growing Debt

The Effect of Fiscal Policy on Economic Development in Jordan

Comparing budget repair measures for a small open economy with growing debt

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