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Distributional Effects of Fiscal Consolidation
Author(s) -
Jensen Svend E. Hougaard,
Rutherford Thomas F.
Publication year - 2002
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00297
Subject(s) - economics , debt , consolidation (business) , equity (law) , voting , public good , monetary economics , labour economics , public economics , macroeconomics , finance , microeconomics , politics , political science , law
If public goods and transfers are relatively more valuable to the poor, the elderly poor stand to lose from public debt reduction achieved through spending cuts. When long–term surpluses produced by debt reduction 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. The impact of debt reduction on vertical equity is ambiguous, yet inter– rather than intragenerational equity is likely to pose the greatest obstacle to fiscal consolidation. Based on majority voting by self–interested households, debt reduction is unlikely to occur. JEL classification : D 91; E 62; H 23; H 63