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US Fiscal policy during and after the coronavirus
Author(s) -
Gomme Paul
Publication year - 2022
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12548
Subject(s) - austerity , economics , monetary economics , debt , government debt , capital (architecture) , welfare , government (linguistics) , fiscal policy , economic policy , internal debt , macroeconomics , market economy , history , linguistics , philosophy , archaeology , politics , political science , law
COVID‐related government outlays will increase the level of government debt. A macroeconomic model, calibrated to the US, quantitatively assesses potential responses to this higher debt. In terms of economic welfare, reducing debt through capital incomes tax hikes is the least desirable option considered: the associated tax base is small, and anticipating such a tax increase reduces capital accumulation. There is little to choose between fiscal austerity through government spending cuts versus raising labour income tax rates. Accommodating higher government debt is welfare‐improving but still requires substantial fiscal austerity owing to higher debt servicing costs.