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Debt Consolidation and Financial Stability

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  • Ignazio Angeloni
  • Ester Faia
  • Roland Winkler

Abstract

We compare three alternative post-crisis public debt consolidation policies (respectively based on expenditure cuts, labour tax or consumption tax increases) in their effects on key macro variables and on bank stability. Labor tax-based policies attain a rapid debt adjustment and low intertemporal debt costs, but at the expense of higher oscillations in bank leverage and risk. Expenditure based and consumption tax-based strategies perform better and similarly between themselves.

Suggested Citation

  • Ignazio Angeloni & Ester Faia & Roland Winkler, 2011. "Debt Consolidation and Financial Stability," Revue économique, Presses de Sciences-Po, vol. 62(6), pages 1067-1079.
    • Handle: RePEc:cai:recosp:reco_626_1067
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    Cited by:

    1. Jacopo Cimadomo & Sebastian Hauptmeier & Tom Zimmermann, 2012. "Fiscal Consolidations and Banking Stability," Working Papers 2012-32, CEPII research center.
    2. Cimadomo, Jacopo & Hauptmeier, Sebastian & Zimmermann, Tom, 2014. "Fiscal consolidations and bank balance sheets," Journal of International Money and Finance, Elsevier, vol. 45(C), pages 74-90.

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