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Welfare and inequality effects of debt consolidation processes: the case of Spain, 1996–2007

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  • Miguel Viegas
  • Ana Ribeiro

Abstract

The Spanish debt consolidation between 1996 and 2007 represents, by its size and duration, an impressive case among the European Union countries. This paper aims at characterizing the Spanish debt consolidation process in order to assess its effects on economic inequality and welfare. For that purpose we built a general equilibrium heterogeneous-agent model capable of exploring the relationship between fiscal policy variables and the endogenous cross-section distribution of income and wealth. The results show a quite impressive positive welfare gain despite significant transition costs. The simulations point to an increase of inequality during the initial transition period, reversing to more compressed distributions as the economy evolves to its final steady state equilibrium. Overall, the welfare gains are slightly biased towards wealthier individuals. Furthermore empirical data on the dynamics of some crucial variables during the consolidation period lend support to the model simulation results. Copyright The Author(s) 2015

Suggested Citation

  • Miguel Viegas & Ana Ribeiro, 2015. "Welfare and inequality effects of debt consolidation processes: the case of Spain, 1996–2007," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 6(4), pages 479-496, November.
    • Handle: RePEc:spr:series:v:6:y:2015:i:4:p:479-496
    DOI: 10.1007/s13209-015-0133-2
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    1. Darío Serrano-Puente, 2020. "Optimal progressivity of personal income tax: a general equilibrium evaluation for Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 11(4), pages 407-455, December.

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    More about this item

    Keywords

    European Union; Fiscal consolidation dynamics; Heterogeneous agent model; Inequality; Spain; Welfare; E17; E60; H60; I30;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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