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Assessing welfare impacts of some debt-consolidation episodes in the European Union

Author

Listed:
  • Miguel Viegas

    (GOVCOPP, DEGEI, Universidade de Aveiro)

  • Ana Paula Ribeiro

    (Faculdade de Economia da Universidade do Porto and CEF.UP)

Abstract

This paper aims at characterizing debt consolidation processes put forward by some European countries in order to assess welfare and, in particular, the inequality effects involved. For that we built a general equilibrium heterogeneous-agent model capable of exploring the relationship between fiscal policy variables and the endogenous crosssection distribution of income and wealth. Results show that, with the exception of the Belgian case, all consolidation strategies entail positive welfare gains. The transition costs affect all episodes and are determinant in sorting among the welfareenhancing strategies. Our results confirm the superiority of the adjustments based on unproductive expenditures over those based on tax increases or social transfer reductions. Finally, all strategies involve lower welfare inequality costs.

Suggested Citation

  • Miguel Viegas & Ana Paula Ribeiro, 2011. "Assessing welfare impacts of some debt-consolidation episodes in the European Union," CEF.UP Working Papers 1106, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:cetedp:1106
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    Cited by:

    1. Auray, Stéphane & Eyquem, Aurélien, 2019. "On The Role Of Debt Maturity In A Model With Sovereign Risk And Financial Frictions," Macroeconomic Dynamics, Cambridge University Press, vol. 23(5), pages 2114-2131, July.
    2. Della Posta, Pompeo, 2021. "Government size and speculative attacks on public debt," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 79-89.
    3. Barucci, Emilio & Brachetta, Matteo & Marazzina, Daniele, 2023. "On the feasibility of a debt redemption fund," Economic Modelling, Elsevier, vol. 119(C).
    4. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    fiscal consolidation dynamics; European Union; heterogeneous agent model; inequality; welfare.;
    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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