Distributional Effects of Fiscal Consolidation

23 Pages Posted: 4 Jan 2003

See all articles by Svend E. Hougaard Jensen

Svend E. Hougaard Jensen

Copenhagen Business School - Department of Economics

Thomas F. Rutherford

Centre for Energy Policy and Economics

Abstract

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.

Suggested Citation

Hougaard Jensen, Svend Erik and Rutherford, Thomas F., Distributional Effects of Fiscal Consolidation. Available at SSRN: https://ssrn.com/abstract=336858

Svend Erik Hougaard Jensen (Contact Author)

Copenhagen Business School - Department of Economics ( email )

Porcelænshaven 16 A, 1
Frederiksberg C, DK-2000
Denmark
(+45) 3815 3478 (Phone)

Thomas F. Rutherford

Centre for Energy Policy and Economics ( email )

ETH-Zentrum
Zurich, CH-8092
United States
+41 (0)44/632 6359 (Phone)
+41 (0)44/632 1622 (Fax)

HOME PAGE: http://www.cepe.ethz.ch/

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