Budget Consolidation : Short-Term Pain and Long-Term Gain

Author/Editor:

Douglas Laxton ; Susanna Mursula ; Kevin Clinton ; Michael Kumhof

Publication Date:

July 1, 2010

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The paper evaluates the costs and benefits of fiscal consolidation using simulations based on the IMFs global DSGE model GIMF. Over the longer run, well-targeted permanent reductions in budget deficits lead to a considerable increase in both the growth rate and the level of output. The gains may be enhanced by shifting some of the tax burden from incomes to consumption. In the short run, credibility plays a crucial role in determining the size of initial output loses. Global current account imbalances would be significantly reduced if budget consolidation was larger in countries with current account deficits.

Series:

Working Paper No. 10/163

Subject:

English

Publication Date:

July 1, 2010

ISBN/ISSN:

9781455201464/1018-5941

Stock No:

WPIEA2010163

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

33

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