Macroeconomic and Welfare Costs of U.S. Fiscal Imbalances
IMF Working Papers, January 1, 2012
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- Macroeconomic and Welfare Costs of U.S. Fiscal Imbalances
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Bibliographic details
- Authors: Bertrand Gruss, Jose L. Torres
- Published: January 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463933814.001
Methodology
- Uses a general equilibrium model with heterogeneous agents to assess macroeconomic and welfare consequences in the United States of alternative fiscal policies over the medium-term.
Key findings
- Failing to address the fiscal imbalances associated with current federal fiscal policies for a prolonged period would result in a significant crowding-out of private investment and a severe drag on growth.
- Compared to adopting a reform that gradually reduces federal debt to its pre-crisis level, postponing debt stabilization for two decades would entail:
- a permanent output loss of about 17 percent
- a welfare loss of almost 7 percent of lifetime consumption
- The long-run welfare gains from the adjustment would more than compensate the initial losses associated with the consolidation period.
Themes and topics covered
- Consumption
- Fiscal consolidation
- Fiscal policy
- Labor
- National accounts
- Public debt
- Self-employment
Keywords and technical concepts
- accounting exercise
- capital income share
- capital stock
- closed economy
- crowding out
- debt accounting exercise
- debt ratio
- equilibrium interest rate
- fiscal consolidation
- GDP contract
- GDP increase
- government debt
- growth
- growth rate
- interest rate
- labor income tax rate
- welfare
Publication metadata (from the page)
- Authors: Bertrand Gruss, Jose L. Torres
- Date: January 1, 2012
- Pages: 35
- Series: Working Paper No. 2012/038
- Issue: 038
- DOI: https://doi.org/10.5089/9781463933814.001
IMF Working Paper by Bertrand Gruss and Jose L. Torres, January 1, 2012.