## Macroeconomic and Welfare Costs of U.S. Fiscal Imbalances

_IMF Working Papers, January 1, 2012_

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**Canonical URL:** [Macroeconomic and Welfare Costs of U.S. Fiscal Imbalances](https://www.imf.org/en/publications/wp/issues/2016/12/31/macroeconomic-and-welfare-costs-of-u-s-25691)

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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

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### 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.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/macroeconomic-and-welfare-costs-of-u-s-25691_