Budget Consolidation: Short-Term Pain and Long-Term Gain
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
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. 2010/163
Subject:
Consumption Consumption taxes Fiscal consolidation Public debt Real interest rates
English
Publication Date:
July 1, 2010
ISBN/ISSN:
9781455201464/1018-5941
Stock No:
WPIEA2010163
Pages:
33
Please address any questions about this title to publications@imf.org