Debt Hangover in the Aftermath of the Great Recession

GATE - WP 1829, December 2018

52 Pages Posted: 21 Dec 2018

See all articles by Stéphane Auray

Stéphane Auray

École Nationale de la Statistique et de l'Analyse de l'Information (ENSAI)

Aurélien Eyquem

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Paul Gomme

Concordia University; CIREQ

Date Written: December 3, 2018

Abstract

Following the Great Recession, U.S. government debt levels exceeded 100% of output. We develop a macroeconomic model to evaluate the role of various shocks during and after the Great Recession; labor market shocks have the greatest impact on macroeconomic activity. We then evaluate the consequences of using alternative fiscal policy instruments to implement a fiscal austerity program to return the debt-output ratio to its pre-Great Recession level. Our welfare analysis reveals that there is not much difference between applying fiscal austerity through government spending, the labor income tax, or the consumption tax; using the capital income tax is welfare-reducing.

Keywords: Fiscal policies, tax reforms, government debt, government deficits

JEL Classification: E24, E37, E62

Suggested Citation

Auray, Stéphane and Eyquem, Aurélien and Gomme, Paul, Debt Hangover in the Aftermath of the Great Recession (December 3, 2018). GATE - WP 1829, December 2018 . Available at SSRN: https://ssrn.com/abstract=3295037 or http://dx.doi.org/10.2139/ssrn.3295037

Stéphane Auray (Contact Author)

École Nationale de la Statistique et de l'Analyse de l'Information (ENSAI) ( email )

Rennes Métropole - Campus de Ker Lann
Rue Blaise Pascal
BP 37203- 35172 BRUZ Cedex
France

Aurélien Eyquem

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

Paul Gomme

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

CIREQ ( email )

C.P. 6128, Succursale Centre-ville
Montreal, Quebec H3C 3J7
Canada

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
3
Abstract Views
149
PlumX Metrics