Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/252014 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9497
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
One of the main functions of public debt is to smooth taxes and spending over time. In the Covid crisis, the Maastricht deficit restrictions were temporarily suspended to allow for large temporary deficits. As recovery sets in, countries are confronted with the task of consolidating the Covid debt. This paper explores a fiscal consolidation strategy combined with growth enhancing tax and expenditure reform. We quantitatively illustrate that this reform based strategy, by reaping substantial efficiency gains and inducing strong growth, eliminates the Covid debt, protects per capita social entitlements and yet avoids increasing tax rates. With slow consolidation, marginal tax rates are reduced right from the beginning.
Subjects: 
Covid debt
fiscal consolidation
tax and expenditure reform
growth
JEL: 
E62
H24
H25
H55
H63
Document Type: 
Working Paper
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