Economides, George Papageorgiou, Dimitris Philippopoulos, Apostolis Vassilatos, Vanghelis
Year of Publication:
CESifo Working Paper 3965
In this paper, we study the aggregate and distributional implications of a smaller public sector in the euro area. By a smaller public sector, we mean a reduction in public debt and/or cuts in public spending, when such changes in fiscal policy are accommodated by adjustment in various taxes. Aggregate implications have to do with per capita output and welfare, while distribution refers to differences in income and welfare between private and public sector employees. We solve the model numerically using fiscal data from the euro area and then do a number of policy experiments. The general message is that the issue is not just a smaller public sector, but also the spending-tax mix chosen.
size of public sector debt consolidation taxation reforms