Short-run fiscal policy: Welfare, redistribution and aggregate effects in the short and long-run

Sagiri Kitao

Research output: Contribution to journalArticle

8 Citations (Scopus)

Abstract

This paper quantifies the effects of two short-run fiscal policies, a temporary tax-cut and rebate transfer, that are intended to stimulate economic activities. A reduction in income taxation provides immediate incentives to work and save more, raising aggregate output and consumption. A temporary rebate is mostly saved and increases consumption marginally. Both policies improve the overall welfare of households and the rebate policy benefits especially low-income households. In the long-run, however, the debt accumulated to finance the stimulus and a higher tax to service the debt can crowd out capital and lower output and consumption, causing welfare to deteriorate.

Original languageEnglish
Pages (from-to)2109-2125
Number of pages17
JournalJournal of Economic Dynamics and Control
Volume34
Issue number10
DOIs
Publication statusPublished - 2010 Oct 1

Keywords

  • General equilibrium
  • Life-cycle model
  • Short-run fiscal policy

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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