Macroeconomic and Welfare Costs of U.S. Fiscal Imbalances

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Price:  $18.00

Author/Editor: Bertrand Gruss, Jose L. Torres
Release Date: © January, 2012
ISBN : 978-1-46393-381-4
Stock #: WPIEA2012038
Stock Status: On back-order

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In this paper we use a general equilibrium model with heterogeneous agents to assess the macroeconomic and welfare consequences in the United States of alternative fiscal policies over the medium-term. We find that failing to address the fiscal imbalances associated with current federal fiscal policies for a prolonged period would result in a significant crowding-out of private investment and a severe drag on growth. Compared to adopting a reform that gradually reduces federal debt to its pre-crisis level, postponing debt stabilization for two decades would entail a permanent output loss of about 17 percent and a welfare loss of almost 7 percent of lifetime consumption. Moreover, the long-run welfare gains from the adjustment would more than compensate the initial losses associated with the consolidation period.


Economic policy , Fiscal policy

More publications in this series: Working Papers

More publications by: Bertrand Gruss ; Jose L. Torres