Debt Hangover in the Aftermath of the Great Recession

Stéphane Auray (1, 2, 3) , Aurélien Eyquem (4) , Paul Gomme (5, 6)

1 ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz]
2 CREST - Centre de Recherche en Economie et Statistique [Bruz]
3 ULCO - Université du Littoral Côte d'Opale
4 GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne
5 CIREQ - Centre interuniversitaire de recherche en économie quantitative
6 Concordia University [Montreal]

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.

Mots clés: Fiscal policies; tax reforms; government debt; government deficits

Domaines: Economies et finances

Stéphane Auray, Aurélien Eyquem, Paul Gomme. Debt Hangover in the Aftermath of the Great Recession. 2018. ⟨halshs-01942719⟩