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Debt Hangover in the Aftermath of the Great Recession

Abstract : 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.
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Contributor : Nelly Wirth <>
Submitted on : Monday, July 8, 2019 - 11:51:37 AM
Last modification on : Monday, December 7, 2020 - 10:22:03 AM

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Stéphane Auray, Aurélien Eyquem, Paul Gomme. Debt Hangover in the Aftermath of the Great Recession. Journal of Economic Dynamics and Control, Elsevier, 2019, 105, pp. 107-133. ⟨10.1016/j.jedc.2019.06.001⟩. ⟨halshs-02176531⟩



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