TY - UNPB
T1 - Consolidating the Covid debt
AU - Keuschnigg, Christian
AU - Johs, Julian
AU - Stevens, Jacob
N1 - Funding: The authors appreciate financial support by the Austrian National Bank (OeNB Jubiläumsfonds Projekt Nr. 18305) and by the Austrian Ministry of Finance.
PY - 2021/12/20
Y1 - 2021/12/20
N2 - One of the main functions of public debt is to smooth taxes and spending over time. In the Covid crisis, the Maastricht deficit restrictions were temporarily suspended to allow for large temporary deficits. As recovery sets in, countries are confronted with the task of consolidating the Covid debt. This paper explores a fiscal consolidation strategy combined with growth enhancing tax and expenditure reform. We quantitatively illustrate that this reform based strategy, by reaping substantial efficiency gains and inducing strong growth, eliminates the Covid debt, protects per capita social entitlements and yet avoids increasing tax rates. With slow consolidation, marginal tax rates are reduced right from the beginning.
AB - One of the main functions of public debt is to smooth taxes and spending over time. In the Covid crisis, the Maastricht deficit restrictions were temporarily suspended to allow for large temporary deficits. As recovery sets in, countries are confronted with the task of consolidating the Covid debt. This paper explores a fiscal consolidation strategy combined with growth enhancing tax and expenditure reform. We quantitatively illustrate that this reform based strategy, by reaping substantial efficiency gains and inducing strong growth, eliminates the Covid debt, protects per capita social entitlements and yet avoids increasing tax rates. With slow consolidation, marginal tax rates are reduced right from the beginning.
KW - Covid debt
KW - Fiscal consolidation
KW - Tax and expenditure reform
KW - Growth
U2 - 10.2139/ssrn.4007779
DO - 10.2139/ssrn.4007779
M3 - Working paper
T3 - CESifo working papers
BT - Consolidating the Covid debt
PB - CESifo
CY - Munich
ER -