The Dutch experience: Assessing the welfare impacts of two consolidation strategies using a heterogeneous-agent framework

• Type: Article in International Scientific Journal
• Date: 2013

Authors

Miguel Viegas (Author) FEP; Ana Ribeiro (Author) FEP

Journal

Title: Economic Modelling

Vol. 32

Pages: 351-360

ISSN: 0264-9993

Publisher: Elsevier

Indexing

ISI Web of Knowledge - 1 Citation

ISI Web of Science

Scopus - 1 Citation

Scientific classification

FOS: Social sciences > Economics and Business

CORDIS: Social sciences > Economics

Other information

Authenticus ID: P-005-0X5

DOI: 10.1016/j.econmod.2013.02.025

Abstract (EN): Between 1990 and 2010, the Dutch government pursued two successful fiscal adjustments: first, in 1995-2002, through a pure expenditure-based strategy and second, in 2004-2007, through a mixed strategy based on social transfer cuts and tax increases. In order to assess welfare and, in particular, inequality effects involved in each episode, we built a general equilibrium model with heterogeneous-agent capable of exploring the relationship between fiscal policy variables and the endogenous cross-section distribution of income, wealth and welfare. The results confirm that, for the Netherlands, a pure expenditure-based strategy is slightly superior relative a (partial) revenue-based one. In spite of positive welfare gains, the model predicts significant transition costs in both episodes due to depletion of insurance capacity, higher inequality and output losses. Moreover, as supported by the data, the model simulations show an improvement of the net foreign asset position in the sequence of the debt-consolidation processes. Finally, the two consolidation episodes, described throughout the paper strengthen the relevance of political institutions as important successful factors.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 10