Distributional Effects of Fiscal Consolidation

Svend E. Hougaard Jensen, Thomas F. Rutherford

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    If public goods and transfers are relatively more valuable to the poor, the elderly poor stand to lose from public debt reduction achieved through spending cuts. When long–term surpluses produced by debt reduction are recycled into higher provision of public goods and transfers, future generations of poor could gain. If future surpluses are recycled through lower labour taxes, working households in the future would be positively affected. The impact of debt reduction on vertical equity is ambiguous, yet inter– rather than intragenerational equity is likely to pose the greatest obstacle to fiscal consolidation. Based on majority voting by self–interested households, debt reduction is unlikely to occur.
    Original languageEnglish
    JournalThe Scandinavian Journal of Economics
    Issue number3
    Pages (from-to)471 – 493
    Number of pages23
    Publication statusPublished - 17 Dec 2002


    • Public debt reduction
    • Public goods
    • Inter- and intragenerational redistribution

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