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What Does History Reveal about Reducing the National Debt Burden?
A look at the U.S. national debt since World War II reveals that economic growth and fiscal austerity (i.e., spending cuts and raising taxes) are two of the ways to reduce the debt burden.
Working Paper
Saving Europe?: The Unpleasant Arithmetic of Fiscal Austerity in Integrated Economies
What are the macroeconomic effects of tax adjustments in response to large public debt shocks in highly integrated economies? The answer from standard closed-economy models is deceptive, because they underestimate the elasticity of capital tax revenues and ignore cross-country spillovers of tax changes. Instead, we examine this issue using a two-country model that matches the observed elasticity of the capital tax base by introducing endogenous capacity utilization and a partial depreciation allowance. Tax hikes have adverse effects on macro aggregates and welfare, and trigger strong ...