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Tax Austerity: Does it avert solvency crises?

Author

Listed:
  • Christos Shiamptanis

    (Wilfrid Laurier University)

Abstract
Many countries are adopting austerity measures, whereby governments aggressively raise taxes, with the hope to dispel future solvency crisis. This paper investigates the implications of tax austerity on the likelihood of a solvency crisis. We derive the maximum level of debt consistent with solvency, labeled as the effective fiscal limit on debt, and we show that its position depends on tax austerity. We find that countries like Italy that undergo strict tax austerity could lower their effective fiscal limit and induce a solvency crisis in the near future.

Suggested Citation

  • Christos Shiamptanis, 2019. "Tax Austerity: Does it avert solvency crises?," LCERPA Working Papers ec0119, Laurier Centre for Economic Research and Policy Analysis.
    • Handle: RePEc:wlu:lcerpa:ec0119
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    References listed on IDEAS

    as
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    14. Betty C. Daniel & Christos Shiamptanis, 2022. "Identifying countries at risk of fiscal crises: High‐debt developed countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(2), pages 828-867, May.
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    Cited by:

    1. Ke Pang, Christos Shiamptanis, 2020. "Fiscal implications of the pandemic," LCERPA Working Papers ec0122, Laurier Centre for Economic Research and Policy Analysis, revised 2020.
    2. Ke Pang, Christos Shiamptanis, 2020. "Fiscal implications of the pandemic," LCERPA Working Papers ec0122, Laurier Centre for Economic Research and Policy Analysis, revised 2020.

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    More about this item

    Keywords

    Fiscal limit; Austerity; Solvency Crisis; Default;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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