Debt Hangover in the Aftermath of the Great Recession

Aurélien Eyquem (Université Lyon II)

December 6, 2016, 17:00–18:30

Room MS 001

Macroeconomics Seminar


Following the Great Recession, U.S. government debt levels ended up well over 100% of output. We develop a dynamic general equilibrium model to evaluate the role of various shocks during and after the Great Recession; shocks directly affecting the labor market are found to have the greatest impact on macroeconomic activity more broadly. We then evaluate the macroeconomic consequences of using a variety of fiscal policy instruments to implement a fiscal austerity program to return the debt-output ratio to its pre-Great Recession level. Our welfare analysis reveals that the capital income tax is the most preferred option while the labor income tax is the least preferred.