[Seminaire CREM] Fiscal Consolidation and Debt Sustainability in a HANK Model

Co-écrit avec François Langot, Jocelyn Maillard, Fabien Tripier et Jean-Olivier Hairault.

Résumé :
This paper evaluates different fiscal consolidation policies using a Heterogeneous-Agent New-Keynesian (HANK) model. It shows that a significant reduction in the debt-to-GDP ratio can be achieved without penalizing GDP growth or worsening inequalities if the government sharply cuts social insurance-based transfers while increasing social assistance transfers. From a methodological point of view, this paper develops a method to perform stochastic debt-sustainability analysis (SDSA) based on an estimated HANK model. The conditional forecast method is employed to identify and estimate the sequences of macroeconomic and policy shocks that underpin government forecasts provided by the Finance Act. Using this estimated distribution of structural shocks, the benefits of fiscal consolidation policies can also measured in terms of reducing the risk burden on public debt. The proposed policy lowers both the projected debt-to-GDP ratio in 2027 (to 105.6% against 108.3% in the Finance Act) and the risk of debt increase (there is a 25% probability of exceeding 112.6% under this policy against 116.2% following the Finance Act).