George Kudrna and Chung Tran
This study quantifies the macroeconomic and welfare effects of three proposed fiscal measures to eliminate Australian government budget deficits and to reduce public debt by 2030, namely: (i) temporary income tax hikes; (ii) temporary consumption tax hikes (increases in the GST rate); and (iii) temporary transfer payment cuts. Our quantitative analysis is based on a computable overlapping generations (OLG) model that is tailored to the Australian economy.
The simulation results indicate that all three examined fiscal measures result in favourable long-run macroeconomic and welfare outcomes, but severe adverse consequences during the fiscal consolidation period.
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