Browsing by Author "Glomm, Gerhard"
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Item Fiscal austerity measures: spending cuts vs. tax increases(Towson University. Department of Economics, 2013-08-19) Glomm, Gerhard; Jung, Juergen; Tran, Chung; Towson University. Department of EconomicsWe formulate an overlapping generations model with skill heterogeneity and productive and non-productive government programs to study the macroeconomic and intergenera- tional welfare effects caused by risk premium shocks and government debt reductions. We demonstrate that in a small open economy with a high level of debt-to-GDP ratio a small increase in the risk premium leads to substantial output contraction and negative welfare ef- fects. Next, we quantify the effects of reducing the debt-to-GDP ratio using a wide range of fiscal austerity measures. These reforms result in trade-offs between short-run contractions and long-run expansions in aggregate output. In addition, the spending-based austerity reform is dominated by the tax-based reform in terms of income in the short run, but be- comes dominant in the long run. The welfare effects vary significantly across generations, depending on fiscal austerity measures, skills and working sector. The current old and middle age generations experience welfare losses while current young workers and future generations are beneficiaries of the reforms. A mixed reform results in the largest welfare effects.Item A macroeconomic analysis of energy subsidies in a small open economy(Towson University. Department of Economics, 2013) Glomm, Gerhard; Jung, Juergen; Towson University. Department of EconomicsWe construct a dynamic model of a small open economy to analyze the effects of large energy subsidies. The model includes domestic energy production and consumption, trade in energy at world market prices, as well as private and public sector production. The model is calibrated to Egypt and used to study reforms such as reductions in energy subsidies with corresponding reductions in various tax instruments or increases in infrastructure investment. We calculate the new steady states, transition paths to the new steady state and the size of the associated welfare losses or gains. Our main results for a 15 percent cut in energy subsidies are: (i) Steady state GDP drops in most of our experiments as less energy is used in production. (ii) Steady state consumption rises in most of our experiments. (iii) Welfare can rise by as much as 0.6 percent in consumption equivalent terms. (iv) The largest gains in terms of output and of welfare can be obtained when savings from energy subsidy cuts are used to fund additional infrastructure investment.Item A macroeconomic analysis of the fiscal system in Egypt(Towson University. Department of Economics, 2010-10-27) Glomm, Gerhard; Jung, Juergen; Towson University. Department of EconomicsWe construct a dynamic general equilibrium model to analyze the fiscal situ- ation of Egypt. We model Egypt as a small open economy that takes real interest rates and world prices of fuel as given. Since a large component of the government budget consists of pensions payments, we use an overlapping generations struc- ture. The model contains descriptions of the public and private sector, as well as descriptions of the production sectors for a public good such as infrastructure, energy, and a final aggregate consumption good. The model pays special atten- tion to the energy sector. We then calibrate the model to data from Egypt. The following policy reforms are considered: (i) reductions in pensions to public sector workers, (ii) reductions in pensions to private sector workers, (iii) reductions in the public sector pay premiums, (iv) decreases of the energy subsidies, and (v) a decrease of the public sector workforce. In each case we reduce the “expenditure” by 15 percent. For each of the reforms we adjust consumption taxes, labor taxes, “capital taxes”, or public investments in infrastructure to satisfy the government budget constraint. We calculate the new steady states, the transition paths to the new steady states, and the size of the welfare gains or losses for all reforms. We find that due to the modest nature of the reforms, the effect of the policy reforms on GDP and consumption are modest. Often these gains are in the neighborhood of 1 percent. We find that welfare gains or losses can be sizeable and that the largest gains from the reforms are attained when the freed up resources are used for infrastructure investments or for lowering the tax on company profits.