부산대학교 도서관

The deepening economic crisis in the euro-area has brought thrift measures to the fore of economic policy debate. Most European countries anticipate rising levels of age-related spending in the decades to come, calling for some measure of austerity to ensure fiscal sustainability, but in most of these countries, there are few signs of a resumption of economic growth. Since raising more revenue and saving on public expenditure comes with a price, a comprehensive evaluation of the structure of the whole tax system and the effects of public spending is called for. Finland has weathered the crisis remarkably well compared to most EU-countries – or at least her public finances have – but she is also facing the problems and fiscal pressures of a rapidly declining working-age population and the growing costs of an ageing population. These concerns have lead to a lively debate on the extent of a sustainability gap, and to measures aimed at keeping the gap at bay by increasing taxes and curbing public spending. The aim of this study is to compare the welfare costs of improving fiscal stance by raising revenue with different types of taxes, as well as by cutting public spending. We provide a framework that can be used in the evaluation of thrift. We use the Finnish economy as an example, focussing on the effects of tax hikes taking effect from 2013 on, comprising both income taxes and value added taxes. We also take into account the spending cuts taking effect in 2013. The cuts reduce government spending on certain central government functions and on education, as well as slashing certain subsidies and public investments. Our analysis introduces several extensions on standard models. We are using VATTAGE, an AGE model of the Finnish economy, to compare the welfare effects of the policies designed to reduce Finland’s budget deficits by using the concept of marginal cost of funds (MCF). VATTAGE is a MONASH-style model of Finland documented in Honkatukia (2009). However, unlike