We build a small open economy RBC model with financial frictions to analyze expansionary fiscal consolidations in emerging market economies (EMEs). We calibrate the model to India, which we view as a proto-typical EME. When factor income tax rates are low, a contractionary fiscal shock has an expansionary effect on output. The economy's debt/GDP ratio falls, and tax revenues rise. When factor income tax rates are high, a contractionary fiscal shock has an expansionary effect on output if government spending is valued sufficiently highly relative to private consumption by households in utility. We identify the mechanisms behind these results, and their implications for actual economies undertaking fiscal reforms.

中文翻译：

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新兴市场经济体的财政紧缩

我们建立了一个带有金融摩擦的小型开放经济 RBC 模型来分析新兴市场经济体 (EME) 的扩张性财政整顿。我们将模型校准到印度，我们将其视为典型的 EME。当要素所得税率较低时，紧缩性财政冲击会对产出产生扩张性影响。经济的债务/GDP 比率下降，税收增加。当要素所得税率较高时，如果政府支出相对于公用事业家庭的私人消费估值足够高，则紧缩性财政冲击会对产出产生扩张性影响。我们确定了这些结果背后的机制，以及它们对进行财政改革的实际经济体的影响。