We analyze fiscal consolidations using a New-Keynesian model where agents have finite planning horizons and are uncertain about the future state of the economy. Both consumers and firms are infinitely lived, but only plan and form expectations up to a finite number of periods into the future....

We analyze fiscal consolidations using a New Keynesian model where agents have heterogeneous expectations and are uncertain about the composition of consolidations. We look at spending-based and tax-based consolidations and analyze their effects separately. We find that the effects of...