This paper explores the distributional welfare implications of fiscal consolidations based on in-kind benefits expenditure using a heterogeneous agents model with incomplete markets. It introduces a novel approach for modeling household public services consumption, aligning consumption distribution with empirical data and underscoring the importance of in-kind benefits in mitigating income inequality. The findings reveal that, in the long run, the benefits of fiscal consolidation based on in-kind benefits expenditure outweigh the short-term welfare losses. However, in the short run, there is a tension between the distributional welfare effects of the policy instrument and those stemming from general equilbrium. On one hand, the instrument effects, such as cuts in in-kind benefits expenditure, disproportionately affect lower-income households that rely on the consumption of these benefits to a great extent. On the other hand, price effects resulting from crowding-in affect have different impacts across income groups: lower-income households benefit from increased labor income, while higher-income households suffer from decreased capital income. The plausibility of these price effects during fiscal tightening is essential for understanding the distributional welfare outcomes and optimal consolidation speed.

This paper examines how fiscal integration can impact sovereign default risk in heterogeneous indebted countries, focusing on the effects of the Recovery and Resilience Facility for Member States (MS) of the EU-27. We analyze the implications of the program on the default incentives of MS and its effects on sovereign bond prices and welfare. We model the European Commission as a supranational fiscal authority and 'quasi-sovereign' that competes with MS for loans in the financial market, using a quantitative model with two sovereigns that interact with a fiscal authority and risk-averse international lenders over three periods. Our analysis reveals that the program generates multiple and opposing effects on the financing conditions of Member States, including crowding out and redistribution effects. In particular, the supranational fiscal authority crowds out Sovereigns debt but also helps to redistribute funds. Despite these effects, the program has an overall positive impact, leading to significant aggregate welfare gains. The benefits are particularly pronounced for high-debt, low-revenue member states, as the program helps to relax their borrowing constraints. Additionally, even Sovereigns that do not directly benefit from the transfer scheme still benefit from the bailout of highly indebted countries, generating positive spillovers. This risk-sharing mechanism enhances financial stability and reinforces the European Union's solidarity.

   This paper examines the impact of heat stress adaptation investment on public finances, amid escalating temperatures.  We construct an overlapping generations model to characterize  the optimal adaptation investment and to quantify the resulting strain on public finances. The case of Spain, an economy with heightened vulnerability to rising temperatures, serves as our case study. Our analysis reveals that current adaptation spending significantly falls short of optimal levels, resulting in increased medical expenses and reduced tax revenues. By quantifying these fiscal impacts, we show that optimal adaptation investments could substantially enhance labor productivity and social welfare.