2013
DOI: 10.1016/j.iref.2012.07.006
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Distortionary tax instruments and implementable monetary policy

Abstract: We introduce distortionary taxes on consumption, labor and capital income into a New Keynesian model with Calvo pricing and nominal bonds. We study the relation between tax instruments and optimal monetary policy by computing simple rules for monetary and fiscal policy when one tax instrument at a time varies, while the other two are fixed at their steady-state level. The optimal rules maximize the second-order approximation to intertemporal utility. Three results emerge: (a) when prices are sticky, perfect in… Show more

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Cited by 2 publications
(1 citation statement)
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References 37 publications
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“…Hence, an expansion of these sectors has the potential to promote growth [1]. In addition, although taxation may represent a source of resources for increasing infrastructure, the literature suggests that indirect taxation has a negative effect on growth (Cremer, Pestieau and Rochet, 2001;Rivas, 2003;Ismihan and Ozkan, 2010;Truyts, 2012;Marattin et al, 2013).…”
Section: Introductionmentioning
confidence: 99%
“…Hence, an expansion of these sectors has the potential to promote growth [1]. In addition, although taxation may represent a source of resources for increasing infrastructure, the literature suggests that indirect taxation has a negative effect on growth (Cremer, Pestieau and Rochet, 2001;Rivas, 2003;Ismihan and Ozkan, 2010;Truyts, 2012;Marattin et al, 2013).…”
Section: Introductionmentioning
confidence: 99%