(Non)optimality of the Friedman rule and optimal taxation in a growing economy with imperfect competition

The Friedman rule in an overlapping-generations model with nonlinear taxation and income misreporting

“…3 Non-optimality of Friedman rule in the presence of distortionary taxes was …rst discussed by Phelps (1973). A selective reference to other sources of distortion include: van der Ploeg and Alogoskou…s (1994) for an externality underlying endogenous growth; Ireland (1996) for monopolistic competition; Erceg et al (2000) and Khan et al (2003) for nominal wage and price settings; Schmitt-Grohe and Uribe (2004a,b) for imperfections in the goods market; and Shaw et al (2006) for imperfect competition as well as externality. 1 violates this tax principle.…”

Fiscal and Monetary Policies in a Transactions-Based Endogenous Growth Model with Imperfect Competition

“…However, the possible positive growth rate effect of money in Fukuda (1996) stems from the existence of dual balanced growth paths. Shaw et al (2006), in contrast, find that the long-run relationship between the rates of nominal interest and output growth is unambiguously negative. 14 In the literature with perfect markets and useless government spending, it has been found that a higher money growth enhances income expansion in the balanced growth equilibrium because of the intergenerational income redistribution effect of inflation or the agents pursuing a wealth-enhanced social status (van der Ploeg and Alogoskoufis, 1994; Mino and Shibata, 1995;Chang et al, 2000).…”

“…Shaw et al . (), in contrast, find that the long‐run relationship between the rates of nominal interest and output growth is unambiguously negative.…”

“…13,14 13 To our knowledge, there is still no study that attempts to develop the growth rate effect of fiscal policy within an imperfect competition setting. Fukuda (1996) and Shaw et al (2006) are the only two works that consider an imperfectly competitive environment and address the growth rate effect of monetary policy within cash-in-advance models. However, the possible positive growth rate effect of money in Fukuda (1996) stems from the existence of dual balanced growth paths.…”

“…Fukuda () and Shaw et al . () are the only two works that consider an imperfectly competitive environment and address the growth rate effect of monetary policy within cash‐in‐advance models. However, the possible positive growth rate effect of money in Fukuda () stems from the existence of dual balanced growth paths.…”