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Fiscal disciplining effect of central bank opacity: Stackelberg versus Nash equilibrium

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  • Meixing Dai

    ()
    (BETA, University of Strasbourg, France)

  • Moïse Sidiropoulos

    ()
    (LEAP, Aristotle University of Thessaloniki, Greece; BETA, University of Strasbourg, France)

Abstract

Several recent studies have shown that, when fiscal and monetary authorities play a Stackelberg game, central bank opacity has a fiscal disciplining effect in the sense that it induces the government to reduce taxes and public expenditures, leading hence to lower inflation and output distortions, and in general a lower macroeconomic variability. We show in this paper that, in a Nash equilibrium, the government is still disciplined by central bank opacity. However, the disciplining effect on the level and variability of inflation and the output gap is more likely dominated by the direct effect of opacity.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 4 ()
Pages: 3068-3076

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Handle: RePEc:ebl:ecbull:eb-11-00404

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Keywords: Distortionary taxes; output distortions; central bank transparency (opacity); fiscal disciplining effect.;

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