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Optimal Fiscal Action in an Economy with Sovereign Premia and without Monetary Independence: An Application to Italy

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  • Apostolis Philippopoulos
  • Petros Varthalitis
  • Vanghelis Vassilatos
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    Abstract

    We welfare rank various tax-spending policies. The setup is a New Keynesian model of a semi-small open economy featuring sovereign risk premia and loss of monetary policy independence. The model is calibrated to match data from the Italian economy 2001-2011. We compute various optimized state-contingent tax-spending policy rules when the policy aim is shock stabilization and/or debt consolidation.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2013/wp-cesifo-2013-04/cesifo1_wp4199.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4199.

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    Date of creation: 2013
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    Handle: RePEc:ces:ceswps:_4199

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    Keywords: feedback policy rules; New Keynesian; sovereign premia;

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