Fiscal Policy under Balanced Budget and Indeterminacy: A New Keynesian Perspective
Abstract
We investigate the effect of fiscal policy on equilibrium determinacy in a New Keynesian economy with rule-of-thumb (liquidity constrained) consumers and capital accumulation by focusing on the inter-action between monetary policy and taxation under the assumption of balanced budget. Our main finding is that taxation of firms� monopoly rents reduces the parameter range within which the Taylor principle is insufficient to guarantee equilibrium determinacy; hence it supports the determinacy of the rational expectation equilibrium.Download Info
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Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0803.Length: 26 pages
Date of creation: 15 Feb 2008
Date of revision:
Handle: RePEc:crt:wpaper:0803
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Keywords: Rule-of-thumb consumers; equilibrium determinacy; fiscal and monetary policy inter-actions; tax distortions; balanced government budget.;Other versions of this item:
- Giovanni Di Bartolomeo & Marco Manzo, 2010. "Fiscal Policy Under Balanced Budget And Indeterminacy: A New Keynesian Perspective," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(4), pages 455-472, 09.
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-23 (All new papers)
- NEP-CBA-2008-02-23 (Central Banking)
- NEP-MAC-2008-02-23 (Macroeconomics)
- NEP-MON-2008-02-23 (Monetary Economics)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Manzo Marco & Monteduro Maria Teresa, 2011.
"From IRAP to CBIT: Tax distortions and redistributive effects,"
wp.comunite
0084, Department of Communication, University of Teramo.
- Manzo, Marco & Monteduro, Maria Teresa, 2010. "From IRAP to CBIT: tax distortions and redistributive effects," MPRA Paper 28070, University Library of Munich, Germany.
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