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Achieving the Best Fiscal Outcome: What Does the Government Need to Know?

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  • Stemp, J.P.
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    Abstract

    This paper examines the operation of fiscal policy under incomplete information when the central bank sets the stance of monetary policy so as to achieve a zero inflation target. The fiscal authority is assumed to aim to achieve a target level for output and a zero level of public debt. The best fiscal policy setting arises under full information and is one where output atains its full employment level and public debt is driven to zero. Deviations from full infomration can lead to a considerable divergence from the best fiscal setting involving substantial levels of public sector indebtedness. The result ssuggest that a government shoudl invest avilable resources determining what outcomes are achievable and what outcomes are not. Then it should focus all its energies on trying to deliver achievable outcomes. The benefits from such a strategy can be substantial.

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    Bibliographic Info

    Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 642.

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    Length: 31 pages
    Date of creation: 1998
    Date of revision:
    Handle: RePEc:mlb:wpaper:642

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    Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
    Phone: +61 3 8344 5289
    Fax: +61 3 8344 6899
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    Web page: http://www.economics.unimelb.edu.au
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    Related research

    Keywords: FISCAL POLICY ; INFORMATION;

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