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Public investment, distortionary taxes and monetary policy transparency

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  • Dai, Meixing
  • Sidiropoulos, Moïse

Abstract

In a two-period model with distortionay tax and public investment, we reexamine the interaction between monetary policy transparency and fiscal bias. We find that the optimal decisions of tax and public investment allow eliminating the effects of fiscal bias and hence neutralizing the impact of monetary policy opacity (lack of political transparency) on the level and variability of inflation and output, independently of institutional quality. Our results are robust under alternative game structures between the private sector, the government and the central bank.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15858.

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Date of creation: Jun 2009
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Handle: RePEc:pra:mprapa:15858

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Keywords: bank transparency; distortionay tax; public investment; fiscal bias;

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