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Do tax distortions lead to more indeterminacy? A New Keynesian perspective

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Di Bartolomeo, Giovanni
Manzo, Marco

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Abstract

Following the recent developments of the literature on stabilization policies, this paper investigates the effect of tax distortions on equilibrium determinacy in a New Keynesian economy with rule-of-thumb consumers and capital accumulation. In particular, we focus on the inter-action between monetary policy and tax distortions in supporting the saddle-path equilibrium under the assumptions of balanced budget and monetary policy satisfying a Taylor rule.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3549.

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Date of creation: May 2007
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Handle: RePEc:pra:mprapa:3549

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Related research
Keywords: Rule-of-thumb consumers; equilibrium determinacy; fiscal and monetary policy inter-actions; and tax distortions.;

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Find related papers by JEL classification:
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

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