Some Welfare Implications of Optimal Stabilization Policy in an Economy with Capital and Sticky Prices
AbstractIn this paper we review and extend some of the key lessons that seem to be emerging from the Ramsey-inspired theory of dynamic optimal monetary and fiscal policies. We construct measures of the key distortions in our economy; we label these â€˜dynamic wedgesâ€™. Inflation, actual or anticipated, distorts these wedges in the present period, it shrinks the tax base and increases the deadlweight loss. We show that, if possible, labour as well as capital ought to be subsidized in steady state. We point to a number of extensions to the Ramsey literature that may help in the formulation of actual policy.
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Bibliographic InfoPaper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200509.
Date of creation: 15 Jul 2005
Date of revision:
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Optimal taxation; aggregative monetary and fiscal policies.;
Other versions of this item:
- Tatiana Damjanovic & Charles Nolan, 2006. "Some Welfare Implications Of Optimal Stabilisation Policy In An Economy With Capital And Sticky Prices," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(1), pages 47-71, 02.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-08-03 (All new papers)
- NEP-DGE-2005-08-03 (Dynamic General Equilibrium)
- NEP-MAC-2005-08-03 (Macroeconomics)
- NEP-PBE-2005-08-03 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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