Public investment, distortionary taxes and monetary policy transparency

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Public investment, distortionary taxes and monetary policy transparency

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Meixing Dai
Moïse Sidiropoulos

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Meixing Dai

Abstract

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

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Paper provided by Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg in its series Working Papers of BETA with number 2009-30.

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Date of creation: 2009
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Handle: RePEc:ulp:sbbeta:2009-30

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Paper
- Dai, Meixing & Sidiropoulos, Moïse, 2009. "Public investment, distortionary taxes and monetary policy transparency," MPRA Paper 15858, University Library of Munich, Germany. [Downloadable!]

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-09-26 (All new papers)
NEP-CBA-2009-09-26 (Central Banking)
NEP-MAC-2009-09-26 (Macroeconomics)
NEP-MON-2009-09-26 (Monetary Economics)
NEP-PKE-2009-09-26 (Post Keynesian Economics)

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