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Rules and Discretion with Noncoordinated Monetary and Fiscal Policies

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  • Alesina, Alberto
  • Tabellini, Guido

Abstract

The time inconsistency of optimal monetary policy is due to the effects of tax distortions. Thus, the issue of how to im prove upon the time-consistent suboptimal monetary policy is related to that of the coordination of monetary and fiscal policy. The author s present a model with three players (the central bank, the fiscal au thority, and wage setters) in which distortionary taxes are explicitl y modeled. They show that binding commitments to monetary rules are n ot necessarily welfare improving if monetary and fiscal policy are no t coordinated. They also examine the effects of different degrees of independence of the central bank. Copyright 1987 by Oxford University Press.

Suggested Citation

  • Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-630, October.
  • Handle: RePEc:oup:ecinqu:v:25:y:1987:i:4:p:619-30
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    References listed on IDEAS

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    1. J. Michael Harrison & William F. Sharpe, 1983. "Optimal Funding and Asset Allocation Rules for Defined-Benefit Pension Plans," NBER Chapters,in: Financial Aspects of the United States Pension System, pages 91-106 National Bureau of Economic Research, Inc.
    2. James L. Medoff & Katharine G. Abraham, 1981. "Are Those Paid More Really More Productive? The Case of Experience," Journal of Human Resources, University of Wisconsin Press, vol. 16(2), pages 186-216.
    3. Jeremy I. Bulow & Myron S. Scholes, 1983. "Who Owns the Assets in a Defined-Benefit Pension Plan?," NBER Chapters,in: Financial Aspects of the United States Pension System, pages 17-36 National Bureau of Economic Research, Inc.
    4. Pesando, James E, 1982. " Investment Risk, Bankruptcy Risk, and Pension Reform in Canada," Journal of Finance, American Finance Association, vol. 37(3), pages 741-749, June.
    5. Martin Feldstein & Randall Morck, 1983. "Pension Funding Decisions, Interest Rate Assumptions, and Share Prices," NBER Chapters,in: Financial Aspects of the United States Pension System, pages 177-210 National Bureau of Economic Research, Inc.
    6. Zvi Bodie & John B. Shoven, 1983. "Financial Aspects of the United States Pension System," NBER Books, National Bureau of Economic Research, Inc, number bodi83-1, January.
    7. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    8. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-620, September.
    9. Jeremy I. Bulow, 1981. "Early Retirement Pension Benefits," NBER Working Papers 0654, National Bureau of Economic Research, Inc.
    10. Ippolito, Richard A, 1985. "The Economic Function of Underfunded Pension Plans," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 611-651, October.
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