Optimal fiscal and monetary policy
In: Handbook of Macroeconomics
We provide an introduction to optimal fiscal and monetary policy using the primal approach to optimal taxation. We use this approach to address how fiscal and monetary policy should be set over the long run and over the business cycle.We find four substantive lessons for policymaking: Capital income taxes should be high initially and then roughly zero; tax rates on labor and consumption should be roughly constant; state-contingent taxes on assets should be used to provide insurance against adverse shocks; and monetary policy should be conducted so as to keep nominal interest rates close to zero.We begin by studying optimal taxation in a static context. We then develop a general framework to analyze optimal fiscal policy. Finally, we analyze optimal monetary policy in three commonly used models of money: a cash-credit economy, a money-in-the-utility-function economy, and a shopping-time economy.
|This chapter was published in: ||This item is provided by Elsevier in its series Handbook of Macroeconomics with number
1-26.||Handle:|| RePEc:eee:macchp:1-26||Contact details of provider:|| Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description|
When requesting a correction, please mention this item's handle: RePEc:eee:macchp:1-26. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.