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Strict Fiscal Rules and Macroeconomic Stability: The Case of Social VAT

Author

Listed:
  • Fève, P.
  • Matheron, J.
  • Sahuc,J-G.

Abstract

This paper studies the local dynamic properties of a simple general equilibrium model with Social VAT. Strict balanced budget rules often lead to real indeterminacy of aggregate equilibrium, leaving room for «sunspots» fluctuations. In a closed-economy setup, social VAT escapes this property and only reduces the aggregate labor supply elasticity. However, the quantitative effects are weak.

Suggested Citation

  • Fève, P. & Matheron, J. & Sahuc,J-G., 2013. "Strict Fiscal Rules and Macroeconomic Stability: The Case of Social VAT," Working papers 439, Banque de France.
  • Handle: RePEc:bfr:banfra:439
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    File URL: https://publications.banque-france.fr/sites/default/files/medias/documents/working-paper_439_2013.pdf
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    References listed on IDEAS

    as
    1. Stéphane Gauthier, 2009. "Un exercice de TVA sociale," Économie et Prévision, Programme National Persée, pages 65-81.
    2. Galí, Jordi & Rabanal, Pau, 2004. "Technology Shocks and Aggregate Fluctuations: How Well Does the RBC Model Fit Post-War US Data?," CEPR Discussion Papers 4522, C.E.P.R. Discussion Papers.
    3. Douglas Laxton & Philippe Karam & Dennis Botman, 2008. "Les modèles DSGE au FMI : applications et développements récents," Économie et Prévision, Programme National Persée, pages 175-198.
    4. Chryssi Giannitsarou, 2007. "Balanced Budget Rules and Aggregate Instability: The Role of Consumption Taxes," Economic Journal, Royal Economic Society, vol. 117(523), pages 1423-1435, October.
    5. Bernard Philippe & Stéphane Mussard, 2010. "Une évaluation du rôle des déterminants du partage de la valeur ajoutée," Économie et Prévision, Programme National Persée, pages 99-119.
    6. Jean-Guillaume Sahuc & Julien Matheron & Patrick Fève, 2010. "La TVA sociale : bonne ou mauvaise idée ?," Économie et Prévision, Programme National Persée, pages 1-19.
    7. Maylis Coupet & Jean-Paul Renne, 2008. "Réformes fiscales dans un modèle DSGE France en économie ouverte," Economie & Prévision, La Documentation Française, pages 199-222.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Macroeconomic stability; Social VAT; Labor supply elasticity; Aggregate fluctuations.;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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