Monetary and Fiscal Policy Interaction: What is the Role of the Transaction Cost of the Tax System in Stabilisation Policies?
In the theory of monetary and fiscal policy interaction, the assumption of Ricardian households isolates the determinants of fiscal policy instrument from the price stabilization policies carried out by the central bank. One of the main implications of the above mentioned Ricardian assumption is that the fiscal policy does not have any distortionary effect for the economy, i.e. it does not affect the behaviour of the households, supporting that way the fiscal policy’s neutrality. The argument for this view comes if one assumes that fiscal policy has a distortionary effect on the behaviour of the agents. We relax the above non distortionary assumption by assuming that the imposition of the taxes is consistent with a transaction cost of the tax system that underlies the state - tax payer interaction. In this way we develop a channel through which the stability of prices carried out by the independent central bank is, within optimality, also a function of the fiscal policy determinants (the transaction cost, the tax rates and the debt level). The analysis is carried out in a framework of a monetary union, with two different countries. Within this framework, the effectiveness of a numerical fiscal rule is also examined.
References listed on IDEAS
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.:
- Tabellini, Guido & Alesina, Alberto, 1990.
"Voting on the Budget Deficit,"
4553030, Harvard University Department of Economics.
- Alberto Alesina & Guido Tabellini, 1988. "Voting on the Budget Deficit," NBER Working Papers 2759, National Bureau of Economic Research, Inc.
- Guido Tabellini & Alberto Alesina, 1988. "Voting on the Budget Deficit," UCLA Economics Working Papers 539, UCLA Department of Economics.
- Alesina, Alberto F & Tabellini, Guido, 1988. "Voting on the Budget Deficit," CEPR Discussion Papers 269, C.E.P.R. Discussion Papers.
- Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-373, August.
- Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
- Barro, Robert J., 1979.
"On the Determination of the Public Debt,"
3451400, Harvard University Department of Economics.
- Michael R. Pakko & William T. Gavin & Finn E. Kydland, 2005.
"Monetary Policy, Taxes, and the Business Cycle,"
2005 Meeting Papers
265, Society for Economic Dynamics.
- William T. Gavin & Finn E. Kydland & Michael R. Pakko, 2006. "Monetary policy, taxes and the business cycle," Working Papers 2004-017, Federal Reserve Bank of St. Louis.
- Michael R. Pakko & William T. Gavin & Finn E. Kydland, 2004. "Monetary Policy, Taxes, and the Business Cycle," Computing in Economics and Finance 2004 32, Society for Computational Economics.
- van Aarle, Bas & Lans Bovenberg, A. & Raith, Matthias G., 1997.
"Is there a tragedy of a common central bank? A dynamic analysis,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 21(2-3), pages 417-447.
- Bovenberg, A.L. & van Aarle, B. & Raith, M., 1997. "Is there a tragedy of a common Central Bank? A dynamic analysis," Other publications TiSEM e5ccc34e-07da-4d65-baca-b, Tilburg University, School of Economics and Management.
- Schmitt-Grohe, Stephanie & Uribe, Martin, 1997.
"Balanced-Budget Rules, Distortionary Taxes, and Aggregate Instability,"
Journal of Political Economy,
University of Chicago Press, vol. 105(5), pages 976-1000, October.
- Stephanie Schmitt-Grohe & Martin Uribe, 1995. "Balanced-budget rules, distortionary taxes, and aggregate instability," Finance and Economics Discussion Series 95-44, Board of Governors of the Federal Reserve System (U.S.).
- JÃ¼rgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers 2008 - 2015 148, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- Roel Beetsma & Xavier Debrun & Franc Klaassen, 2001.
"Is Fiscal Policy Coordination in EMU Desirable?,"
IHEID Working Papers
04-2001, Economics Section, The Graduate Institute of International Studies.
- Roel Beetsma & Xavier Debrun & Frank Klaassen, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," CESifo Working Paper Series 599, CESifo Group Munich.
- Roel M. W. J. Beetsma & Xavier Debrun & Franc Klaassen, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," IMF Working Papers 01/178, .
- Beetsma, Roel & Debrun, Xavier & Klaassen, Franc, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," CEPR Discussion Papers 3035, C.E.P.R. Discussion Papers.
- Ha Thanh Nguyen & Makoto Kakinaka, 2006. "Tax Inefficiency, Public Debt Stabilization, and Monetary Policy Arrangements in Emerging Economics," Working Papers EMS_2006_12, Research Institute, International University of Japan.
- Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
- Andreoni, J. & Erard, B. & Feinstein, J., 1996.
9610, Wisconsin Madison - Social Systems.
- Eric Leeper & Tack Yun, 2006.
"Monetary-fiscal policy interactions and the price level:Background and beyond,"
International Tax and Public Finance,
Springer;International Institute of Public Finance, vol. 13(4), pages 373-409, August.
- Eric M. Leeper & Tack Yun, 2005. "Monetary-Fiscal Policy Interactions and the Price Level: Background and Beyond," NBER Working Papers 11646, National Bureau of Economic Research, Inc.
- 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.
- Hans Genberg, 2006. "Exchange-Rate Arrangements an Financial Integration in East Asia: On a Collision Course?," Working Papers 122, Oesterreichische Nationalbank (Austrian Central Bank).
- Leith, Campbell & von Thadden, Leopold, 2006.
"Monetary and fiscal policy interactions in a New Keynesian model with capital accumulation and non-Ricardian consumers,"
Discussion Paper Series 1: Economic Studies
2006,21, Deutsche Bundesbank, Research Centre.
- Leith, Campbell & von Thadden, Leopold, 2008. "Monetary and fiscal policy interactions in a New Keynesian model with capital accumulation and non-Ricardian consumers," Journal of Economic Theory, Elsevier, vol. 140(1), pages 279-313, May.
- Leith, Campbell & von Thadden, Leopold, 2006. "Monetary and fiscal policy interactions in a New Keynesian model with capital accumulation and non-Ricardian consumers," Working Paper Series 0649, European Central Bank.
- Campbell Leith & Leopold von Thadden, 2006. "Monetary and fiscal policy interactions in a New Keynesian model with capital accumulation and non-Ricardian consumers," Working Papers 2006_6, Business School - Economics, University of Glasgow.
- Martin Feldstein, 1982.
"Inflation, Capital Taxation, and Monetary Policy,"
in: Inflation: Causes and Effects, pages 153-168
National Bureau of Economic Research, Inc.
- Beetsma, Roel & Uhlig, Harald, 1999. "An Analysis of the Stability and Growth Pact," Economic Journal, Royal Economic Society, vol. 109(458), pages 546-571, October.
- Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
- Rogoff, Kenneth, 1990.
"Equilibrium Political Budget Cycles,"
American Economic Review,
American Economic Association, vol. 80(1), pages 21-36, March.
- Chari, V.V. & Kehoe, Patrick J., 2007.
"On the need for fiscal constraints in a monetary union,"
Journal of Monetary Economics,
Elsevier, vol. 54(8), pages 2399-2408, November.
- V. V. Chari & Patrick J. Kehoe, 1998. "On the need for fiscal constraints in a monetary union," Working Papers 589, Federal Reserve Bank of Minneapolis.
- Xavier Debrun, 2006. "Tying hands is not commitment: can fiscal rules and institutions really enhance fiscal discipline?," Working Papers 48, Bruegel.
- Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
- Noritaka Kudoh, 2007. "Low Nominal Interest Rates: A Public Finance Perspective," International Journal of Central Banking, International Journal of Central Banking, vol. 3(2), pages 61-93, June.
When requesting a correction, please mention this item's handle: RePEc:bog:wpaper:71. 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: (Christina Tsochatzi)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.