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The Role of Taxes as Automatic Destabilizers in New Keynesian Economics

  • Claus Thustrup Hansen
  • Henrik Jacobsen Kleven

This paper analyses the effects of taxation in New Keynesian economics. The results show that taxes contribute to price and wage stickiness and, moreover, that the resulting fluctuations in welfare are magnified by the presence of taxes. These results are at odds with the old Keynesian idea of automatic stabilizers.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 399.

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Date of creation: 2000
Date of revision:
Handle: RePEc:ces:ceswps:_399
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  1. Laurence M. Ball & David Romer, 1987. "Are Prices Too Sticky?," NBER Working Papers 2171, National Bureau of Economic Research, Inc.
  2. Ball, Laurence & Romer, David, 1991. "Sticky Prices as Coordination Failure," American Economic Review, American Economic Association, vol. 81(3), pages 539-52, June.
  3. repec:oup:restud:v:57:y:1990:i:2:p:183-203 is not listed on IDEAS
  4. Dutta, Shantanu, et al, 1999. "Menu Costs, Posted Prices, and Multiproduct Retailers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 683-703, November.
  5. David Romer, 1993. "The New Keynesian Synthesis," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 5-22, Winter.
  6. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 2005. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," Macroeconomics 0505012, EconWPA.
  7. James M. Poterba & Julio J. Rotemberg & Lawrence H. Summers, 1985. "A Tax-Based Test for Nominal Rigidities," NBER Working Papers 1627, National Bureau of Economic Research, Inc.
  8. Agell, J. & Dillen, M., 1991. "Macroeconomic Externalities: are Pigovian Taxes the Answer?," Papers 487, Stockholm - International Economic Studies.
  9. Alan J. Auerbach & Daniel R. Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 37-56, Summer.
  10. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  11. repec:oup:qjecon:v:112:y:1997:i:3:p:791-825 is not listed on IDEAS
  12. repec:oup:qjecon:v:104:y:1989:i:3:p:507-24 is not listed on IDEAS
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