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Optimal Fiscal Action in an Economy with Sovereign Premia and without Monetary Independence: An Application to Italy

  • Apostolis Philippopoulos
  • Petros Varthalitis
  • Vanghelis Vassilatos

We welfare rank various tax-spending policies. The setup is a New Keynesian model of a semi-small open economy featuring sovereign risk premia and loss of monetary policy independence. The model is calibrated to match data from the Italian economy 2001-2011. We compute various optimized state-contingent tax-spending policy rules when the policy aim is shock stabilization and/or debt consolidation.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4199.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4199
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