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The Friedman Rule in a Two Sector Small Open Economy

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  • Alexandre Cunha

Abstract

This paper investigates the properties of optimal monetary and fiscal policy in a two sector small open economy. If the government can optimally select all possible distorting tax rates, then it can implement Pareto efficient outcomes and the Friedman Rule is found to be a necessary condition for this. If the government can select only some of these tax rates, then second best policies may also display the Friedman rule as a feature. However, this last result depends on the set of tax instruments the government can choose from

Suggested Citation

  • Alexandre Cunha, 2004. "The Friedman Rule in a Two Sector Small Open Economy," Econometric Society 2004 North American Summer Meetings 530, Econometric Society.
    • Handle: RePEc:ecm:nasm04:530
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    References listed on IDEAS

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    More about this item

    Keywords

    Friedman rule; optimal taxation; open economy;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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