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Tax Rules and the Mismanagement of Monetary Policy

  • Martin Feldstean

This paper emphasizes the importance of the interaction between tax rules and the management of monetary policy. The monetary authorities' failure to recognize the implications of the tax structure has caused them to underestimate just how expansionary monetary policy has been. Moreover, because of our fiscal structure, attempts to encourage investment by an easy-money policy have actually had an adverse impact on investment in plant and equipment. The paper discusses the desirability of substituting a policy of tight-money and positive fiscal incentives for the traditional goals of easy money and fiscal restraint. More generally, the paper stresses the significance of the fiscal structure as a determinant of macroeconomic equilibrium.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0422.

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Date of creation: Jan 1980
Date of revision:
Publication status: published as Feldstein, Martin. "Tax Rules and the Mismanagement of Monetary Policy." The American Economic Review, Vol. 70, No. 2, (May 1980), pp. 182-186.
Handle: RePEc:nbr:nberwo:0422
Note: PE
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  1. Martin Feldstein, 1983. "Inflation, Income Taxes, and the Rate of Interest: A Theoretical Analysis," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 28-43 National Bureau of Economic Research, Inc.
  2. Hartman, David G, 1979. "Taxation and the Effects of Inflation on the Real Capital Stock in an Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 417-25, June.
  3. Lawrence H. Summers, 1978. "Tax Policy in a Life Cycle Model," NBER Working Papers 0302, National Bureau of Economic Research, Inc.
  4. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
  5. Patric H. Hendershott & Sheng Cheng Hu, 1979. "Inflation and the Benefits from Owner-Occupied Housing," NBER Working Papers 0383, National Bureau of Economic Research, Inc.
  6. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages S3-27, April.
  7. Rudiger Dornbusch & Paul Krugman, 1976. "Felxible Exchange Rates in the Short Run," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(3), pages 537-584.
  8. Patric H. Hendershott, 1979. "The Decline in Aggregate Share Values: Inflation, Taxation, Risk and Profitability," NBER Working Papers 0370, National Bureau of Economic Research, Inc.
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