Fiscal policy and tax collection lags: stability, cycles and chaos
A simple dynamic IS-LM model with "balanced budget" and money financing deficit can show, in the presence of realistic tax collection lags, regular and chaotic cycles depending on the "mix" of fiscal policies. We argue that also rigid and transparent expenditure limits which an increasing number of countries have recently adopted, could be ineffective in terms of stability if the role of collection lags is neglected. Moreover also the "dimension" of the public intervention in the economy matters for stability, especially as a determinant of chaotic behaviours.
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