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Analysis of tax effects on consolidated household/government debts of a nation in a monetary union under classical dichotomy

Author

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  • Kim, Minseong

Abstract

Unlike many analysis of tax effects on consolidated household/government debts in a monetary union, this paper builds up analysis from a consolidated budget constraint, instead of starting from a model. By a monetary union, it is assumed that all nations in the union share same currency. Also, if taxes are assumed to be in real values, or if one assumes that government targets real value of taxes $T/P$, then it is also possible to produce the size of fiscal multiplier on real value of consolidated debts, if relaxed version of classical dichotomy - that agents' decisions are only affected by real variables - is assumed. This paper argues that size is $db/dt_r = -1$ where $t_r$ is real value of taxes or ``real taxes'' and $b = B/(PR)$ where $B = -D$ with $D$ nominal debt, $P$ price and $R-1$ nominal interest rate , or in terms of real debts, $dd/dt_r = 1$.

Suggested Citation

  • Kim, Minseong, 2016. "Analysis of tax effects on consolidated household/government debts of a nation in a monetary union under classical dichotomy," MPRA Paper 71016, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:71016
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    More about this item

    Keywords

    fiscal multiplier; tax multiplier; debt analysis; monetary union; household debts; international macroeconomics;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F19 - International Economics - - Trade - - - Other
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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