Do tax distortions lead to more indeterminacy? A New Keynesian perspective

Di Bartolomeo, Giovanni and Manzo, Marco (2007): Do tax distortions lead to more indeterminacy? A New Keynesian perspective.

Abstract

Following the recent developments of the literature on stabilization policies, this paper investigates the effect of tax distortions on equilibrium determinacy in a New Keynesian economy with rule-of-thumb consumers and capital accumulation. In particular, we focus on the inter-action between monetary policy and tax distortions in supporting the saddle-path equilibrium under the assumptions of balanced budget and monetary policy satisfying a Taylor rule.

• Item Type: MPRA Paper
• Institution: University of Teramo
• Language: English
• Keywords: Rule-of-thumb consumers; equilibrium determinacy; fiscal and monetary policy inter-actions; and tax distortions
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy ; Stabilization ; Treasury Policy

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