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Redistributive Tax Policy at the Zero Bound

Lancastre, Manuel (2017): Redistributive Tax Policy at the Zero Bound.

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Abstract

Generating consumer price inflation with an increasing path of consumption taxes when the nominal interest rate zero lower bond is binding and monetary policy becomes ineffective, as proposed by Correia et al. [1], may not neutralize a liquidity trap when liquidity is constrained. Instead, this paper shows that a redistributive tax policy may counteract a zero bound recession in liquidity constrained economies with no need to increase public spending and debt, with a fiscal prescription curiously opposite to the one proposed by Correia et al. [1].

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