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- Title
FISCAL POLICY UNDER BALANCED BUDGET AND INDETERMINACY: A NEW KEYNESIAN PERSPECTIVE.
- Authors
Di Bartolomeo, Giovanni; Manzo, Marco
- Abstract
We investigate the effect of fiscal policy on equilibrium determinacy in a New Keynesian economy with rule-of-thumb (liquidity-constrained) consumers and capital accumulation by focusing on the inter-action between monetary policy and taxation under the assumption of balanced budget. Our main finding is that taxation of firms' monopoly rents enforce the Taylor principle – the prescription that the nominal interest rate must respond more than one for a unitary change in inflation – as a criterion for equilibrium determinacy.
- Subjects
KEYNESIAN economics; FISCAL policy; ECONOMIC equilibrium; PRICE inflation &; taxation; INTEREST rates; LIQUIDITY (Economics); COMPETITIVE advantage in business; TAYLOR'S rule; MATHEMATICAL models of monetary policy
- Publication
Scottish Journal of Political Economy, 2010, Vol 57, Issue 4, p455
- ISSN
0036-9292
- Publication type
Article
- DOI
10.1111/j.1467-9485.2010.00526.x