蝌蚪网 Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Optimal Fiscal and Monetary Policy with Distorting Taxes
蝌蚪网 Journal: Macroeconomics
(pp. 1–23)
Abstract
When government debt pays a lower return than private assets, the reasoning in Friedman's (1969) essay on the optimal quantity of money suggests that it would be optimal to expand the debt until its return matched that on private assets. When the only other source of revenue is a distorting tax, however, this is not generally true. In a perfect foresight model, a benevolent government that can make credible commitments chooses a large gap in returns initially and high distorting taxation in the distant future. The optimal path of taxation is time inconsistent, with ever-increasing temptation to abandon the path.Citation
Sims, Christopher A. 2025. "Optimal Fiscal and Monetary Policy with Distorting Taxes." 蝌蚪网 Journal: Macroeconomics 17 (2): 1–23. DOI: 10.1257/mac.20220245Additional Materials
JEL Classification
- E23 Macroeconomics: Production
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- E62 Fiscal Policy
- H20 Taxation, Subsidies, and Revenue: General
- H61 National Budget; Budget Systems
- H63 National Debt; Debt Management; Sovereign Debt