Politically Optimal Fiscal Policy / Irina Yakadina, Michael Kumhof.

Format:

Book

Government document

Author/Creator:

Yakadina, Irina.

Contributor:

Kumhof, Michael.

International Monetary Fund. Research Department.

Series:

IMF Working Papers; Working Paper ; No. 2007/068

IMF Working Papers

Language:

English

Subjects (All):

Fiscal policy--Political aspects.

Fiscal policy.

Taxation--Political aspects.

Taxation.

Debts, Public.

Physical Description:

1 online resource (28 p.)

Place of Publication:

Washington, D.C. : International Monetary Fund, 2007.

Language Note:

English

Summary:

Why do governments issue large amounts of debt? In what sense and for whom is such a policy optimal? We show that twisting the optimal taxation paradigm produces very reasonable predictions for debt and real interest rates. Adding an extra dimension of uncertainty about the political planning horizon gives rise to a positive and very plausible government debt-to-GDP ratio of about 55 percent in a model that otherwise predicts negative government debt. We quantify the impact of political uncertainty on steady state and business cycle dynamics. We illustrate how populist tax cuts can cause business cycle fluctuations.

Contents:

Contents; I. Introduction; II. TheModel; A. Decentralized Economy; 1. Households; 2. Firms; 3. Financial Intermediary; 4. Government; 5. Competitive Equilibrium; B. The Political Planner; III. Political Equilibrium- The Results; A. Calibration; B. The Non-Stochastic Steady State; C. The Stochastic Steady State; D. Transition to the Stochastic Steady State; Tables; 1. Long Run Characteristics of the Model; Figures; 1. Transition to the Stochastic Steady State for a Given History of Shocks; E. Optimal Policy froma Timeless Perspective; 1. Precautionary Government Saving

2. Perfect Foresight Transition to the Deterministic Steady State3. Steady State Effects for the Case of No Transaction Costs and Long Policy Horizon; 2. The Effect of Planning Horizons; 4. Permanent Reduction in the Planning Horizon from 15 to 10 Years; 5. Steady State Effects of Varying the Planning Horizon; F. Political Instability; 6. Stochastic Steady State Debt-to-GDP Ratios as a Function of the Planning Horizon and Adjustment Costs; G. The Cyclical Properties of Optimal Fiscal Policy; 7. Temporary Shock to the Planning Horizon; 8. Budgetary Implications of a Government Spending Shock

9. Serial Correlation of Taxes as a Function of Persistence of ShocksIV. Conclusion; Appendices; 1. Appendix 1. The Non-Stochastic Steady State; 2. Appendix 2. Solving the Model Using a Global Method; References

Notes:

"March 2007."

At head of title: Research Department, IMF Institute.

Includes bibliographical references (p. 24-26).

Description based on print version record.

ISBN:

9786613828705

9781462337675

1462337678

9781452738017

1452738017

9781283516259

128351625X

9781451910858

1451910851