Fiscal Rules in a Highly Distorted Economy

Marattin, Luigi ; Marzo, Massimiliano (2008) Fiscal Rules in a Highly Distorted Economy. Bologna: Dipartimento di Scienze economiche DSE, p. 28. DOI 10.6092/unibo/amsacta/4600. In: Quaderni - Working Paper DSE (647). ISSN 2282-6483.
Full text available as:
[img]
Preview
PDF
License: Creative Commons Attribution Non-commercial

Download (323kB) | Preview

Abstract

The objective of this paper is to investigate the optimality of EMU fiscal rules from a welfare perspective. We compute welfare-maximizing feedback coefficients for monetary and fiscal rules in a NK-DSGE with a high number of nominal and real distortions, calibrated on the Euro-area data. The framework includes imperfect competition, costly capital accumulation, consumption habits, price and wage stickiness, distortionary taxation on consumption, labor and capital income. Fiscal policy responds, alternatively, to total deficit, total government liabilities, and a linear combination of both targets. We show that the liabilities rule is welfare superior, but it does not provide enough output stabilization if not coupled with a non-zero response of monetary policy to output; optimal feedback coefficient are larger under debt targeting rather than deficit; under the current specification, a SGP-like rule seems highly suboptimal.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Marattin, Luigi
Marzo, Massimiliano
Keywords
Fiscal policy rules, welfare analysis, tax distortions, stabilization policies
Subjects
ISSN
2282-6483
DOI
Deposit date
15 Feb 2016 14:02
Last modified
15 Feb 2016 14:02
URI

Other metadata

Downloads

Downloads

Staff only: View the document

^