Rule-of-Thumb Consumers and Labor Tax Cut Policy in the Zero Lower Bound

Lorant Kaszab

No E2012/13, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: This paper finds that labor tax cut can be an effective policy tool to mitigate the negative effects of a shock that made the zero lower bound on the nominal interest rate binding if the economy features rule-of-thumb households (besides Ricardian ones) and nominal rigidities in prices and wages. Our results are meant to contribute to the discussion initiated by Eggertsson (2010a) who found labor tax cut policy destabilising under zero nominal interest rate in a New Keynesian economy consisting only Ricardian consumers.

Keywords: Fiscal policy; zero lower bound; labor tax cut; New Keynesian (search for similar items in EconPapers)
JEL-codes: E52 E62 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012-06, Revised 2013-04
New Economics Papers: this item is included in nep-mac and nep-pbe
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Related works:
Journal Article: Rule-of-Thumb Consumers and Labor Tax Cut Policy at the Zero Lower Bound (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cdf:wpaper:2012/13

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