Optimal fiscal and monetary policy in economies with capital

Gaowang Wang and Heng-Fu Zou ()

MPRA Paper from University Library of Munich, Germany

Abstract: We reexamine the optimal fiscal and monetary policy in combined shopping-time monetary models with capital accumulation. Four models are constructed to examine how the production cost of money and the utility from physical capital affect the toolbox of the fiscal and monetary policy. It is shown that the optimality of the Friedman rule hinges on the producing cost of money and capital-in-utility overturns the Chamley-Judd zero capital income taxation theorem. When the production cost of money approaches zero, the Friedman rule is optimal; and when the consumer cares about the utility from capital, the limiting capital income tax is not zero in general.

Keywords: Transactions technology; Inflation tax; Capital income tax; Friedman rule; Capital in utility. (search for similar items in EconPapers)
JEL-codes: E40 E52 H20 H21 (search for similar items in EconPapers)
Date: 2020-09-04
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon, nep-pbe and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:102753

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