Analysis of tax effects on consolidated household/government debts of a nation in a monetary union under classical dichotomy

Minseong Kim

MPRA Paper from University Library of Munich, Germany

Abstract: Unlike many analysis of tax effects on consolidated household/government debts in a monetary union, this paper builds up analysis from a consolidated budget constraint, instead of starting from a model. By a monetary union, it is assumed that all nations in the union share same currency. Also, if taxes are assumed to be in real values, or if one assumes that government targets real value of taxes $T/P$, then it is also possible to produce the size of fiscal multiplier on real value of consolidated debts, if relaxed version of classical dichotomy - that agents' decisions are only affected by real variables - is assumed. This paper argues that size is $db/dt_r = -1$ where $t_r$ is real value of taxes or ``real taxes'' and $b = B/(PR)$ where $B = -D$ with $D$ nominal debt, $P$ price and $R-1$ nominal interest rate , or in terms of real debts, $dd/dt_r = 1$.

Keywords: fiscal multiplier; tax multiplier; debt analysis; monetary union; household debts; international macroeconomics (search for similar items in EconPapers)
JEL-codes: E13 E62 F19 F41 F45 H30 H60 (search for similar items in EconPapers)
Date: 2016-04-28
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-pub
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https://mpra.ub.uni-muenchen.de/71016/1/MPRA_paper_71016.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/71019/1/MPRA_paper_71019.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/71041/1/MPRA_paper_71041.pdf revised version (application/pdf)

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