Optimal Fiscal and Monetary Policy with Distorting Taxes

Christopher Sims ()

Working Papers from Princeton University. Economics Department.

Abstract: When the interest rate on government debt is low enough, it becomes possible to roll it over indefinitely, never taxing to retire it, without producing a growing debt to GDP ratio. This has been called a situation with zero "fiscal cost" to debt. But when low interest on debt arises from its providing liquidity services, zero fiscal cost is equivalent to finance through seigniorage. Some finance through seigniorage is generally optimal, however, despite results in the literature seeming to show that this is not so.

Keywords: monetary policy; fiscal policy (search for similar items in EconPapers)
JEL-codes: E52 E62 (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-dge, nep-mon and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Optimal Fiscal and Monetary Policy with Distorting Taxes (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2022-11

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