On the Time Inconsistency of Optimal Monetary and Fiscal Policies with Many Consumer Goods

Begoña Domínguez and Pedro Gomis‐Porqueras
Authors registered in the RePEc Author Service: Pedro Gomis-Porqueras

Scandinavian Journal of Economics, 2021, vol. 123, issue 1, 60-83

Abstract: In this paper, we study the time consistency of optimal policies in an environment where agents use cash to purchase many consumer goods and where those goods might be taxed at differential rates. Our main result is that optimal monetary and fiscal policies are, in general, time‐inconsistent, because the number of bond instruments is insufficient to influence all future fiscal decisions. However, there is one special case where optimal policies are time‐consistent, which is when differential tax rates across cash goods are optimally zero.

Date: 2021
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https://doi.org/10.1111/sjoe.12399

Related works:
Working Paper: On the Time Inconsistency of Optimal Monetary and Fiscal Policies With Many Consumer Goods (2012)
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