Distortionary Taxation, Debt, and the Transmission of Fiscal Policy Shocks

Ludger Linnemann

FinanzArchiv: Public Finance Analysis, 2005, vol. 61, issue 3, 368-392

Abstract: Does the potential of fiscal policy to influence the business cycle rest on deficit spending? The paper discusses the question in a dynamic general-equilibrium business-cycle model with staggered price adjustment, distortionary taxation, government debt, and monopolistic wage setting. The model's predictions with respect to the impact of government spending shocks on the economy are in line with empirical evidence due to the endogeneity of the income tax rate. Although Ricardian equivalence does not hold, the size of the budget deficit has limited quantitative importance for the short-run effectiveness of fiscal stabilization policy.

Keywords: fiscal policy; distortionary taxation; government dept; consumption; sticky prices; monopolistic wage setting (search for similar items in EconPapers)
JEL-codes: E32 E62 E63 (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.mohrsiebeck.com/en/article/distortiona ... 28001522105774978976
Fulltext access is included for subscribers to the printed version.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mhr:finarc:urn:sici:0015-2218(200511)61:3_368:dtdatt_2.0.tx_2-a

Ordering information: This journal article can be ordered from
Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany

Access Statistics for this article

FinanzArchiv: Public Finance Analysis is currently edited by Alfons Weichenrieder, Ronnie Schöb and Jean-François Tremblay

More articles in FinanzArchiv: Public Finance Analysis from Mohr Siebeck, Tübingen
Bibliographic data for series maintained by Thomas Wolpert ().