Optimal Government Spending at the Zero Lower Bound: A Non-Ricardian Analysis

Taisuke Nakata

No 2015-38, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper analyzes the implications of distortionary taxation and debt financing for optimal government spending policy in a sticky-price economy where the nominal interest rate is subject to the zero lower bound constraint. Regardless of the type of tax available and the initial debt level, optimal government spending policy in a recession is characterized by an initial increase followed by a reduction below, and an eventual return to, the steady state. The magnitude of variations in the government spending as well as their welfare implications depend importantly on the available tax instrument and the initial debt level.

Keywords: Commitment; distortionary taxation; government spending; liquidity traps; nominal debt; optimal policy; zero lower bound (search for similar items in EconPapers)
JEL-codes: E32 E52 E61 E62 E63 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015-05-27
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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http://www.federalreserve.gov/econresdata/feds/2015/files/2015038pap.pdf Full text (application/pdf)
http://dx.doi.org/10.17016/FEDS.2015.038 http://dx.doi.org/10.17016/FEDS.2015.038 (application/pdf)

Related works:
Journal Article: Optimal Government Spending at the Zero Lower Bound: A Non-Ricardian Analysis (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2015-38

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