Dynamic Scoring and Monetary Policy

Baruch Gliksberg

No WP2014/1, Working Papers from University of Haifa, Department of Economics

Abstract: I discuss the joint effects of government-taxes and interest-rates. A fiscal authority performs `exogenous' and `endogenous' changes to the income-tax rate and a monetary authority sets the nominal-interest. A wedge between rates of self-financing of tax cuts and the income-tax Laffer curve arrives from the monetary system. I find a new- regime that differs from conventional monetary-fiscal policy interactions. Dynamic scoring exercises show that in the new-regime monetary-policy markedly mitigates negative output effects caused by `exogenous tax actions' designed to reduce public-debt, altogether inducing signi.cant welfare gains. In contrast, where public-debt is at high levels, `exogenous tax cuts' induce welfare losses.

Keywords: Distorting Taxes; Liquidity Constraints; Dynamic Laffer Curve; Global Analysis; Liquidity Traps; Sovereign Default (search for similar items in EconPapers)
JEL-codes: C60 E60 H20 H30 H60 (search for similar items in EconPapers)
Pages: 48
New Economics Papers: this item is included in nep-mac, nep-mon and nep-pbe
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