The Optimal Policy Mix to Achieve Public Debt Consolidation

Roberta Cardani, Lorenzo Menna () and Patrizio Tirelli

No 356, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: In this paper we adopt a Ramsey-optimal approach to identify the combination of income taxes, public expenditure and inflation designed to achieve a fiscal consolidation. In contrast with empirical contributions that emphasize the benefits of expenditure based consolidations, the optimal policy calls for increases in taxes and inflation. Strong monetary accommodation is quite beneficial relative to a situation where the Central Bank is only concerned with inflation stability and the inflation target is defined as a ceiling, as in the Eurozone.

Keywords: Fiscal Consolidation; Limited Asset Market Participation; Ramsey Fiscal Policy (search for similar items in EconPapers)
JEL-codes: E32 E62 E63 (search for similar items in EconPapers)
Pages: 19
Date: 2016-12-31, Revised 2016-12-31
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: THE OPTIMAL POLICY MIX TO ACHIEVE PUBLIC DEBT CONSOLIDATION (2020)
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