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Optimal Fiscal Action in an Economy with Sovereign Premia and without Monetary Independence: An Application to Italy

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  • Apostolis Philippopoulos
  • Petros Varthalitis
  • Vanghelis Vassilatos

Abstract

We welfare rank various tax-spending policies. The setup is a New Keynesian model of a semi-small open economy featuring sovereign risk premia and loss of monetary policy independence. The model is calibrated to match data from the Italian economy 2001-2011. We compute various optimized state-contingent tax-spending policy rules when the policy aim is shock stabilization and/or debt consolidation.

Suggested Citation

  • Apostolis Philippopoulos & Petros Varthalitis & Vanghelis Vassilatos, 2013. "Optimal Fiscal Action in an Economy with Sovereign Premia and without Monetary Independence: An Application to Italy," CESifo Working Paper Series 4199, CESifo.
    • Handle: RePEc:ces:ceswps:_4199
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    More about this item

    Keywords

    feedback policy rules; New Keynesian; sovereign premia;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F30 - International Economics - - International Finance - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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