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Income Taxation, Interest-Rate Control and Macroeconomic Stability with Balanced-Budget

Author

Listed:
  • Seiya Fujisaki

    (Graduate School of Economics, Osaka University)

  • Kazuo Mino

    (Graduate School of Economics, Osaka University)

Abstract

This paper studies stabilization effects of fiscal and monetary policy rules in the context of a standard real business cycle model with money. We assume that the fiscal authority adjusts the rate of income tax subject to the balanced-budget constraint, while the monetary authority controls the nominal interest rate by observing inflation. Inspecting macroeconomic stability of the steady state equilibrium of the model economy, we demonstrate that whether or not policy rules eliminate the possibility of sunspot-driven fluctuations critically depends upon the appropriate combination of progressiveness of taxation and activeness of interest-rate control.

Suggested Citation

  • Seiya Fujisaki & Kazuo Mino, 2008. "Income Taxation, Interest-Rate Control and Macroeconomic Stability with Balanced-Budget," Discussion Papers in Economics and Business 08-20, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:0820
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    References listed on IDEAS

    as
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    Cited by:

    1. Fujisaki, Seiya, 2016. "Equilibrium Determinacy and Policy Rules : Role of Productive Money and Government Expenditure," MPRA Paper 69834, University Library of Munich, Germany.
    2. Fujisaki, Seiya, 2016. "Aggregate Stability in Monetary Economy with Consumption Tax and Taylor Rule," MPRA Paper 69833, University Library of Munich, Germany.

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    More about this item

    Keywords

    balanced budget; interest rate control; determinacy of equilibrium;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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