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Monetary and fiscal policy in interdependent economies with capital accumulation, death and population growth

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  • van der Ploeg, F.

    (Tilburg University, School of Economics and Management)

Abstract

A two-country, optimizing model with capital accumulation, purchasing power parity, floating exchange rates, uncovered interest parity, perfect foresight, finite lives and population growth is developed and analyzed. For the special case of a zero birth rate, individuals are indifferent between tax-finance and bond-finance or money-finance, so that both Ricardian debt-neutrality and monetary super-neutrality prevail. The general case is analyzed by decomposing the model into global averages and differences. A tax-financed increase in monetary growth leads to an interdependent Mundell-Tobin effect in which the world real interest rate falls and capital accumulation increases. A home monetary expansion leads to an increase in home consumption, a fall in foreign consumption and an increase in home holdings of foreign assets. If the expansion occurs through open-market operations, money is super-neutral. The international spillover effects of tax-financed and bond-financed increases in government spending and of bond-financed increases in lump-sum taxation are also considered.
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  • van der Ploeg, F., 1988. "Monetary and fiscal policy in interdependent economies with capital accumulation, death and population growth," Other publications TiSEM 0f2e8d07-235f-4801-8a3b-5, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:0f2e8d07-235f-4801-8a3b-56e95aefffef
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    References listed on IDEAS

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    1. van de Klundert, Theo & van der Ploeg, Frederick, 1989. "Fiscal Policy and Finite Lives in Interdependent Economies with Real and Nominal Wage Rigidity," Oxford Economic Papers, Oxford University Press, vol. 41(3), pages 459-489, July.
    2. Kapteyn, Arie & Kooreman, Peter & van Soest, Arthur, 1990. "Quantity Rationing and Concavity in a Flexible Household Labor Supply Model," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 55-62, February.
    3. van de Klundert, Theo, 1991. "Reducing external debt in a world with imperfect asset and imperfect commodity substitution," European Journal of Political Economy, Elsevier, vol. 7(1), pages 17-40, April.
    4. A. Bovenberg & Ben Heijdra, 2002. "Environmental Abatement and Intergenerational Distribution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(1), pages 45-84, September.
    5. van der Ploeg, Frederick, 1988. "Monetary and Fiscal Policy in Interdependent Economies with Capital Accumulation, Death and Population Growth," CEPR Discussion Papers 270, C.E.P.R. Discussion Papers.
    6. Bomhoff, Eduard J., 1992. "Monetary reform in Eastern Europe," European Economic Review, Elsevier, vol. 36(2-3), pages 454-458, April.
    7. Alessandro Piergallini, 2020. "Demographic change and real house prices: a general equilibrium perspective," Journal of Economics, Springer, vol. 130(1), pages 85-102, June.
    8. Mathieu-Bolh, Nathalie, 2017. "Can tax reforms help achieve sustainable development?," Resource and Energy Economics, Elsevier, vol. 50(C), pages 135-163.
    9. van de Klundert, T.C.M.J., 1989. "Reducing external debt in a world with imperfect asset and imperfect commodity substitution," Other publications TiSEM e1c93d5f-030c-41b3-a9a6-8, Tilburg University, School of Economics and Management.
    10. van de Klundert, T.C.M.J., 1990. "Crowding out and the wealth of nations," Other publications TiSEM d6eea456-db46-4fba-a9b8-7, Tilburg University, School of Economics and Management.
    11. Härdle, W.K. & Tsybakov, A.B., 1994. "How sensitive are average derivatives?," Other publications TiSEM 07ea66d2-29d5-4ec9-a59d-8, Tilburg University, School of Economics and Management.
    12. Wansbeek, Tom & Kapteyn, Arie, 1989. "Estimation of the error-components model with incomplete panels," Journal of Econometrics, Elsevier, vol. 41(3), pages 341-361, July.
    13. van de Klundert, T.C.M.J., 1990. "Crowding out and the wealth of nations," Discussion Paper 1990-29, Tilburg University, Center for Economic Research.
    14. Verbon, H.A.A. & Verhoeven, M.J.M., 1993. "Decision making on pension schemes under rational expectations," Other publications TiSEM c3143bc8-ccb5-473d-9a6b-3, Tilburg University, School of Economics and Management.

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