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Politically optimal fiscal policy
Kumhof, Michael (Author), Yakadina, Irina (Author)

URLURL - Presentation file, Visit http://www.imf.org/external/pubs/ft/wp/2007/wp0768.pdf This link opens in a new window

Abstract
Why do governments issue large amounts of debt? In what sense and for whom is such a policy optimal? We show that twisting the optimal taxation paradigm produces very reasonable predictions for debt and real interest rates. Adding an extra dimension of uncertainty about the political planning horizon gives rise to a positive and very plausible government debt-to-GDP ratio of about 55percent in a model that otherwise predicts negative government debt. We quantify the impact of political uncertainty on steady state and business cycle dynamics. We illustrate how populist tax cuts can cause business cycle fluctuations.

Language:English
Keywords:fiskalna politika, politična ekonomija, optimizacija, davčni sistemi, davki, cikli, dolgovi, fiscal policy, political economy, optimization, tax systems, taxes, business cycles, debts
Work type:Not categorized (r6)
Organization:EF - Faculty of Economics
Year:2007
Publisher:International Monetary Fund
Number of pages:26 str.
Place:Washington
UDC:336
COBISS.SI-ID:17270758 Link is opened in a new window
Views:541
Downloads:226
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