Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/38820
Authors: 
Mayer, Eric
Grimm, Oliver
Year of Publication: 
2008
Series/Report no.: 
Würzburg economic papers 78
Abstract: 
In this paper, we explore the benefits from a supply-side oriented fiscal tax policy within the framework of a New Keynesian DSGE model. We show that countercyclical tax rules, which are contingent on the observed welfare gap or on the cost-push shock and levied on value added, remarkably reduce the adverse impact of cost-push shocks on welfare. We state that the tax rule establishes a path for the evolution of marginal cost at the firm level that largely prevents built up of price dispersion. We highlight that this tax policy is also effective under a balancedbudget regime. Hence, fiscal policy can disencumber monetary policy in the light of cost-push shocks.
Subjects: 
Countercyclical fiscal policy
welfare costs
nominal rigidities
JEL: 
E32
E61
E62
Document Type: 
Working Paper

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