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Title:Rule-of-thumb consumers and labor tax cut policy in the zero lower bound PDF Logo
Authors:Kaszab, Lorant
Issue Date:2012
Series/Report no.:Cardiff Economics Working Papers E2012/13
Abstract:This paper finds that labor tax cut can be an effective policy tool to mitigate the negative effects of a shock that made the zero lower bound on the nominal interest rate binding if the economy features rule-of-thumb households (besides Ricardian ones) and nominal rigidities in prices and wages. Our results are meant to contribute to the discussion initiated by Eggertsson (2010a) who found labor tax cut policy destabilising under zero nominal interest rate in a New Keynesian economy consisting only Ricardian consumers.
Subjects:fiscal policy
zero lower bound
labor tax cut
New Keynesian
JEL:E52
E62
Document Type:Working Paper
Appears in Collections:Cardiff Economics Working Papers

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