Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171531
Authors: 
Mayer, Eric
Grimm, Oliver
Year of Publication: 
2008
Series/Report no.: 
Economics Working Paper Series 08/88
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 alternatively on the markup shock and levied on value added, reduce remarkably the inverse impact of cost push shocks. 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
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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