Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/331610 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 12144
Publisher: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Abstract: 
When confronted with sectoral shocks, policymakers often resort to targeted, sector-specific taxes in an \emph{ad hoc} fashion. Based on the New Keynesian Network model, we characterize the optimal tax response to sectoral shocks: it features twice as many tax instruments as there are sectors, is budget-neutral, and not confined to the sector where the shock originates. We show that the optimal policy can be approximated by a simple rule that responds to inflation in the shocked sector and adjusts tax instruments in other sectors according to input-output linkages. We study its quantitative performance in a calibrated version of the model.
Subjects: 
sectoral shocks
sales taxes
production subsides
JEL: 
E32
E62
Document Type: 
Working Paper
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