SMU SOE Online Seminar (Dec 11, 2020, 4pm-5.30pm): Changes in the Composition of Tax Revenues: Implications for Monetary and Fiscal Policy

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TOPIC:

CHANGES IN THE COMPOSITION OF TAX REVENUES: IMPLICATIONS FOR MONETARY AND FISCAL POLICY

ABSTRACT This paper examines how the composition of tax revenues aﬀects monetary and ﬁscal policy interactions. To do so, we consider an environment where household’s wage and interest income as well as ﬁrm’s proﬁts are taxed. The government follows a Taylor rule and a ﬁscal rule that links tax revenues to public debt. The ﬁscal authority also sets the long-run debt to GDP ratio as well as the tax revenue composition. In this setting, both monetary and ﬁscal policies directly impact the demand for government liabilities. Thus, there is a direct channel through which ﬁscal policy aﬀects inﬂation. As a result, the evolution of inﬂation and real debt are not independent of each other. Because taxes are distortionary, we ﬁnd multiplicity of stationary equilibria as a Laﬀer curve exists. We also show that the composition of the tax revenue is key in determining the combinations of monetary and ﬁscal policies that deliver determinate equilibria. When calibrated to the U.S. economy, we ﬁnd that passive monetary and active ﬁscal policies are more likely to generate unique and determinate equilibria. Moreover, we ﬁnd that higher debt to GDP ratio lead to more locally indeterminate equilibria. This is also the case when households contribute a larger share to total tax revenues. Keywords: Taxes, interest income, monetary, fiscal policy interactions. JEL Codes: C11, E32, E62. Click here to view the paper. Click here to view the CV.		This seminar will be held via Zoom. A confirmation email with the Zoom details will be sent to the registered email by 10 December 2020.
		PRESENTER Solmaz Moslehi Monash University
		RESEARCH FIELDS Macroeconomics Public Economics Growth Theory Family Economics
		DATE: 11 December 2020 (Friday)
		TIME: 4.00pm - 5.30pm

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