The Optimal Policy Mix to Achieve Public Debt Consolidation
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Menna, Lorenzo
Tirelli, Patrizio
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Abstract
In this paper, we adopt a Ramsey optimal approach to identify the combination of income taxes, public expenditure, and inflation designed to achieve a fiscal consolidation. In contrast with empirical contributions that emphasize the benefits of expenditure-based consolidations, the optimal policy calls for increases in taxes and inflation. Strong monetary accommodation is quite beneficial relative to a situation where the Central Bank is only concerned with inflation stability and the inflation target is defined as a ceiling, as in the Eurozone.
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Macroeconomic Dynamics
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© 2019 Cambridge University Press. This is the author-manuscript version of this paper. Reproduced in accordance with the copyright policy of the publisher. Please refer to the journal's website for access to the definitive, published version.
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Economic theory
Applied economics
Econometrics
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Cardani, R; Menna, L; Tirelli, P, The Optimal Policy Mix to Achieve Public Debt Consolidation, Macroeconomic Dynamics, 2018, pp. 1-17