Nominal GDP targeting and the tax burden
Nominal GDP targeting and the tax burden
An overlapping generations model is set out in which monetary policy matters for distortionary taxes because unanticipated inflation has real wealth effects on households with nominal government debt. The model is used to study the tax burden under inflation and nominal GDP targeting. Nominal GDP targeting makes taxes less volatile than inflation targeting but raises average taxes. With a quadratic loss function, the expected tax burden is minimized with only indexed debt under inflation targeting, but with both indexed and nominal debt under nominal GDP targeting. Nominal GDP targeting lowers the tax burden relative to inflation targeting (except at very high indexation shares), but this conclusion hinges on risk aversion, productivity persistence and the loss function for the tax burden.
University of Southampton
Hatcher, Michael
e0846252-6d46-44f8-ba3c-05cf1fba64ab
4 July 2016
Hatcher, Michael
e0846252-6d46-44f8-ba3c-05cf1fba64ab
Hatcher, Michael
(2016)
Nominal GDP targeting and the tax burden
(Discussion Papers in Economics and Econometrics, 1604)
Southampton, GB.
University of Southampton
35pp.
Record type:
Monograph
(Working Paper)
Abstract
An overlapping generations model is set out in which monetary policy matters for distortionary taxes because unanticipated inflation has real wealth effects on households with nominal government debt. The model is used to study the tax burden under inflation and nominal GDP targeting. Nominal GDP targeting makes taxes less volatile than inflation targeting but raises average taxes. With a quadratic loss function, the expected tax burden is minimized with only indexed debt under inflation targeting, but with both indexed and nominal debt under nominal GDP targeting. Nominal GDP targeting lowers the tax burden relative to inflation targeting (except at very high indexation shares), but this conclusion hinges on risk aversion, productivity persistence and the loss function for the tax burden.
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1604 combined.pdf
- Author's Original
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Published date: 4 July 2016
Organisations:
Economics
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Local EPrints ID: 397782
URI: http://eprints.soton.ac.uk/id/eprint/397782
ISSN: 0966-4246
PURE UUID: c567eed4-82af-4efd-8279-d2b12a9cc343
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Date deposited: 07 Jul 2016 08:46
Last modified: 15 Mar 2024 03:50
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