Front Matter Page
Fiscal Affairs Department
Authorized for distribution by Steven Symansky
Contents
I. Introduction
II. The Model
A. Consumers
B. Price Setting
C. Aggregate Demand and Fiscal Policy
D. The System
E. Social Welfare
F. Policy Objectives
G. Calibration
III. Solving for Optimal Policy
A. Cooperative Policy
B. Non-Cooperative Policy under Discretion
IV. Optimal Policy when Lump-Sum Taxes are Available
A. Cooperative Policy
1. Commitment
2. Discretion
B. Non-Cooperative Policy with a Myopic Fiscal Authority
1. Nash
2. Fiscal Leadership
3. Robustness
V. Optimal Policy when Lump-Sum Taxes are not Available
A. Cooperative Policy
1. Commitment
2. Discretion
B. Non-Cooperative Policy with a Myopic Fiscal Authority
1. Nash
2. Fiscal Leadership
C. Robustness
VI. Optimal Institutions
A. A Debt Penalty
B. A Conservative Central Bank
VII. Conclusion
Appendix
A. Social Welfare
B. Policy Myopia
C. Solving the Model
1. Optimal Cooperative Policy
2. Optimal Non-Cooperative Policy under Discretion
References
Tables
Table 1. Optimal policy simulations for a transitory cost-push shock
Figures
Figure 1. Dynamic responses to a transitory cost-push shock under optimal policy
Figure 2. First-period responses to a transitory cost-push shock under optimal policy for different degrees of fiscal myopia (p)
Figure 3. First-period responses to a transitory cost-push shock under optimal policy with a myopic government (p = 0.75) for different calibrations
Figure 4. Optimal policy without lump-sum taxes with a myopic government (p = 0.75) and a debt penalty
Figure 5. Optimal policy without lump-sum taxes and a myopic government (p = 0.75) for different degrees of monetary conservatism (η)