- Designing fiscal and monetary institutions in a second-best world
- European Journal of Political Economy
- Volume | Issue number
- 13 | 1
- Pages (from-to)
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
This paper explores how fiscal and monetary policy interact if commitment and access to lump-sum taxation are limited. We analyze how equilibrium outcomes for inflation, employment, and public spending are affected by the structural features of an economy, such as money holdings, outstanding public debt, labor-market distortions, society's preferences, and the nature of the policy game. In a normative vein, we compare society's welfare across various institutional settings and investigate how society should optimally adjust the preferences of policymakers.
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