Dynamic Scoring and Monetary Policy

I discuss the joint effects of government-taxes and interest-rates. A fiscal authority performs `exogenous' and `endogenous' changes to the income-tax rate and a monetary authority sets the nominal-interest. A wedge between rates of self-financing of tax cuts and the income-tax Laffer curve arrives from the monetary system. I find a new- regime that differs from conventional monetary-fiscal policy interactions. Dynamic scoring exercises show that in the new-regime monetary-policy markedly mitigates negative output effects caused by `exogenous tax actions' designed to reduce public-debt, altogether inducing signi.cant welfare gains. In contrast, where public-debt is at high levels, `exogenous tax cuts' induce welfare losses.