Financing Government Expenditures Optimally
In a simple cash-credit model, I study the effects of the combination of costly tax collection and tax evasion on fiscal and monetary policy for optimal resource allocation. Allowing the informal sector to use cash more intensively than the formal sector, I compute the optimal interest and tax rates for eleven OECD countries to finance their exogeneously given government spending. A comparison of the actual and optimal interest rates reveals that tax collection costs and tax evasion together can partly explain the cross-country differences in monetary policy, also rationalizing deviations from the Friedman Rule in the long-run.
Year of publication: |
2006-01
|
---|---|
Authors: | Yesin, Pinar Ayse |
Institutions: | Swiss National Bank, Study Center Gerzensee |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Financing Government Expenditures Optimally
Yesin, Pinar Ayse, (2006)
-
Can Information Heterogeneity Explain the Exchange Rate Determination Puzzle?
Bacchetta, Philippe, (2003)
-
Puzzling Comovements between Output and Interest Rates? Multiple Shocks are the Answer.
Mertens, Elmar, (2005)
- More ...