In models with a representative infinitely lived household, modern versions of tax smoothing imply that the steady-state of government debt should follow a random walk. This is unlikely to be the case in OLG economies, where, the equilibrium interest rate may differ from the policy-maker’s...

Recent work on optimal policy in sticky price models suggests that demand management through fiscal policy adds little to optimal monetary policy. We explore this consensus assignment in an economy subject to ‘deep’ habits at the level of individual goods where the counter-cyclicality of...

In a neoclassical growth model with monopolistic competition in the product market, distortionary taxes, and debt, countercyclical income tax rates can reduce the volatility of output, consumption, and investment. The variability of employment however is a non-monotonic function of the income...

In a neoclassical growth model with monopolistic competition in the product market, the presence of cyclical factor utilization enhances the stabilization role of countercyclical taxes. The costs of varying capital utilization take the form of varying rates of depreciation, which in turn have...

While consumption habits have been utilised as a means of generating a humpshaped output response to monetary policy shocks in sticky-price New Keynesian economies, there is relatively little analysis of the impact of habits (particularly, external habits) on optimal policy. In this paper we...