Monetary-fiscal policy interactions and the price level
Subtitle: background and beyond
By: Eric M. Leeper, Tack Yun.
Contributors: Yun, Tack.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 11646; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 11646.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Fiscal policy -- Mathematical models.; Taxation -- Mathematical models.; Prices -- Mathematical models.
Description: "The paper presents the fiscal theory of the price level in a variety of models, including endowment economies with lump-sum taxes and production economies with proportional income taxes.  We offer a microeconomic perspective on the fiscal theory by computing a Slutsky-Hicks decomposition of the effects of tax changes into substitution, wealth, and revaluation effects.  Revaluation effects arise whenever tax changes alter the value of outstanding nominal government liabilities by changing the price level.  Under certain assumptions on monetary and fiscal behavior, the revaluation effect reflects the fiscal theory mechanism.  When taxes distort, two Laffer curves arise, implying that a tax increase can lower or raise the price level and the revaluation effect can be positive or negative, depending on which side of a particular Laffer curve the economy resides"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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