Politically optimal fiscal policy /

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Bibliographic Details
Author / Creator:	Kumhof, Michael, author.
Imprint:	Washington, D.C. : International Monetary Fund, ©2007.
Description:	1 online resource (26 pages) : illustrations
Language:	English
Series:	IMF working paper ; WP/07/68.
Subject:	Fiscal policy -- Econometric models. Taxation -- Econometric models. Debts, Public -- Econometric models. Debts, Public -- Econometric models. Fiscal policy -- Econometric models. Taxation -- Econometric models.
Format:	E-Resource Book
URL for this record:	http://pi.lib.uchicago.edu/1001/cat/bib/12497834

Hidden Bibliographic Details
Other authors / contributors:	Yakadina, Irina, author. International Monetary Fund. Research Department.
ISBN:	128351625X 9781283516259
Notes:	Includes bibliographical references (pages 24-26). Restrictions unspecified Electronic reproduction. [Place of publication not identified] : HathiTrust Digital Library, 2010. Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212 digitized 2010 HathiTrust Digital Library committed to preserve Print version record.
Summary:	Why do governments issue large amounts of debt? In what sense and for whom is such a policy optimal? We show that twisting the optimal taxation paradigm produces very reasonable predictions for debt and real interest rates. Adding an extra dimension of uncertainty about the political planning horizon gives rise to a positive and very plausible government debt-to-GDP ratio of about 55 percent in a model that otherwise predicts negative government debt. We quantify the impact of political uncertainty on steady state and business cycle dynamics. We illustrate how populist tax cuts can cause business cycle fluctuations.
Other form:	Print version: Kumhof, Michael. Politically optimal fiscal policy. Washington, D.C. : International Monetary Fund, ©2007

Table of Contents:

I. Introduction; II. TheModel; A. Decentralized Economy; 1. Households; 2. Firms; 3. Financial Intermediary; 4. Government; 5. Competitive Equilibrium; B. The Political Planner; III. Political Equilibrium- The Results; A. Calibration; B. The Non-Stochastic Steady State; C. The Stochastic Steady State; D. Transition to the Stochastic Steady State; Tables; 1. Long Run Characteristics of the Model; Figures; 1. Transition to the Stochastic Steady State for a Given History of Shocks; E. Optimal Policy froma Timeless Perspective; 1. Precautionary Government Saving.
2. Perfect Foresight Transition to the Deterministic Steady State3. Steady State Effects for the Case of No Transaction Costs and Long Policy Horizon; 2. The Effect of Planning Horizons; 4. Permanent Reduction in the Planning Horizon from 15 to 10 Years; 5. Steady State Effects of Varying the Planning Horizon; F. Political Instability; 6. Stochastic Steady State Debt-to-GDP Ratios as a Function of the Planning Horizon and Adjustment Costs; G. The Cyclical Properties of Optimal Fiscal Policy; 7. Temporary Shock to the Planning Horizon; 8. Budgetary Implications of a Government Spending Shock.
9. Serial Correlation of Taxes as a Function of Persistence of ShocksIV. Conclusion; Appendices; 1. Appendix 1. The Non-Stochastic Steady State; 2. Appendix 2. Solving the Model Using a Global Method; References.

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