We compare optimal fiscal policy strategies under alternative perspectives on optimality with the aim to contribute to current policy discussions as well as to the historical debate on optimal tax dynamics. We show that a strategy of slow unwinding of increases in public debt and taxes following structural shocks is consistent with the unconditionally optimal policy in a New Keynesian framework with nominal rigidity and distortionary taxes. This contrasts with the emerging consensus derived in similar frameworks from welfare objectives defined over conditional expectations, recommending permanent level shifts in debt and taxes.
Unconditionally Optimal Policy, Public Debt, Tax Dynamics.
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