English, Article, Journal or magazine article edition: Optimal Fiscal Policy in a Small Open Economy with Incomplete Markets and Interest Rate Shocks Josué Fernando Cortés Espada

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Optimal Fiscal Policy in a Small Open Economy with Incomplete Markets and Interest Rate Shocks
Author
  • Josué Fernando Cortés Espada
Physical Description
  • preprint
Notes
  • This paper studies optimal fiscal policy in a small open economy model under incomplete financial markets, where interest rates, government spending and productivity are stochastic and taxes are distortionary. The contributions of the paper are twofold. First, I solve the Ramsey problem and characterize the properties of the optimal fiscal policy. Second, I show that the optimal fiscal policy consists in smoothing tax distortions over time. The income tax rate, and the public debt are very persistent irrespective of the degree of autocorrelation of the shocks generating aggregate fluctuations. The government finances an increase in government spending or a decrease in the tax base partly by increasing debt and partly by increasing the tax rate.
  • optimal fiscal policy, taxation, incomplete markets, debt policy
  • RePEc:bdm:wpaper:2006-09
Language
  • English
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