Optimal Fiscal Consolidation Under Frictional Financial Markets*

• 成果类型: Article
• 署名作者: Silva, Dejanir H.
• 署名单位: Purdue University System; Purdue University
• 刊物名称: ECONOMIC JOURNAL
• ISSN/ISSBN: 0013-0133
• DOI: 10.1093/ej/uead013
• 发表日期: 2023
• 页码: 1537-1585
• 关键词: monetary-policy; capital flows; fluctuations; default

摘要

This paper studies optimal fiscal policy in a currency union subject to capital flow shocks in an economy with two main ingredients: (i) sticky prices and (ii) financially constrained arbitrageurs. Given capital outflows and high external debt, the fiscal authority faces a trade-off between stimulating the economy or paying off external debt. The planner reduces the value-added tax in the short run, while it raises and front-loads the sum of value-added tax and payroll taxes. It is not optimal to use spending to stimulate the economy. The country engages in a fiscal consolidation, as government debt falls compared with a passive fiscal policy.