Taxation and the Taylor principle 公开 Deposited

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  • We add a nominal tax system to a sticky-price monetary business cycle model. When nominal interest income is taxed, the coefficient on inflation in a Taylor-type monetary policy rule must be significantly larger than one in order for the model economy to have a determinate rational expectations equilibrium. When depreciation is treated as a charge against taxable income, an even larger weight on inflation is required in the Taylor rule in order to obtain a determinate and stable equilibrium. These results have obvious implications for assessing the historical conduct of monetary policy.
Corporate name
  • Federal Reserve Bank of Minneapolis. Research Department.
Date created
  • 2002-09
Date modified
  • 04/10/2018
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