Fiscal_policy_with_banks_and_financial_frictions.pdf (815.29 kB)
Fiscal policy with banks and financial frictions
journal contribution
posted on 2017-11-16, 11:42 authored by Panagiotis Asimakopoulos, Stylianos AsimakopoulosWe assess the role of banks to the transmission of optimal and exogenous changes in fiscal policy to the economy. We built-up a dynamic stochastic general equilibrium model with patient and impatient agents, banks and a government to find that banks and their associated capital-adequacy constraint mitigate the negative spill-over
e§ects to the economy from higher taxes. Specifically, we confirm that labour income tax is the most distortionary fiscal instrument. The optimal choice of a housing tax is the most favorable funding source to a temporary increase in public spending. The combination of housing and labour taxes is the most preferred tax bundle to be optimally chosen under negative output shocks. Moreover, a permanent increase in housing tax is beneficial if it is welfare enhancing and the existence of
banks benefits mainly impatient households under permanently higher consumption taxes. Finally, these results remain robust to various robustness checks.
History
School
- Business and Economics
Department
- Business
Published in
Journal of Financial StabilityVolume
40Pages
94-109Citation
ASIMAKOPOULOS, P.N. and Asimakopoulos, S., 2017. Fiscal policy with banks and financial frictions. Journal of Financial Stability, 40, pp.94-109.Publisher
© ElsevierVersion
- AM (Accepted Manuscript)
Publisher statement
This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/Acceptance date
2017-10-26Publication date
2017-11-04Notes
This paper was accepted for publication in the journal Journal of Financial Stability and the definitive published version is available at https://doi.org/10.1016/j.jfs.2017.10.010.ISSN
1572-3089Publisher version
Language
- en