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2 edition of Optimality of the Friedman rule in economies with distorting taxes found in the catalog.

Optimality of the Friedman rule in economies with distorting taxes

V. V. Chari

Optimality of the Friedman rule in economies with distorting taxes

by V. V. Chari

  • 285 Want to read
  • 34 Currently reading

Published by National Bureau of Economic Research in Cambridge, MA .
Written in English

    Subjects:
  • Friedman, Milton, -- 1912-,
  • Monetary policy -- Mathematical models.

  • Edition Notes

    StatementV.V. Chari, Lawrence J. Christiano, Patrick J. Kehoe.
    SeriesNBER working paper series -- working paper no. 4443, Working paper series (National Bureau of Economic Research) -- working paper no. 4443.
    ContributionsChristiano, Lawrence J., Kehoe, Patrick J., National Bureau of Economic Research.
    The Physical Object
    Pagination27 p. ;
    Number of Pages27
    ID Numbers
    Open LibraryOL22436095M

    In fact, Chari, et al., construct a number of theoretical examples in which this is so. In their examples, the Friedman rule remains optimal even though seignorage revenue must be replaced by distortionary taxes on labor income or consumption. That is, although the replacement taxes are distortionary. He suggested that the nominal interest rate be set to zero in his namesake rule and said that banks should increase the money supply every year in his k-percent rule. He argued that Keynesian economics result in stagflation on his program Free to Choose, and he wrote that inflexible monetary policy during the s caused the market crash in a.

    Friedman rule is not optimal. In our monetary model, however, even though the govemment has distorting taxes, the Friedman rule turns out to be optimal. In our model, deviating from the Friedman rule amounts to taxing a subset of consumption goods, called cash goods, at a higher rate than other consumption goods. Optimality. optimality calls for a positive inflation tax and a non-zero capital income tax when there are restrictions on taxation of production fac-tors or profits/rents. Our cases of nonoptimality of the Friedman rule —which differ from those of Mulligan and Sala-i-Martin () and ex-tend substantially those of Schmitt-Grohè and Uribe (a Cited by: 3.

    the optimality of the Friedman rule in our setup depends critically on money being a free good. Under certain conditions in a Ramsey setting Correia and Teles (, ) have shown that R¯ =0plays a role in evaluating the optimality of the Friedman rule. 4. the closed economy literature, when policy is set non-cooperatively in the open economy, the optimality of the Friedman rule is not a general result. Monetary authorities face an incentive to use the inflation tax to gain a ”beggar-thy-neighbor” advantage over the terms of by: 1.


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Optimality of the Friedman rule in economies with distorting taxes by V. V. Chari Download PDF EPUB FB2

There appears to be a widespread consensus in the literature that in economies with distorting taxes in which money is a final good, the Friedman rule is typically not optimal. Furthermore, if the demand for money is interest-inelastic, liquidity services should be taxed by: NBER Program(s):Economic Fluctuations and Growth Program We find conditions for the Friedman rule to be optimal in three standard models of money.

These conditions are homotheticity and separability assumptions on preferences similar to those in the public finance literature on optimal uniform commodity by: Optimality of the Friedman rule in economies with distorting taxes. Author links open overlay panel We find conditions for the Friedman rule to be optimal in three standard monetary models.

Our main contribution is to shed light on two issues in the literature. Second, there is an ongoing controversy about whether the optimality of the Cited by: "Characterization of the optimal tax on money when it functions as a medium of exchange," Journal of Monetary Economics, Elsevier, vol.

22(1), pagesJuly. Chari & Lawrence J. Christiano & Patrick J. Kehoe. "Optimality of the Friedman rule in economies with distorting taxes," Staff Report, Federal Reserve Bank of Minneapolis. Once a sufficiently rich menu of taxes is available to the fiscal authorities, the Friedman rule, then, may or may not be optimal.

In contrast, in the case of MIP function, the optimal policy is to satiate the economy with real balances, even in the presence of distorting taxes on consumption and capital. That is, the Friedman rule is optimal. The optimality of the Friedman rule when some distorting taxes are exogenous.

De Fiore F., Teles P. () The optimal mix of taxes on money, consumption and income. Diamond P.A., Mirrlees J.A. () Optimal taxation and public production I: production efficiency. The optimum quantity of by: study the optimality of the Friedman rule in a stochastic, flexible-price, production economy without and with capital, where sources of inefficiency in the models stem from the nominal frictions of the demand for cash balances by firms and households and distortionary taxes.

I first study the optimality of the Friedman rule in economies. economies in which governments must raise revenues with distorting taxes, it is optimal to tax all goods, including the liquidity services derived from hold- ing money.

Hence, Phelps argues that there is no theoretical presumption that the Friedman rule is optimal when there are distorting taxes.

Taxation in Walrasian Economy. Optimality of the Friedman Rule in Economies with Distorting Taxes. there is an ongoing controversy about whether the optimality of the Friedman rule is. Second, there is an ongoing controversy about whether the optimality of the Friedman rule is connected to the intermediate goods result from public finance.

We resolve this controversy by showing a deep connection between these by: called the “Friedman rule”. In this paper we lay out the connection of the “fiscal cost” arguments to the Friedman rule and also explain limitations to the results in some papers in the literature that have claimed that the Friedman rule is optimal even when only distorting taxes are available.

Date: August 6, Optimality of the Friedman rule in economies with distorting taxes. Chari, Lawrence J. Christiano, there is an ongoing controversy about whether the optimality of the Friedman rule is connected to the intermediate goods result from public finance.

We resolve this controversy by showing a deep connection between these results Cited by: "Optimality of the Friedman rule in economies with distorting taxes," Staff ReportFederal Reserve Bank of Minneapolis.

Chari & Lawrence J. Christiano & Patrick J. Kehoe, "Optimality of the Friedman Rule in Economies with Distorting Taxes," NBER Working PapersNational Bureau of Economic Research, Inc. BibTeX @MISC{Cunha08theoptimality, author = {Alexandre B.

Cunha and Classificação Jel E}, title = {The optimality of the Friedman rule when some distorting taxes are exogenous". Economic Theory}, year = {}}. The Friedman rule is a monetary policy rule proposed by Milton Friedman.

Essentially, Friedman advocated setting the nominal interest rate at zero. According to the logic of the Friedman rule, the opportunity cost of holding money faced by private agents should equal the social cost of creating additional fiat money. It is assumed that the marginal cost of creating.

Friedman () argued that positive nominal interest rates represent a distortive tax on real money balances.

To reach the flrst-best these distortions should be removed, the nominal interest rate should be set to zero. This prescription, known as the Friedman rule, is a cornerstone in monetary economics.

Optimality of the Friedman Rule in Economies With Distorting Taxes Optimality of the Friedman Rule in Economies With Distorting Taxes Share.

Facebook LinkedIn Twitter. Abstract. We find conditions for the Friedman rule to be optimal in three standard models of money. These conditions are homotheticity and separability assumptions on. Although the model is close to da Costa and Werning ("On the optimality of the Friedman rule with heterogeneous agents and nonlinear income taxation", Journal of Political Economy, (), Enter the password to open this PDF file: Cancel OK.

File name:. When enforcement is imperfect and collecting taxes is costly, the optimal inflation rate is positive and inflation becomes a second-best tax. Deviations from the Friedman rule are optimal and depend on the tax enforcement policies. Optimality of the Friedman rule in economies with distorting taxes Author: V V Chari ; Lawrence J Christiano ; Patrick J Kehoe ; National Bureau of Economic Research.().

Optimality of the Friedman rule in economies with distorting taxes. (). Tax evasion and the optimal inflation tax. (). The optimal inflation tax. (). The optimal mix of taxes on money, consumption and income.

(). The optimum quantity of money. In: The Optimum Quantity of Money and Other Essays. ().Author: Alexandre B. Cunha.However, once the long-run rate of inflation or the rate of money growth exceeds some threshold level, further increases in it actually cause growth to decline.

A model that can be used to evaluate the Friedman rule, and the optimal quantity of money.