Summary:
The period of low demand and low interest rates during the Great Recession has prompted economists to consider new policies to stabilise the business cycle. The ‘zero lower bound’ on nominal interest rates prevented the use of interest rate reductions to stimulate consumption and investment in many developed economies. Researchers have proposed an alternative policy tool, ‘unconventional’ fiscal policy. This is a commitment to raise consumption taxes in the future (Feldstein 2002, Hall 2011, Correia et al. 2013). Anticipation of higher consumption taxes can incentivise intertemporal substitution in the same way as traditional monetary policy, by raising the price of future consumption relative to current consumption. Households expecting higher future taxes move consumption to the
Topics:
Mike Norman considers the following as important: business cycle, expectations, tax policy
This could be interesting, too:
The period of low demand and low interest rates during the Great Recession has prompted economists to consider new policies to stabilise the business cycle. The ‘zero lower bound’ on nominal interest rates prevented the use of interest rate reductions to stimulate consumption and investment in many developed economies. Researchers have proposed an alternative policy tool, ‘unconventional’ fiscal policy. This is a commitment to raise consumption taxes in the future (Feldstein 2002, Hall 2011, Correia et al. 2013). Anticipation of higher consumption taxes can incentivise intertemporal substitution in the same way as traditional monetary policy, by raising the price of future consumption relative to current consumption. Households expecting higher future taxes move consumption to the
Topics:
Mike Norman considers the following as important: business cycle, expectations, tax policy
This could be interesting, too:
Mike Norman writes Tax Justice and Modern Monetary Theory – A Guide — Yves Smith
Mike Norman writes Modern Monetary Theory and the Changing Role of Tax in Society — Richard Murphy
Mike Norman writes Is Falling Investment Spending The Last Nail In The Coffin? — John T. Harvey
Mike Norman writes End Of Recessions? — Brian Romanchuk
The period of low demand and low interest rates during the Great Recession has prompted economists to consider new policies to stabilise the business cycle. The ‘zero lower bound’ on nominal interest rates prevented the use of interest rate reductions to stimulate consumption and investment in many developed economies. Researchers have proposed an alternative policy tool, ‘unconventional’ fiscal policy. This is a commitment to raise consumption taxes in the future (Feldstein 2002, Hall 2011, Correia et al. 2013).
Anticipation of higher consumption taxes can incentivise intertemporal substitution in the same way as traditional monetary policy, by raising the price of future consumption relative to current consumption. Households expecting higher future taxes move consumption to the present, increasing current demand.
But unconventional fiscal policy may not be effective in practice:...vox.eu
The interaction of household finances and unconventional fiscal policy
Scott Baker, Lorenz Kueng, Leslie McGranahan, Brian T. Melzer