{"title":"The Macroeconomic Effects of Tax Shocks: The Cost Channel","authors":"He Nie","doi":"10.2139/ssrn.3905695","DOIUrl":null,"url":null,"abstract":"I develop a simple analytical New Keynesian model with a cost channel to gain new insights into the general properties of tax shocks. In this paper, I formally show that the cost channel itself can rule out the sunspot liquidity traps and secure a unique equilibrium with tax shocks. I also contribute to the tax-related literature that the absolute magnitudes of output gap and inflation multipliers due to a cost channel with/without the zero lower bound binding are heterogeneous compared with the standard model and the multipliers can be reproduced with a wide range of estimates. Finally, the multipliers are robust with the medium run tax cut policy except the consumption tax.","PeriodicalId":330048,"journal":{"name":"Macroeconomics: Aggregative Models eJournal","volume":"56 1","pages":"0"},"PeriodicalIF":0.0000,"publicationDate":"2021-08-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"1","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Macroeconomics: Aggregative Models eJournal","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.3905695","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 1
Abstract
I develop a simple analytical New Keynesian model with a cost channel to gain new insights into the general properties of tax shocks. In this paper, I formally show that the cost channel itself can rule out the sunspot liquidity traps and secure a unique equilibrium with tax shocks. I also contribute to the tax-related literature that the absolute magnitudes of output gap and inflation multipliers due to a cost channel with/without the zero lower bound binding are heterogeneous compared with the standard model and the multipliers can be reproduced with a wide range of estimates. Finally, the multipliers are robust with the medium run tax cut policy except the consumption tax.