We study interactions between monetary policy, which sets nominal interest rates, and …scal policy, which levies distortionary income taxes to …nance public goods, in a standard, stickyprice economy with monopolistic competition. Policymakers’inability to commit in advance to future policies gives rise to excessive in‡ation and excessive public spending, resulting in welfare losses equivalent t...

Why do distortionary policies persist when Pareto improvements are seemingly available? According to a standard textbook argument, an efficient outcome can be obtained by eliminating the distortions, compensating the losers with a lump-sum transfer, and redistributing the gains that are left over. This paper shows that this argument hinges on the assumption of complete information about the los...

In the absence of government commitment, the conduct of fiscal and monetary policy depends on the sign of inherited net nominal government obligations. When these obligations are negative, monetary policy is non-distortionary and fiscal policy distortions are smoothed over time, either forever or for a finite number of periods, depending on the initial state. For positive net nominal government...

Optimal Income Taxation of Married Couples: An Empirical Analysis of Joint and Individual Taxation In this paper we develop a discrete model of optimal taxation of married couples and empirically discuss the optimality of income taxation for this group. To this end, we derive the social welfare function which guarantees that joint taxation of married couples is optimal. We will contrast this we...

In the last decades all over the world pension policy reforms have tried to account for the changing demographic and socio-economic framework. An excellent starting point for economic analyses of reform strategies is the Mirrlees Review which argues that pension policy should simultaneously address pension benefit design and the taxation of pensions. We focus on old-age pension taxation and add...