Optimal Monetary Policy and Interest Income Taxation
Código: WPE – 118
This paper studies optimal discretionary monetary policy when the basic new Keynesian model is extended to incorporate interest income taxation. The elasticities of inflation and the output gap to supply and demand shocks are increasing functions of the tax rate. Moreover, nu- merical simulations show that high levels of taxation increase inflation volatility, the output gap volatility and the unconditional expectation of the central bank’s loss function.