Tax Rules and the Mismanagement of Monetary Policy

15 Pages Posted: 5 Jul 2004 Last revised: 29 Aug 2010

See all articles by Martin S. Feldstein

Martin S. Feldstein

National Bureau of Economic Research (NBER) (deceased); Harvard University (deceased)

Date Written: 1980

Abstract

This paper emphasizes the importance of the interaction between tax rules and the management of monetary policy. The monetary authorities' failure to recognize the implications of the tax structure has caused them to underestimate just how expansionary monetary policy has been. Moreover, because of our fiscal structure, attempts to encourage investment by an easy-money policy have actually had an adverse impact on investment in plant and equipment. The paper discusses the desirability of substituting a policy of tight-money and positive fiscal incentives for the traditional goals of easy money and fiscal restraint. More generally, the paper stresses the significance of the fiscal structure as a determinant of macroeconomic equilibrium.

Suggested Citation

Feldstein, Martin S., Tax Rules and the Mismanagement of Monetary Policy (1980). NBER Working Paper No. w0422, Available at SSRN: https://ssrn.com/abstract=262048

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