On the Role of Tax Subsidy Scheme in Money Search Models

32 Pages Posted: 11 Apr 2007

See all articles by Kazuya Kamiya

Kazuya Kamiya

University of Tokyo - Faculty of Economics

Takashi Shimizu

Kansai University - Faculty of Economics

Abstract

This article investigates the roles of policy in search models with divisible money. Recently, real indeterminacy of stationary equilibria has been found in both specific and general search models with divisible money. Thus if we assume the divisibility of money, it would be quite difficult to make accurate predictions of the effects of simple monetary policies. Therefore, in this article, we introduce a certain tax subsidy scheme and show that this is effective in selecting a determinate efficient equilibrium. In other words, for a given efficient equilibrium and for any real number 6>0, a certain tax subsidy scheme induces a locally determinate equilibrium within the d-neighborhood of the given equilibrium. Moreover, the size of the tax subsidy can be arbitrarily small.

Suggested Citation

Kamiya, Kazuya and Shimizu, Takashi, On the Role of Tax Subsidy Scheme in Money Search Models. International Economic Review, Vol. 48, No. 2, pp. 575-606, May 2007, Available at SSRN: https://ssrn.com/abstract=979637 or http://dx.doi.org/10.1111/j.1468-2354.2007.00438.x

Kazuya Kamiya (Contact Author)

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

Takashi Shimizu

Kansai University - Faculty of Economics ( email )

3-3-35 Yamatecho
Suita, Osaka, 564-8680
Japan

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