Yvan Becard

Thematic seminars
Macro and labor market seminar

Yvan Becard

PUC-Rio
Consumption tax cuts vs stimulus payments
Joint with
Mehdi Bartal
Venue

IBD Salle 21

Îlot Bernard du Bois - Salle 21

AMU - AMSE
5-9 boulevard Maurice Bourdet
13001 Marseille

Date(s)
Tuesday, May 2 2023| 12:30pm to 1:30pm
Contact(s)

Frédéric Deroïan: frederic.deroian[at]univ-amu.fr

Abstract

Recent work shows that across a broad range of macroeconomic models with non-Ricardian consumer behavior, uniform transfer payments are macro-equivalent to interest rate cuts (Wolf, 2022). That is, policymakers can use stimulus payments to substitute for conventional monetary policy when, say, the zero lower bound on nominal interest rates binds. We argue that in the same class of models, temporarily reducing consumption taxes provides more stimulus than transfers — at the same cost to the taxpayer. Simulating these policies in a quantitative New Keynesian model with heterogeneous households, we find that aggregate output expands at least twice as much. This suggests that when governments are unable to manipulate interest rates, they should consider cutting existing taxes rather than sending checks to people.

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