Rules and Discretion with Non-coordinated Monetary and Fiscal Policy

  title={Rules and Discretion with Non-coordinated Monetary and Fiscal Policy},
  author={Alberto F. Alesina and Guido Tabellini},
  journal={Economic Inquiry},
The time inconsistency of optimal monetary policy is due to the effects of tax distortions. Thus, the issue of how to im prove upon the time-consistent suboptimal monetary policy is related to that of the coordination of monetary and fiscal policy. The author s present a model with three players (the central bank, the fiscal au thority, and wage setters) in which distortionary taxes are explicitl y modeled. They show that binding commitments to monetary rules are n ot necessarily welfare… 

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