• DOI:10.1111/J.1465-7295.1987.TB00764.X
• Corpus ID: 150484574

Rules and Discretion with Non-coordinated Monetary and Fiscal Policy

@article{Alesina1987RulesAD,
  title={Rules and Discretion with Non-coordinated Monetary and Fiscal Policy},
  author={Alberto F. Alesina and Guido Tabellini},
  journal={Economic Inquiry},
  year={1987},
  volume={25}
}

• A. Alesina, G. Tabellini
• Published 1 October 1987
• Economics
• 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 improving if monetary and fiscal policy are no t coordinated. They also examine the effects of different degrees of independence of the central bank. Copyright 1987 by Oxford University Press.