Working Paper: NBER ID: w0422
Authors: Martin Feldstein
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.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary policy (expansionary) (E52) | Investment behavior (adverse impact on plant and equipment investment) (G31) |
| Tax deductibility of interest (H20) | Lower net-of-tax cost of funds (G19) |
| Lower net-of-tax cost of funds (G19) | Increased demand for housing and consumer durables (R22) |