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Learning by Doing and Optimal Fiscal and Monetary PolicyTalukdar, Bidyut 08 1900 (has links)
<p> This thesis studies a number of issues in optimal fiscal and monetary policy using
the Ramsey framework. Specifically, it focuses on the effects of learning-by-doing
and organizational capital on optimal policy responses. The first essay investigates
the optimal capital income taxation in presence of learning-by-doing effects. The
main result is that the optimal tax rate on capital income is significantly positive
in the long run even though the product market is imperfectly competitive. This
finding contrasts with results obtained in the literature that the capital income tax
should be zero if the product market is perfectly competitive and negative if the
product market is imperfectly competitive. The second essay studies the effects of
learning-by-doing, and price rigidities on the dynamic properties of optimal fiscal
and monetary policy variables. The m~in result is that, contrary to the findings of
other papers in this literature, optimal Ramsey inflation is very stable and persistent
over the business cycle. A second important result is that optimal tax policy
is counter-cyclical - tax rates fall during recession and rise during boom. This finding
contrasts with pro-cyclical tax results obtained in standard sticky price Ramsey
models. Finally, the third essay studies welfare maximizing fiscal and monetary
policy rules in a model with sticky prices, learning-by-doing in the technology, and
distortionary taxation. Specifically, it considers monetary feedback rules whereby the nominal interest rate is set as a function of 'output and inflation. The main
finding is that the optimal interest-rate rules call for a very strong response to inflation
and a very weak response to output. Also, the optimal interest-rate rules are
forward looking. This result contrasts with the backward looking optimal interest
rate rules obtained in the existing optimal policy literature. The optimized fiscal
rule is passive in the sense that tax revenues increase only mildly in response to
increases in government liabilities. The optimized regime yields a level of welfare
that is very close to that implied by the Ramsey optimal policy. </p> / Thesis / Doctor of Philosophy (PhD)
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