Myohl, Christian (August 2018). Optimal Fiscal Policy and Private Sector Borrowing Constraints (Discussion Papers 18-22). Bern: Department of Economics
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When the transmission channel between savers and borrowing firms is disturbed, firms may find themselves borrowing-constrained. I study the optimal fiscal policy response to a tightening borrowing constraint in a simple two-period model. I find that it is not optimal to subsidize firms, although this would relax the constraint and help firms directly. Instead, the optimal response exploits the distortion caused by the borrowing constraint and reduces existing tax distortions. This result is robust to when endogenous government spending and investment are part of the government’s set of instruments.
Item Type: |
Working Paper |
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Division/Institute: |
03 Faculty of Business, Economics and Social Sciences > Department of Economics |
UniBE Contributor: |
Myohl, Christian |
Subjects: |
300 Social sciences, sociology & anthropology > 330 Economics |
Series: |
Discussion Papers |
Publisher: |
Department of Economics |
Language: |
English |
Submitter: |
Lars Tschannen |
Date Deposited: |
03 Sep 2020 08:29 |
Last Modified: |
05 Dec 2022 15:40 |
JEL Classification: |
E62, H21 |
BORIS DOI: |
10.7892/boris.145876 |
URI: |
https://boris.unibe.ch/id/eprint/145876 |
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