@article{55b76c78ca714c32b5d8b98b2a8b9b6b,
title = "Real transfers and the Friedman rule",
abstract = "We find that the Friedman rule is not optimal with real government transfers and distortionary taxation. As transfers cannot be taxed, a positive nominal net interest rate is the indirect way to tax the additional income derived from transfers. This result holds for heterogeneous agents, standard homogeneous preferences, and constant returns to scale production functions. The presence of real transfers changes the standard optimal taxation result of uniform taxation. Higher transfers imply higher optimal inflation rates. We calibrate a model with transfers to the US economy and obtain optimal values for inflation substantially above the Friedman rule.",
keywords = "Fiscal policy, Friedman rule, Inflation, Monetary policy, Taxes, Transfers",
author = "Bernardino Ad{\~a}o and Silva, {Andr{\'e} C.}",
note = "Funding Information: The views in this paper are those of the authors and do not necessarily reflect the views of the Banco de Portugal. Silva thanks the hospitality of the Banco de Portugal, where he wrote part of this paper, and acknowledges financial support from Banco de Portugal, FCT, NOVA FORUM, and Nova SBE Research Unit. We acknowledge financial support from ADEMU. This work was funded by FCT Funda{\c c}{\~a}o para a Ci{\^e}ncia e Tecnologia (FCT PTDC/IIM-ECO/4825/2012, UID/ECO/00124/2013 and Social Sciences Data Lab, Project 22209), by POR Lisboa (LISBOA-01-0145-FEDER-007722 and Social Sciences Data Lab, Project 22209) and POR Norte (Social Sciences Data Lab, Project 22209). Funding Information: We are grateful for the comments and suggestions of Tiago Cavalcanti and two anonymous referees. We are also grateful for the discussions and suggestions of Carlos da Costa, Juan Pablo Nicolini and Pedro Teles. Publisher Copyright: {\textcopyright} 2018, Springer-Verlag GmbH Germany, part of Springer Nature.",
year = "2019",
month = feb,
day = "8",
doi = "10.1007/s00199-018-1105-0",
language = "English",
volume = "67",
pages = "155--177",
journal = "Economic Theory",
issn = "0938-2259",
publisher = "Springer New York",
number = "1",
}
