Premium
ON THE ROLE OF TAX SUBSIDY SCHEME IN MONEY SEARCH MODELS *
Author(s) -
Kamiya Kazuya,
Shimizu Takashi
Publication year - 2007
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2007.00438.x
Subject(s) - subsidy , economics , indeterminacy (philosophy) , divisibility rule , mathematical economics , microeconomics , simple (philosophy) , scheme (mathematics) , econometrics , mathematics , market economy , mathematical analysis , philosophy , physics , epistemology , discrete mathematics , quantum mechanics
This article investigates the roles of policy in search models with divisible money. Recently, real indeterminacy of stationary equilibria has been found in both specific and general search models with divisible money. Thus if we assume the divisibility of money, it would be quite difficult to make accurate predictions of the effects of simple monetary policies. Therefore, in this article, we introduce a certain tax subsidy scheme and show that this is effective in selecting a determinate efficient equilibrium. In other words, for a given efficient equilibrium and for any real number δ > 0 , a certain tax subsidy scheme induces a locally determinate equilibrium within the δ‐neighborhood of the given equilibrium. Moreover, the size of the tax subsidy can be arbitrarily small.