What's the inverse result ? Welfare gains from mechanically reducing inflation by reducing consumption taxes? (!!)
You may know I advocated for cutting petrol tax in response to the oil price shock. My view is stable inflation expectations are pretty valuable and we should be willing to endure a fiscal cost to protect them.
I am also unconvinced/unsure that we can make the argument this counts as "adding" to aggregate demand. It feels to me much more like reducing *some of* the fall in AD from higher import prices, while also loosening the supply side. Those lower-than-they-would-be petrol prices flow through as lower than-they-would-be costs to other businesses. (lower-than-it-would-be price level by shifting AS).
Be very interested to hear if your model admonishes me or endorses!
Yes, beyond the scope of this post but broadly speaking it's optimal to adjust consumption taxes to offset temporary marginal costs - if you can measure them in a reasonable fashion and increases taxes when they dissipate.
What's the inverse result ? Welfare gains from mechanically reducing inflation by reducing consumption taxes? (!!)
You may know I advocated for cutting petrol tax in response to the oil price shock. My view is stable inflation expectations are pretty valuable and we should be willing to endure a fiscal cost to protect them.
I am also unconvinced/unsure that we can make the argument this counts as "adding" to aggregate demand. It feels to me much more like reducing *some of* the fall in AD from higher import prices, while also loosening the supply side. Those lower-than-they-would-be petrol prices flow through as lower than-they-would-be costs to other businesses. (lower-than-it-would-be price level by shifting AS).
Be very interested to hear if your model admonishes me or endorses!
Yes, beyond the scope of this post but broadly speaking it's optimal to adjust consumption taxes to offset temporary marginal costs - if you can measure them in a reasonable fashion and increases taxes when they dissipate.
Trick I suppose is knowing when the costs are temporary...