Distorted prices and targeted taxes in the New Keynesian Network model
Year: 2026
Type: article
Abstract: When confronted with sectoral shocks, policymakers often resort to targeted, sector-specific taxes in an ad hoc fashion. Based on the New Keynesian Network model, we characterize the optimal tax response to sectoral shocks: it features twice as many tax instruments as there are sectors, is budget-neutral, and not confined to the sector where the shock originates. We show that the optimal policy can be approximated by a simple rule that responds to inflation in the shocked sector and adjusts tax instruments in other sectors according to input-output linkages. We study its quantitative performance in a calibrated version of the model.
Source: Journal of Monetary Economics
Authors: Anastasiia Antonova, Gernot J. Müller
Language: English
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $4,660
OpenAlex ID: W7126100215