TY  - UNPD
A1  - Koulovatianos, Christos
A1  - Mavridis, Dimitris
T1  - Increasing taxes after a financial crisis : not a bad idea after all...
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 614
N2  - Based on OECD evidence, equity/housing-price busts and credit crunches are followed by substantial increases in public consumption. These increases in unproductive public spending lead to increases in distortionary marginal taxes, a policy in sharp contrast with presumably optimal Keynesian fiscal stimulus after a crisis. Here we claim that this seemingly adverse policy selection is optimal under rational learning about the frequency of rare capital-value busts. Bayesian updating after a bust implies massive belief jumps toward pessimism, with investors and policymakers believing that busts will be arriving more frequently in the future. Lowering taxes would be as if trying to kick a sick horse in order to stand up and run, since pessimistic markets would be unwilling to invest enough under any temporarily generous tax regime.
T3  - CFS working paper series - 614 
KW  - Bayesian learning
KW  - controlled diffusions and jump processes
KW  - learning about jumps
KW  - Gamma distribution
KW  - rational learning
Y1  - 2018
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/48045
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-480455
UR  - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3289947
IS  - October 28, 2018
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -