Taylor principle and inflation stability in emerging market countriesw

The goal of this paper is to evaluate the validity of the Taylor principle for inflation control in 12 developing countries that use inflation targeting regimes: Brazil, Chile, Colombia, Hungary, Israel, Mexico, Peru, Philippines, Poland, South Africa, Thailand and Turkey. The test is based on a state-space model to determine when each country has followed the principle; then a threshold unit root test is used to verify if the stationarity of the deviation of the expected inflation from its target depends on compliance with the Taylor principle. The results show that such compliance leads to the stationarity of the deviation of the expected inflation from its target in all cases. Furthermore, in most cases, non-compliance with the Taylor principle leads to nonstationary deviation of the expected inflation.

Taxation of couples: a mirrleesian approach for non-unitary households

Optimal tax theory in the Mirrlees’ (1971) tradition implicitly relies on the assumption that all agents are single or that couples may be treated as individuals, despite accumulating evidence against this view of household behavior. We consider an economy where agents may either be single or married, in which case choices result from Nash bargaining between spouses. In such an environment, tax schedules must play the double role of: i) defining households’ objective functions through their impact on threat points, and; ii) inducing the desired allocations as optimal choices for households given these objectives. We find that the taxation principle, which asserts that there is no loss in relying on tax schedules is not valid here: there are constrained efficient allocations which cannot be implemented via taxes. More sophisticated mechanisms expand the set of implementable allocations by: i) aligning the households’ and planner’s objectives; ii) manipulating taxable income elasticities, and; iii) freeing the design of singles’ tax schedules from its consequences on households’ objectives.