Governments Can Manipulate Prices by Adjusting Taxes, Impacting Household Wealth
This paper explores how changes in taxes can impact the price level in different economic models. They discuss how tax changes can affect the value of government debts by influencing the price level. Depending on how taxes are set and how monetary and fiscal policies interact, tax increases can sometimes lead to either higher or lower prices. The researchers also discovered that when taxes create distortions, there are two Laffer curves, which show the relationship between tax rates and government revenue. This means that tweaking taxes can have varied effects on prices, with factors like substitution, wealth, and revaluation coming into play.