Optimal fiscal rules stabilize economy, boost output and curb inflation.
The article discusses how fiscal policy can help stabilize the economy in a monetary union. By analyzing taxes and government spending, the researchers found that simple public-expenditure rules are most effective for stabilizing output and inflation. Implementing these rules quickly is crucial for stabilizing output, while inflation is less affected by delays. Rules focusing on output require less adjustment than those focusing on inflation. Using both spending and taxation rules together doesn't provide much extra stabilization.