Consumption Taxes and Redistribution

It is relatively well known that the introduction of consumption taxation as an alternative in the tax code, and as the main source of government revenues, leads to a more efficient tax system. However the conventional wisdom is that the change from the actual tax code, based on taxation of capital and labor income to this consumption based system, has undesirable distributional consequences. In this work a very simple method is developed to argue that the converse is the most reasonable outcome from that fundamental tax reform. The main difference in relation to the literature comes from the assumed source of household heterogeneity. Additionally it is shown that the inclusion of a tax on consumption allows for redistributive policies with no costs in terms of efficiency.

The optimal inflation tax

We determine the second best rule for the inflation tax in monetary general equilibrium models where money is dominated in rate of return. The results in the literature are ambiguous and inconsistent across different monetary environments. We compare the derived optimal inflation tax solutions across the different environments and find that Friedman's policy recommendation of a zero nominal interest rate is the right one.Inflation (Finance) ; Taxation

Nutrition and the gastrointestinal tract

In this year’s issue, we again have a high-calibre collection of topical reviews. Gracie and Ford commence with an assessment of the role of symbiotics (i.e. probiotics and prebiotics given together) in patients with irritable bowel syndrome. They first review the many randomized trials of probiotics and the significant and persistent reductions in symptoms that (on balance) these yield – that may persist after the end of treatment. Pain, bloating and flatulence are all better than with placebo with a range of different regimens. However, although symbiotics appear promising, their current conclusion is that the evidence for superiority over probiotics alone is lacking. Jin and Vos then consider the pathophysiology of nonalcoholic fatty liver disease and specifically the role of fructose. Their synthesis of the literature includes the conclusion that unregulated lipogenesis is key to nonalcoholic fatty liver disease, linked to generalized increases in visceral adiposity – in turn probably secondary to changes in the intestinal microbiota. Dietary fructose seems an important determinant of these phenomena, and early-in-life exposure appears of most significance. Although dogmatic advice is not justified, continuing to argue for limitation of dietary fructose seems wise. Barrett et al. consider the immune response in patients on artificial nutrition in the current context wherein we aim for enteral nutrition whenever possible – thus recognizing that patients who need parenteral nutrition are then an especially high-risk group. They conclude from AQ3 a wide consideration of animal and human data that the intestinal epithelial barrier is significantly compromised and to a clinically relevant extent in patients on exclusive parenteral nutrition. They encourage targeted new work to exploit the mechanisms that have now been unearthed, such that future parenteral nutrition could be used with fewer adverse immunological consequences. Plank and Russell look at nutrition in liver transplantation incorporating new data from patients with concomitantmorbid obesity. It is of course clear that obesity is a perioperative risk factor but we lack proof that pretransplant weight loss would change this. The main issue here is probably the sarcopenic element, and weight loss without muscle preservation (or growth) would be unlikely to help. As obese patients are AQ4 being transplanted, better data are clearly needed to guide optimal nutritional strategies. After a comprehensive review on the state of the art on gluten sensitivity in the absence of coeliac disease by David Sanders, the issue finishes with a intriguing article by Murphy et al. in which they consider the evidence that chronic disease is made more likely by changes in the gut microbiota driven by a high-fat diet. Although dysbiosis is present and linked to obesity, on present evidence, this falls short of a direct causal relationship. We feel confident that readers will find plenty to provoke thought and hopefully to stimulate research in the many loci where data are sparse or inconclusive

Monetary policy with single instrument feedback rules

We consider a standard cash in advance monetary model with flexible prices or prices set in advance and show that there are interest rate or money supply rules such that equilibria are unique. The existence of these single instrument rules depends on whether the economy has an infinite horizon or an arbitrarily large but finite horizon.Monetary policy ; Prices

Short and long interest rate targets

We show that short and long nominal interest rates are independent monetary policy instruments. The pegging of both helps solving the problem of multiplicity that arises when only short rates are used as the instrument of policy. A peg of the nominal returns on assets of different maturities is equivalent to a peg of state-contingent interest rates. These are the rates that should be targeted in order to implement unique equilibria. At the zero bound, while it is still possible to target state-contingent interest rates, that is no longer equivalent to the target of the term structure.