Yue Wang

Rule-Based Fiscal Stabilization with Consumption Taxes

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Can consumption-tax rules substitute for interest-rate policy when nominal rates are fixed? I study this question in a two-agent New Keynesian model with savers and hand-to-mouth households. A rule that adjusts both consumption and labor taxes can replicate the output and inflation paths generated by a Taylor rule: the consumption tax reproduces the intertemporal wedge, while the labor tax neutralizes the induced marginal-cost distortion. When the instrument set is restricted to the consumption tax, this equivalence breaks down. The same tax wedge then affects both aggregate demand and marginal cost, changing determinacy conditions and forcing a trade-off between inflation and output stabilization. Quantitatively, the limited rule can match inflation closely but generates different output, debt, and redistribution dynamics. With capital accumulation, the consumption-tax rule remains a useful but partial substitute without additional instruments reproducing the dynamics from the capital Euler equation.

Private Cross-Border Portfolios and Public Fiscal Risk Sharing in a Currency Union with Nominal Rigidities

This paper studies how private cross-border portfolios and public fiscal instruments interact as risk-sharing mechanisms in a currency union with nominal rigidities. I develop a two-country New Keynesian model with tradable and non-tradable goods, sticky non-tradable prices, endogenous international portfolios, and fiscal instruments. Households trade CPI-linked bonds and claims to non-tradable profits, making internal CPI differentials and relative marginal-cost risk the key hedging objects. The analysis derives a private-spanning benchmark and shows how domestic fiscal capacity changes relative-price dynamics and portfolio demand. Union-wide transfers matter for first-order allocations only when private markets fail to span relevant risks or domestic stabilization is incomplete.