High tax rates and the over-reliance on taxes are a disincentive on the willingness to invest and to work. Moreover, high tax rates encourage the shift of activities towards the shadow economy and provide incentives for tax evasion. Tackling the problem of non-performing exposures (NPEs) which constrains the banking system’s ability to finance economic growth.
But, again, the yield curve, like the interest rate futures strip, reflects not only expectations of the path of short-term interest rates, but also liquidity and term premium factors Thus, to extract signal about policy from noise in the yield curve, a term structure model is required.