Fiscal policy under loose commitment
AbstractDue to time-inconsistency or political turnover, policymakers' promises are not always fulfilled. We analyze an optimal fiscal policy problem where the plans made by the benevolent government are periodically revised. In this loose commitment setting, the properties of labor and capital income taxes are significantly different than under the full-commitment and no-commitment assumptions. Because of the occasional reoptimizations, the average capital income tax is positive even in the long-run. Also, the autocorrelation of taxes is lower, their volatility with respect to output increases and the correlation between capital income taxes and output changes sign. Our method can be used to analyze the plausibility and the importance of commitment in a wide-class of dynamic problems.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Theory.
Volume (Year): 145 (2010)
Issue (Month): 3 (May)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622869
Commitment No-commitment Fiscal policy;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Bodenstein, Martin & Hebden, James & Nunes, Ricardo, 2012. "Imperfect credibility and the zero lower bound," Journal of Monetary Economics, Elsevier, vol. 59(2), pages 135-149.
- Yuting Bai & Tatiana Kirsanova, 2013. "Infrequent Fiscal Stabilization," Working Papers 2013_01, Business School - Economics, University of Glasgow.
- Marina Azzimonti, 2012.
"The dynamics of public investment under persistent electoral advantag,"
2012 Meeting Papers
91, Society for Economic Dynamics.
- Marina Azzimonti, 2011. "The dynamics of public investment under persistent electoral advantage," Working Papers 11-23, Federal Reserve Bank of Philadelphia.
- Davide Debortoli & Ricardo Nunes, 2011. "Monetary regime switches and unstable objectives," International Finance Discussion Papers 1036, Board of Governors of the Federal Reserve System (U.S.).
- Ruediger Bachmann & Jinhui Bai, 2013.
"Politico-Economic Inequality and the Comovement of Government Purchases,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 565-580, October.
- Ruediger Bachmann & Jinhui Bai, 2012. "Online Appendix to "Politico-Economic Inequality and the Comovement of Government Purchases"," Technical Appendices 11-243, Review of Economic Dynamics.
- Ruediger Bachmann & Jinhui Bai, 2012. "Code and data files for "Politico-Economic Inequality and the Comovement of Government Purchases"," Computer Codes 11-243, Review of Economic Dynamics.
- Himmels, Christoph & Kirsanova, Tatiana, 2011.
"Expectations Traps and Monetary Policy with Limited Commitment,"
29208, University Library of Munich, Germany.
- Christoph Himmels & Tatiana Kirsanova, 2011. "Expectations Traps and Monetary Policy with Limited Commitment," Discussion Papers 1102, Exeter University, Department of Economics.
- Christoph Himmels & Tatiana Kirsanova, 2012.
"Escaping Expectation Traps: How Much Commitment is Required?,"
The School of Economics Discussion Paper Series
1220, Economics, The University of Manchester.
- Himmels, Christoph & Kirsanova, Tatiana, 2013. "Escaping expectation traps: How much commitment is required?," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 649-665.
- Christoph Himmels & Tatiana Kirsanova, 2012. "Escaping Expectation Traps: How Much Commitment is Required?," Working Papers 2012_18, Business School - Economics, University of Glasgow.
- Ruediger Bachmann & Jinhui Bai, 2011.
"Public Consumption Over the Business Cycle,"
NBER Working Papers
17230, National Bureau of Economic Research, Inc.
- Campbell Leith & Simon Wren-Lewis, 2012. "Fiscal Sustainability in a New Keynesian Model - Additional Appendix," Working Papers 2012_13, Business School - Economics, University of Glasgow.
- Dennis, Richard, 2010. "When is discretion superior to timeless perspective policymaking?," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 266-277, April.
- Chen, Xiaoshan & Kirsanova, Tatiana & Leith, Campbell, 2013.
"How Optimal is US Monetary Policy?,"
Stirling Economics Discussion Papers
2013-05, University of Stirling, Division of Economics.
- Demirel, Ufuk Devrim, 2012. "The value of monetary policy commitment under imperfect fiscal credibility," Journal of Economic Dynamics and Control, Elsevier, vol. 36(6), pages 813-829.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.