Time-Consistent Fiscal Policy and Heterogeneous Agents
AbstractThis paper characterizes the time-consistency properties of the set of Pareto efficient (or second best) fiscal policies, in a two-class, stochastic economy similar to that in Judd (1985). The key finding is that the continuation of any Pareto efficient policy is always Pareto efficient. Hence, to require any policy revision to be approved by unanimity safeguards the time consistency of efficient fiscal policy. I also show that any Pareto efficient policy from a timeless perspective can be rendered time consistent by a policymaker whose objective function is given by a utilitarian social welfare function with precise welfare weights. These results link the policymaker's equity considerations with the credibility of efficient fiscal policy. (Copyright: Elsevier)
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Bibliographic InfoArticle provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 10 (2007)
Issue (Month): 1 (January)
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Other versions of this item:
- Roc Armenter, 2005. "Time Consistent Fiscal Policy and Heterogeneous Agents," 2005 Meeting Papers 127, Society for Economic Dynamics.
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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- Acemoglu, Daron & Golosov, Mikhail & Tsyvinski, Aleh, 2011.
"Political economy of Ramsey taxation,"
Journal of Public Economics,
Elsevier, vol. 95(7), pages 467-475.
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- Daron Acemoglu & Mikhail Golosov & Aleh Tsyvinski, 2009. "Political Economy of Ramsey Taxation," NBER Working Papers 15302, National Bureau of Economic Research, Inc.
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