AbstractWe propose a definition of time consistent policy for infinite horizon economies with competitive private agents. Allocations and policies are defined as functions of the history of past policies. A sustainable equilibrium is a sequence of history-contingent policies and allocations that satisfy certain sequential rationality conditions for the government and for private agents. We provide a complete characterization of the sustainable equilibrium outcomes for a variant of Fischer’s (1980) model of capital taxation. We also relate our work to recent developments in the theory of repeated games.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 122.
Date of creation: 1989
Date of revision:
Publication status: Published in Journal of Political Economy (Vol.98, n.4, August 1990, pp. 783-802) ; Persson, Thorsten, Tabellini, Guido, eds. Monetary and Fiscal Policy. Vol. 1. Credibility. Cambridge : MIT Press, 1994. pp. 143-163.
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