In the present paper general stationary overlapping generations economies with many commodities in every period and many different consumers in every generation are considered. A government maximizes an utilitarian social welfare function, that is the sum of weighted averages of utilities for generations, through fiscal policy, i.e. monetary transfers and taxes. Both situations with and without time discounting are considered. It is shown that if the discount factor is sufficiently close to one then the optimal policy stabilizes the economy, i.e. the equilibrium path has the turnpike property. Moreover the fiscal policy is shown to be time-consistent.
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
99-23.
Length: 25 pages Date of creation: Oct 1999 Date of revision: Handle: RePEc:kud:kuiedp:9923
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Ghiglino, Christian & Tvede, Mich, 1998.
"Optimal policy in OG models,"
Working Papers
08-1998, Copenhagen Business School, Department of Economics.
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Find related papers by JEL classification: D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
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