Time-Consistent Fiscal Policy and Heterogeneous Agents
This 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)
Volume (Year): 10 (2007)
Issue (Month): 1 (January)
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/review.htmEmail:
More information through EDIRC
|Order Information:|| Web: http://www.EconomicDynamics.org/RED17.htm Email: |
When requesting a correction, please mention this item's handle: RePEc:red:issued:06-38. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.