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Fiscal Policies in a Stochastic Model with Hyperbolic Discounting

Author

Listed:
  • Liutang Gong

    (Peking University and Wuhan University)

  • Heng-fu Zou

    (Peking University, Wuhan University, and the World Bank)

Abstract

In this paper, we study the effects of fiscal policies on economy in a stochastic model with hyperbolic discounting rate. With specific assumptions on the production technology, preferences, and stochastic shocks, we derive the explicit solutions to the growth rates of consumption and savings and equilibrium returns on all assets, and give the effects of fiscal policies and discounting rate on growth.

Suggested Citation

  • Liutang Gong & Heng-fu Zou, 1998. "Fiscal Policies in a Stochastic Model with Hyperbolic Discounting," CEMA Working Papers 103, China Economics and Management Academy, Central University of Finance and Economics.
  • Handle: RePEc:cuf:wpaper:103
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    References listed on IDEAS

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    1. Obstfeld, Maurice, 1994. "Risk-Taking, Global Diversification, and Growth," American Economic Review, American Economic Association, pages 1310-1329.
    2. Turnovsky, Stephen J., 1990. "The effects of taxes and dividend policy on capital accumulation and macroeconomic behavior," Journal of Economic Dynamics and Control, Elsevier, pages 491-521.
    3. Obstfeld, Maurice, 1994. "Risk-Taking, Global Diversification, and Growth," American Economic Review, American Economic Association, pages 1310-1329.
    4. David I. Laibson & Andrea Repetto & Jeremy Tobacman, 1998. "Self-Control and Saving for Retirement," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 91-196.
    5. Fischer, Stanley, 1975. "The Demand for Index Bonds," Journal of Political Economy, University of Chicago Press, vol. 83(3), pages 509-534, June.
    6. Laibson, David, 1998. "Life-cycle consumption and hyperbolic discount functions," European Economic Review, Elsevier, vol. 42(3-5), pages 861-871, May.
    7. Turnovsky, Stephen J, 1993. "Macroeconomic Policies, Growth, and Welfare in a Stochastic Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 953-981, November.
    8. Jonathan Eaton, 1981. "Fiscal Policy, Inflation and the Accumulation of Risky Capital," Review of Economic Studies, Oxford University Press, vol. 48(3), pages 435-445.
    9. Stephen J. Turnovsky, 2000. "Methods of Macroeconomic Dynamics, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262201232, January.
    10. Christopher Harris & David Laibson, 2013. "Instantaneous Gratification," The Quarterly Journal of Economics, Oxford University Press, vol. 128(1), pages 205-248.
    11. Robert J. Barro, 1999. "Ramsey Meets Laibson in the Neoclassical Growth Model," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1125-1152.
    12. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
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    Citations

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    Cited by:

    1. Liutang Gong & William Smith & Heng-fu Zou, 2007. "Asset Prices and Hyperbolic Discounting," Annals of Economics and Finance, Society for AEF, vol. 8(2), pages 397-414, November.

    More about this item

    Keywords

    Fiscal policies; Hyperbolic discounting; Stochastic growth;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H0 - Public Economics - - General
    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General

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