Optimal Fiscal Policy without Commitment: Revisiting Lucas-Stokey

Pierre Yared, Ricardo Nunes and Davide Debortoli

No 1144, Working Papers from Barcelona School of Economics

Abstract: According to the Lucas-Stokey result, a government can structure its debt maturity to guarantee commitment to optimal fiscal policy by future governments. In this paper, we overturn this conclusion, showing that it does not generally hold in the same model and under the same definition of time-consistency as in Lucas-Stokey. Our argument rests on the existence of an overlooked commitment problem that cannot be remedied with debt maturity: a government in the future will not tax on the downward sloping side of the La er curve, even if it is ex-ante optimal to do so.

Keywords: optimal taxation; fiscal policy; public debt (search for similar items in EconPapers)
JEL-codes: E62 H21 H63 (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://bw.bse.eu/wp-content/uploads/2020/01/1144-file.pdf (application/pdf)

Related works:
Journal Article: Optimal Fiscal Policy without Commitment: Revisiting Lucas-Stokey (2021)
Working Paper: Optimal fiscal policy without commitment: Revisiting Lucas-Stokey (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1144

Access Statistics for this paper

More papers in Working Papers from Barcelona School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().