Implementing a Ramsey Plan

Wei Jiang, Thomas Sargent and Neng Wang

No 32658, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Lucas and Stokey (1983) motivated future governments to confirm an optimal tax plan by rescheduling government debt appropriately. Debortoli et al. (2021) showed that sometimes that does not work. We show how a Ramsey plan can always be implemented by adding instantaneous debt to Lucas and Stokey’s contractible subspace and requiring that each continuation government preserve that debt’s purchasing power instantaneously. We formulate the Ramsey problem with a Bellman equation and use it to study settings with various initial term debt structures and government spending processes. We extract implications about tax smoothing and effects of fiscal policies on bond markets.

JEL-codes: E6 H2 (search for similar items in EconPapers)
Date: 2024-07
New Economics Papers: this item is included in nep-dge, nep-inv and nep-pbe
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