Optimal Fiscal Policy without Commitment: Revisiting Lucas-Stokey

Davide Debortoli, Ricardo Nunes and Pierre Yared

Journal of Political Economy, 2021, vol. 129, issue 5, 1640 - 1665

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 necessarily tax above the peak of the Laffer curve, even if it is ex ante optimal to do so.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://dx.doi.org/10.1086/713191 (application/pdf)
http://dx.doi.org/10.1086/713191 (text/html)
Access to the online full text or PDF requires a subscription.

Related works:
Working Paper: Optimal Fiscal Policy without Commitment: Revisiting Lucas-Stokey (2020)
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:ucp:jpolec:doi:10.1086/713191

Access Statistics for this article

More articles in Journal of Political Economy from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().