Time consistent fiscal policies in a Ramsey economy

Roberto Cellini and Luca Lambertini ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: This paper revisits a well-known case of optimal fiscal policy in a Ramsey model where consumer utility is defined over consumption and public goods. We show that normalising the size of the population to one eliminates the scope for active policy-making since the decentralised equilibrium coincides with social planning. Then, we modify the model to allow for a population of N > 1 agents, whereby restoring the role of the government as a policymaker. Both in the Stackelberg case and in the decentralised game, we prove that optimal fiscal policy and consumption are not only time consistent but also subgame perfect.

Date: 2004
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Related works:
Journal Article: Time consistent fiscal policies in a Ramsey economy (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:522

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