Equilibrium Welfare and Government Policy with Quasi-Geometric Discounting

Anthony Smith and Burhanettin Kuruscu
Authors registered in the RePEc Author Service: Per Krusell

No 2693, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We consider a representative-agent equilibrium model where the consumer has quasi-geometric discounting and cannot commit to future actions. With restricted attention to a parametric class for preferences and technology logarithmic utility, Cobb-Douglas production, and full depreciation we solve for time-consistent competitive equilibria globally and explicitly. For this class, we characterize the welfare properties of competitive equilibria and compare them to that of a planning problem. The planner is a consumer representative who, without commitment but in a time-consistent way, maximizes his present-value utility subject to resource constraints. The competitive equilibrium results in strictly higher welfare than does the planning problem whenever the discounting is not geometric. We also explicitly consider taxation in our environment. With a benevolent government that can tax income and capital, but cannot commit its future tax rates, time-consistent taxation leads to positive tax rates on capital. These tax rates reproduce the central planning solution, and thus imply a worse outcome in welfare terms than when there is no government.

Keywords: Quasi-geometric discounting; Time inconsistency; Welfare (search for similar items in EconPapers)
JEL-codes: D60 E21 H21 (search for similar items in EconPapers)
Date: 2001-02
References: Add references at CitEc
Citations: View citations in EconPapers (29)

Downloads: (external link)
https://cepr.org/publications/DP2693 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Equilibrium Welfare and Government Policy with Quasi-geometric Discounting (2002)
Working Paper: Equilibrium Welfare and Government Policy with Quasi-Geometric Discounting (2001)
Working Paper: Equilibrium Welfare and Government Policy with Quasi-Geometric Discounting
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:cpr:ceprdp:2693

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP2693

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().