Sustainable Plans and Mutual Default

V. Chari and Patrick Kehoe

No 1990/022, IMF Working Papers from International Monetary Fund

Abstract: This paper presents a model of optimal taxation in which both private agents and the government can default on their debt. We first consider Ramsey equilibria in which the government can precommit to its policies but in which private agents can default. We then consider sustainable equilibria in which both government and private agent decision rules are required to be sequentially rational. We show that when there is sufficiently little discounting and government consumption fluctuates enough, the Ramsey allocations and policies (in which the government never defaults) can be supported by a sustainable equilibrium.

Keywords: WP (search for similar items in EconPapers)
Pages: 38
Date: 1990-03-01
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Citations: View citations in EconPapers (131)

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Related works:
Journal Article: Sustainable Plans and Mutual Default (1993)
Working Paper: Sustainable plans and mutual default (1989)
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