Hostname: page-component-586b7cd67f-2plfb Total loading time: 0 Render date: 2024-11-20T09:18:12.582Z Has data issue: false hasContentIssue false
  • English
  • Français

DEBT AND DEFICIT FLUCTUATIONS IN A TIME-CONSISTENT SETUP

Published online by Cambridge University Press:  24 September 2015

Daryna Grechyna
Daryna Grechyna*
Affiliation:
Middlesex University London
*
Address correspondence to: Daryna Grechyna, Department of Economics, Middlesex University London, Business School, Hendon Campus, The Burroughs, London NW4 4BT, UK; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper compares the stochastic behavior of fiscal variables under optimal fiscal policy for the cases of full commitment by the government (Ramsey problem) and no commitment by the government (focusing on differentiable Markov perfect equilibrium). It shows that the cyclical properties of fiscal variables are similar for both commitment assumptions. These conclusions are robust to two different specifications of the structure of public bonds (risk-free and state-contingent) and to different sets of the parameters. The cyclical properties of fiscal variables, regardless of commitment assumptions, can be determined by the parameters of the utility function.

Keywords

Optimal TaxationTime-Consistent PolicyMarket Incompleteness
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 7 , October 2016 , pp. 1771 - 1794
Copyright
Copyright © Cambridge University Press 2015 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Aiyagari, S. Rao, Albert Marcet, Sargent, Thomas J., and älä, Juha Sepp (2002) Optimal taxation without state-contingent debt. Journal of Political Economy 110, 1220–1254.Google Scholar
Angeletos, George-Marios (2002) Fiscal policy with noncontingent debt and the optimal maturity structure. Quarterly Journal of Economics 117, 1105–1131.Google Scholar
Barseghyan, Levon, Battaglini, Marco, and Coate, Stephen (2013) Fiscal policy over the real business cycle: A positive theory. Journal of Economic Theory 148, 2223–2265.CrossRefGoogle Scholar
Chari, V.V., Lawrence, J. Christiano and Kehoe, Patrick J. (1994) Optimal fiscal policy in a business cycle model. Journal of Political Economy 102, 617–652.Google Scholar
Debortoli, Davide and Nunes, Ricardo (2013) Lack of commitment and the level of debt. Journal of the European Economic Association 11, 1053–1078.CrossRefGoogle Scholar
Domínguez, Begoña (2005) Reputation in a model with a limited debt structure. Review of Economic Dynamics 8, 600–622.Google Scholar
Judd, Kenneth L. (1992) Projection methods for solving aggregate growth models. Journal of Economic Theory 58, 410–452.CrossRefGoogle Scholar
Klein, Paul, Krusell, Per, and Ríos-Rull, José-Víctor (2008) Time-consistent public policy. Review of Economic Studies 75, 789–808.Google Scholar
Klein, Paul and Ríos-Rull, José-Víctor (2003) Time-consistent optimal fiscal policy. International Economic Review 44, 1217–1245.CrossRefGoogle Scholar
Krusell, Per, Martin, F.M., and Ríos-Rull, José-Víctor (2006) Time-Consistent Debt. In 2006 Meeting Papers (Vol. 210), Society for Economic Dynamics.Google Scholar
Kydland, Finn E. and Prescott, Edward C. (1977) Rules rather than discretion: The inconsistency of optimal plans. Journal of Political Economy 85, 473–492.Google Scholar
Ljungqvist, Lars and Sargent, Thomas J. (2000) Recursive Macroeconomic Theory. Cambridge, MA: MIT Press.Google Scholar
Lucas, Robert E. Jr., and Stokey, Nancy L. (1983) Optimal fiscal and monetary policy in an economy without capital. Journal of Monetary Economics 12, 55–93.CrossRefGoogle Scholar
Marcet, Albert and Marimon, Ramon (2011) Recursive Contracts. Economics working paper 552, Barcelona Graduate School of Economics.Google Scholar
Marcet, Albert and Scott, Andrew (2009) Debt and deficit fluctuations and the structure of bond markets. Journal of Economic Theory 144, 473–501.Google Scholar
Martin, Fernando M. (2009) A positive theory of government debt. Review of Economic Dynamics 12, 608–631.Google Scholar
Martin, Fernando M. (2013) Government policy in monetary economies. International Economic Review 54, 185–217.CrossRefGoogle Scholar
Martin, Fernando M. (in press) Policy and welfare effects of within-period commitment. Macroeconomic Dynamics.Google Scholar
Occhino, Filippo (2012) Government debt dynamics under discretion. B.E. Journal of Macroeconomics 12.Google Scholar
Ortigueira, Salvador, Pereira, Joana, and Pichler, Paul (2012) Markov-Perfect Optimal Fiscal Policy: The Case of Unbalanced Budgets. Economics working paper we1230, Universidad Carlos III.Google Scholar
Scott, Andrew (2007) Optimal taxation and OECD labor taxes. Journal of Monetary Economics 54, 925–944.Google Scholar
Tauchen, George (1986) Finite state Markov-chain approximations to univariate and vector autoregressions. Economics Letters 20, 177–181.CrossRefGoogle Scholar