This paper characterizes the time-consistency properties of the set of Pareto efficient (or second best) fiscal policies, in a two-class, stochastic economy similar to that in Judd (1985). The key finding is that the continuation of any Pareto efficient policy is always Pareto efficient. Hence, to require any policy revision to be approved by unanimity safeguards the time consistency of efficient fiscal policy. I also show that any Pareto efficient policy from a timeless perspective can be rendered time consistent by a policymaker whose objective function is given by a utilitarian social welfare function with precise welfare weights. These results link the policymaker's equity considerations with the credibility of efficient fiscal policy. (Copyright: Elsevier)
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 10 (2007) Issue (Month): 1 (January) Pages: 31-54 Download reference. The following formats are available: HTML,
plain text,
BibTeX,
RIS (EndNote),
ReDIF
Find related papers by JEL classification: E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy