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Time consistent fiscal policies in a Ramsey economy

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  • R. Cellini
  • L. Lambertini

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.

Suggested Citation

  • R. Cellini & L. Lambertini, 2004. "Time consistent fiscal policies in a Ramsey economy," Working Papers 522, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:522
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    Cited by:

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    2. Luca Lambertini, 2014. "Exploration For Nonrenewable Resources In A Dynamic Oligopoly: An Arrovian Result," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 16(02), pages 1-11.

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