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Sustainable plans

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  • V. V. Chari
  • Patrick J. Kehoe

Abstract

We propose a definition of time consistent policy for infinite horizon economies with competitive private agents. Allocations and policies are defined as functions of the history of past policies. A sustainable equilibrium is a sequence of history-contingent policies and allocations that satisfy certain sequential rationality conditions for the government and for private agents. We provide a complete characterization of the sustainable equilibrium outcomes for a variant of Fischer?s (1980) model of capital taxation. We also relate our work to recent developments in the theory of repeated games.

Suggested Citation

  • V. V. Chari & Patrick J. Kehoe, 1989. "Sustainable plans," Staff Report 122, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:122
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    References listed on IDEAS

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