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Implementing a Ramsey Plan

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Listed:
  • Wei Jiang
  • Thomas J. Sargent
  • Neng Wang

Abstract

Lucas and Stokey (1983) motivated future governments to confirm an optimal tax plan by rescheduling government debt appropriately. Debortoli et al. (2021) showed that sometimes that does not work. We show how a Ramsey plan can always be implemented by adding instantaneous debt to Lucas and Stokey’s contractible subspace and requiring that each continuation government preserve that debt’s purchasing power instantaneously. We formulate the Ramsey problem with a Bellman equation and use it to study settings with various initial term debt structures and government spending processes. We extract implications about tax smoothing and effects of fiscal policies on bond markets.

Suggested Citation

  • Wei Jiang & Thomas J. Sargent & Neng Wang, 2024. "Implementing a Ramsey Plan," NBER Working Papers 32658, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32658
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    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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