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Optimal Time-Consistent Fiscal Policy with Uncertain Lifetimes / Guillermo A. Calvo, Maurice Obstfeld.
- Format:
- Book
- Author/Creator:
- Calvo, Guillermo A.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w1593.
- NBER working paper series no. w1593
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 1985.
- Summary:
- This paper studies optimal fiscal policy in an economy where heterogeneous agents with uncertain lifetimes coexist. We show that some plausible social welfare functions lead to time-inconsistent optimal plans, and we suggest restrictions on social preferences that avoid the problem. The normative prescriptions of a time-consistent utilitarian planner generalize the 'two-part Golden Rule" suggested by Samuelson, and imply aggregate dynamics similar to those arisingin the Cass-Koopmans-Ramsey optimal growth framework. We characterize lump-sum transfer schemes that allow the optimal allocation to be decentralized as the competitive equilibrium of an economy with actuarially fair annuities. The lump-sum transfers that accomplish this decentralization are age dependent in general.
- Notes:
- Print version record
- March 1985.
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