Article
Licensed
Unlicensed
Requires Authentication
Government Debt Dynamics Under Discretion
-
Filippo Occhino
Published/Copyright:
July 15, 2012
Abstract
This paper studies the dynamics of state-contingent government debt in the case that the fiscal authority cannot commit to a future policy. As is well known, optimal policy under commitment calls for letting debt follow a stationary process, with values that depend on the initial conditions. In contrast, when the fiscal authority lacks the ability to commit, it manipulates its policy tools, i.e. the tax rate and government spending, in order to reduce the intertemporal price of current consumption goods, i.e. the real interest rate, and the intertemporal value of its current outstanding liabilities. If the economy converges, in any steady state the government has either no incentive or no ability to reduce the real interest rate any longer.
Keywords: time-consistency; markov perfect equilibrium
Published Online: 2012-7-15
©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
You are currently not able to access this content.
You are currently not able to access this content.
Articles in the same Issue
- Advances Article
- Life Cycle Dynamics of Income Uncertainty and Consumption
- Immigration, Fiscal Policy, and Welfare in an Aging Population
- Contributions Article
- Who Gets the Credit? And Does It Matter? Household vs. Firm Lending Across Countries
- How Much Did the 2009 Australian Fiscal Stimulus Boost Demand? Evidence from Household-Reported Spending Effects
- Economic Growth and Political Survival
- Exchange Rate Uncertainty and Trade
- Monetary and Macroprudential Policy Rules in a Model with House Price Booms
- A Unified Framework for Using Micro-Data to Compare Dynamic Time-Dependent Price-Setting Models
- Government Policy Response to War-Expenditure Shocks
- Poverty Traps and Growth in a Model of Endogenous Time Preference
- Where Has All the Money Gone? Foreign Aid and the Composition of Government Spending
- Great Spending Crashes
- Capital Utilization and the Amplification Mechanism
- Topics Article
- Unemployment Expectations and the Business Cycle
- Sector-Specific Capital, Labor Market Distortions and Cross-Country Income Differences: A Two-Sector General Equilibrium Approach
- A Dynamic Theory of Competence, Loyalty and Stability in Dictatorships
- Coordination Failure in Investment, Economic Growth, and Volatility
- Openness, Imported Commodities and the Sacrifice Ratio
- Consumption, Leisure and Borrowing Constraints
- A Credibility Proxy: Tracking US Monetary Developments
- Estimating Information Rigidity Using Firms' Survey Data
- Has the Fed Reacted Asymmetrically to Stock Prices?
- News Shocks, Productivity and the U.S. Investment Boom-Bust Cycle
- A Supply-Demand Framework for Understanding the U.S. Gender Gap in Education
- Misallocation and Manufacturing TFP in Bolivia during the Market Liberalization Period
- Government Debt Dynamics Under Discretion
- The Global Transmission of Government Debt
- Is Discretionary Fiscal Policy in Japan Effective?
- The Laffer Curve in a Frictional Labor Market
- Nonexponential Discounting: A Direct Test And Perhaps A New Puzzle
- International Transmission of Medium-Term Technology Cycles: Evidence from Spain as a Recipient Country
- Phases of Economic Development: Do Initial Endowments Matter?
Articles in the same Issue
- Advances Article
- Life Cycle Dynamics of Income Uncertainty and Consumption
- Immigration, Fiscal Policy, and Welfare in an Aging Population
- Contributions Article
- Who Gets the Credit? And Does It Matter? Household vs. Firm Lending Across Countries
- How Much Did the 2009 Australian Fiscal Stimulus Boost Demand? Evidence from Household-Reported Spending Effects
- Economic Growth and Political Survival
- Exchange Rate Uncertainty and Trade
- Monetary and Macroprudential Policy Rules in a Model with House Price Booms
- A Unified Framework for Using Micro-Data to Compare Dynamic Time-Dependent Price-Setting Models
- Government Policy Response to War-Expenditure Shocks
- Poverty Traps and Growth in a Model of Endogenous Time Preference
- Where Has All the Money Gone? Foreign Aid and the Composition of Government Spending
- Great Spending Crashes
- Capital Utilization and the Amplification Mechanism
- Topics Article
- Unemployment Expectations and the Business Cycle
- Sector-Specific Capital, Labor Market Distortions and Cross-Country Income Differences: A Two-Sector General Equilibrium Approach
- A Dynamic Theory of Competence, Loyalty and Stability in Dictatorships
- Coordination Failure in Investment, Economic Growth, and Volatility
- Openness, Imported Commodities and the Sacrifice Ratio
- Consumption, Leisure and Borrowing Constraints
- A Credibility Proxy: Tracking US Monetary Developments
- Estimating Information Rigidity Using Firms' Survey Data
- Has the Fed Reacted Asymmetrically to Stock Prices?
- News Shocks, Productivity and the U.S. Investment Boom-Bust Cycle
- A Supply-Demand Framework for Understanding the U.S. Gender Gap in Education
- Misallocation and Manufacturing TFP in Bolivia during the Market Liberalization Period
- Government Debt Dynamics Under Discretion
- The Global Transmission of Government Debt
- Is Discretionary Fiscal Policy in Japan Effective?
- The Laffer Curve in a Frictional Labor Market
- Nonexponential Discounting: A Direct Test And Perhaps A New Puzzle
- International Transmission of Medium-Term Technology Cycles: Evidence from Spain as a Recipient Country
- Phases of Economic Development: Do Initial Endowments Matter?
