SFB 303 Discussion Paper No. A-426

Author: Lang, Günther
Title: Anticipation and the Time-Consistency of Fiscal Poliy
Abstract: This paper is concerned with the question of the existence of stationary Markov-perfect equilibrium in an overlapping generations growth model in the tradition of Diamond (1965), where in each period a government is in power, being interested in maximizing a social welfare function which consists of a weighted sum of utilities of those generations only who are alive in this period. This setting causes conflicts of interest between two succeeding governments and implies time-inconsistency of optimal plans made by myopic planners. If these planners are non-myopic, however, they will take into account the reaction of their successors. We will therefore examine what game-theoretic concept can be applied, whether game equilibria exist, and what their properties are.
JEL-Classification-Number: C62 C72, C73, D31, D60, H53, O41
Creation-Date: December 1993
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