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Sustainable plans


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.

Keywords: Game theory;

Status: Published in Journal of Political Economy (Vol.98, n.4, August 1990, pp. 783-802) ; Persson, Thorsten, Tabellini, Guido, eds. Monetary and Fiscal Policy. Vol. 1. Credibility. Cambridge : MIT Press, 1994. pp. 143-163.

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Provider: Federal Reserve Bank of Minneapolis

Part of Series: Staff Report

Publication Date: 1989

Number: 122