Fiscal Rules And Discretion Under Persistent Shocks
Download and Read Fiscal Rules And Discretion Under Persistent Shocks full books in PDF, ePUB, and Kindle. Read online free Fiscal Rules And Discretion Under Persistent Shocks ebook anywhere anytime directly on your device. We cannot guarantee that every ebooks is available!
Fiscal Rules and Discretion Under Persistent Shocks
Author | : Marina Halac |
Publisher | : |
Total Pages | : |
Release | : 2012 |
Genre | : Debts, Public |
ISBN | : |
Download Fiscal Rules and Discretion Under Persistent Shocks Book in PDF, Epub and Kindle
This paper studies the optimal level of discretion in policymaking. We consider a fiscal policy model where the government has time-inconsistent preferences with a present-bias towards public spending. The government chooses a fiscal rule to trade off its desire to commit to not overspend against its desire to have flexibility to react to privately observed shocks to the value of spending. We analyze the optimal fiscal rule when the shocks are persistent. Unlike under i.i.d. shocks, we show that the ex-ante optimal rule is not sequentially optimal, as it provides dynamic incentives. The ex-ante optimal rule exhibits history dependence, with high shocks leading to an erosion of future fiscal discipline compared to low shocks, which lead to the reinstatement of discipline. The implied policy distortions oscillate over time given a sequence of high shocks, and can force the government to accumulate maximal debt and become immiserated in the long run.
Fiscal Rules and Discretion Under Persistent Shocks Related Books
Pages:
Pages: 30
Pages: 144
Pages: 44
Pages: 52