TY  - JOUR
AU  - Calvo,Guillermo A.
AU  - Obstfeld,Maurice
TI  - Optimal Time-Consistent Fiscal Policy with Uncertain Lifetimes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1593
PY  - 1989
Y2  - October 1989
UR  - http://www.nber.org/papers/w1593
L1  - http://www.nber.org/papers/w1593.pdf
N1  - Author contact info:
Guillermo A. Calvo
Columbia University
School of International and Public Affairs
420 West 118th St, Room 1303B
MC3332
New York, NY 10027
Tel: 212/854-4264
E-Mail: gc2286@columbia.edu

Maurice Obstfeld
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-9646
Fax: 510/642-6615
E-Mail: obstfeld@econ.berkeley.edu
AB  - 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.
ER  -