NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Optimal Long-Run Fiscal Policy: Constraints, Preferences and the Resolution of Uncertainty

Alan J. Auerbach, Kevin A. Hassett

NBER Working Paper No. 9132
Issued in August 2002
NBER Program(s):   EFG   PE

We construct a computational dynamic stochastic overlapping generations general equilibrium model with uncertain lifetimes and explore the impact of policy stickiness (specifically, a major reform will preclude future reforms for a generation) on optimal long-run fiscal policy. Under such circumstances, entitlement reforms exhaust a valuable option to move in the future. We explore the conditions under which the gain to waiting is large enough to induce optimizing policymakers to delay reforming a suboptimal system. We also allow for the uncertainty to have ARCH characteristics and explore the impact of time-varying uncertainty on the optimality of delayed policy action.

download in pdf format
   (278 K)

email paper

This paper is available as PDF (278 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w9132

Published: Auerbach, Alan J. & Hassett, Kevin, 2007. "Optimal long-run fiscal policy: Constraints, preferences and the resolution of uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1451-1472, May.

Users who downloaded this paper also downloaded these:
Farmer w15021 Fiscal Policy Can Reduce Unemployment: But There is a Less Costly and More Effective Alternative
Mountford and Uhlig w14551 What are the Effects of Fiscal Policy Shocks?
Aguiar and Amador w17457 Fiscal Policy in Debt Constrained Economies
Auerbach and Hassett w7036 Uncertainty and the Design of Long-Run Fiscal Policy
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us