TY  - JOUR
AU  - Auerbach,Alan J.
AU  - Hassett,Kevin A.
TI  - Optimal Long-Run Fiscal Policy: Constraints, Preferences and the Resolution of Uncertainty
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9132
PY  - 2002
Y2  - August 2002
UR  - http://www.nber.org/papers/w9132
L1  - http://www.nber.org/papers/w9132.pdf
N1  - Author contact info:
Alan J. Auerbach
Department of Economics
508-1 Evans Hall, #3880
University of California, Berkeley
Berkeley, CA 94720-3880
Tel: 510/643-0711
Fax: 510/643-0413
E-Mail: auerbach@econ.berkeley.edu

Kevin Hassett
American Enterprise Institute
1150 Seventeenth Street, N.W.
Washington, DC 20036
E-Mail: khassett@aei.org
AB  - 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.
ER  -