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Sustainable Plans and Mutual Default

This paper presents a model of optimal taxation in which both private agents and the government can default on their debt. We first consider Ramsey equilibria in which the government can precommit to its policies but in which private agents can default. We then consider sustainable equilibria in whi...

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Bibliographic Details
Main Author: Chari, V.
Other Authors: Kehoe, Patrick
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1990
Series:IMF Working Papers
Subjects:
Wealth
Public Debt
Budget Systems
Public Finance & Taxation
Saving
Government Consumption
Value Of Firms
Debt Management
Debts, Public
Debt
Budget Planning And Preparation
Exports And Imports
International Economics
International Lending And Debt Problems
Debts, External
Budgeting
Private Debt
Sovereign Debt
Consumption; Economics
Capital And Ownership Structure
Goodwill
Budget
Macroeconomics
Macroeconomics: Consumption
Budgeting & Financial Management
National Budget
Financial Risk And Risk Management
Financing Policy
Public Finance
Debt Default
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:This paper presents a model of optimal taxation in which both private agents and the government can default on their debt. We first consider Ramsey equilibria in which the government can precommit to its policies but in which private agents can default. We then consider sustainable equilibria in which both government and private agent decision rules are required to be sequentially rational. We show that when there is sufficiently little discounting and government consumption fluctuates enough, the Ramsey allocations and policies (in which the government never defaults) can be supported by a sustainable equilibrium
Physical Description:38 pages
ISBN:9781451921151

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