FISCAL RULES AND DISCRETION UNDER PERSISTENT SHOCKS

• 成果类型: Article
• 署名作者: Halac, Marina; Yared, Pierre
• 署名单位: Columbia University; University of Warwick; National Bureau of Economic Research
• 刊物名称: ECONOMETRICA
• ISSN/ISSBN: 0012-9682
• DOI: 10.3982/ECTA11207
• 发表日期: 2014
• 页码: 1557-1614
• 关键词: COMMITMENT VS. FLEXIBILITY; NEOCLASSICAL GROWTH-MODEL; private information; optimal delegation; political-economy; taxation; debt; GOVERNMENT; insurance; deficits

摘要

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 toward 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 independent and identically distributed 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.