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Sustainable Plans

V. V. Chari and Patrick J. Kehoe
Journal of Political Economy
Vol. 98, No. 4 (Aug., 1990), pp. 783-802
Stable URL: http://www.jstor.org/stable/2937768
Page Count: 20
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Sustainable Plans
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Abstract

We propose a definition of time-consistent policy for infinite-horizon economies with competitive private agents. Allocations and policies are defined as functions of the history of past policies. A sustainable equilibrium is a sequence of history-contingent policies and allocations that satisfy certain sequential optimality conditions for the government and for private agents. We provide a complete characterization of the sustainable equilibrium outcomes for a variant of Fischer's model of capital taxation. We also relate our work to recent developments in the theory of repeated games.

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