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Optimal Long-Run Fiscal Policy with Heterogeneous Agents

  • Series
  • Speaker(s)
    Ludwig Straub (Harvard University, United States)
  • Field
  • Location
    Tinbergen Institute Amsterdam, room 1.01
  • Date and time

    November 16, 2023
    12:00 - 13:15

This project introduces a new sequence-space approach to characterizing the steady state of dynamic Ramsey taxation problems. Applying our approach to standard heterogeneous-agent models a la Aiyagari (1995) we find that such Ramsey steady states typically do not exist. Instead, our results point to the optimality of long-run immiseration in these models, driven by unreasonably strong anticipatory effects of future tax changes. Deviating from perfect foresight to dampen anticipation generates well-behaved Ramsey steady states. (Joint work with Adrien Auclert, Michael Cai, and Matthew Rognlie.)