Economics, Econometrics and Finance
7 years ago

New study reveals how optimal fiscal policy can stabilize economies!

HAL (Le Centre pour la Communication Scientifique Directe)
Optimal Fiscal Policy with Heterogeneous Agents and Aggregate Shocks
Xavier Ragot, François Le Grand

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Allocations in economies with incomplete insurance can be figured out by a planner's program. This helps solve optimal fiscal policies in economies with shocks. By using taxes on capital and labor, along with transfers, the planner can manage public debt dynamics. After technology shocks, savings increase too much, leading to higher public debt and lower capital taxes.