The consensus in the literature is that the use of only lump-sum taxation is a necessary and sufficient condition for the dynamic consistency of optimal open-loop government policies. We show that this does not hold for models with nonhomogeneous agents. Then the stated condition is neither necessary nor sufficient. Dynamic inconsistency arises because of a shortage of appropriate government policy instruments which amounts to the consensus condition only in special cases.
MLA
Hillier, Brian, and James M. Malcomson. “Dynamic Inconsistency, Rational Expectations, and Optimal Government Policy.” Econometrica, vol. 52, .no 6, Econometric Society, 1984, pp. 1437-1452, https://www.jstor.org/stable/1913514
Chicago
Hillier, Brian, and James M. Malcomson. “Dynamic Inconsistency, Rational Expectations, and Optimal Government Policy.” Econometrica, 52, .no 6, (Econometric Society: 1984), 1437-1452. https://www.jstor.org/stable/1913514
APA
Hillier, B., & Malcomson, J. M. (1984). Dynamic Inconsistency, Rational Expectations, and Optimal Government Policy. Econometrica, 52(6), 1437-1452. https://www.jstor.org/stable/1913514
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