Cover IMF Working Papers
Sustainable Plans and Mutual Default
Author:
V. V. Charinull

Search for other papers by V. V. Chari in
Current site
Google ScholarClose
and
Mr. Patrick E. Kehoe
Search for other papers by Mr. Patrick E. Kehoe in
Current site
Google ScholarClose
Series:
IMF Working Papers
Volume/Issue:
Volume 1990: Issue 022
Language:
English
Publication Date:
01 Mar 1990
DOI:
https://doi.org/10.5089/9781451921151.001
ISBN:
9781451921151
ISSN:
1018-5941
Pages:
38
Keywords:
WP
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (2.3 MB) Download Epub
This paper presents a model of optimal taxation in which both private agents and the government can default on their debt. We first consider Ramsey equilibria in which the government can precommit to its policies but in which private agents can default. We then consider sustainable equilibria in which both government and private agent decision rules are required to be sequentially rational. We show that when there is sufficiently little discounting and government consumption fluctuates enough, the Ramsey allocations and policies (in which the government never defaults) can be supported by a sustainable equilibrium.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 1990: Issue 022