We analyze the sustainability of intergenerational transfers in politico-economic equilibrium. We argue that these transfers naturally arise in a Markov perfect equilibrium in the fundamental state variables. In contrast to earlier literature, our explanation does not resort to altruism,...

In this paper we analyze tax and transfer choices in an OLG economy with capital accumulation and endogenous growth coming from public investment, such as education. We solve for a Markov perfect equilibrium when electoral competition targets the votes of young and old households. We find that...

In this paper we address the time-inconsistency of optimal debt policy—the incentive for a current government to “manipulate interest ratesâ€â€”raised in Lucas and Stokey’s celebrated 1983 paper. The literature that followed suggested various ways to fully overcome...

Where the state evolves according to a discrete-state Markov chain, we sustain Lucas and Stokey's debt structure dynamics by having it emerge sequentially as the unique outcome of a sequence of choices made by two sequences of independent government departments. Each period a tax authority sets...

All developed countries have government debt, usually a sizeable proportion of output. This paper proposes that governments that cannot commit to future policy choices face a trade-off that explains the level of debt. On the one hand, the government would like to increase debt and delay...