This paper develops the quantitative implications of optimal fiscal policy in a business cycle model. In a stationary equilibrium, the ex ante tax rate on capital income is approximately zero. The tax rate on labor income fluctuates very little and inherits the persistence properties of the...

The authors propose a definition of time-consistent policy for infinite-horizon economies with competitive private agents. Allocations and policies are defined as functions of the history of past policies. A sustainable equilibrium is a sequence of history-contingent policies and allocations...

The authors examine the limiting behavior of cooperative and noncooperative fiscal policies as countries' market power goes to zero. They show that these policies converge if countries raise revenues through lump-sum taxation. However, if there are unremovable domestic distortions, such as...

The central puzzle in international business cycles is that fluctuations in real exchange rates are volatile and persistent. We quantify the popular story for real exchange rate fluctuations: they are generated by monetary shocks interacting with sticky goods prices. If prices are held fixed for...

This paper presents a model of optimal taxation in which private agents and the government can default on debt. As a benchmark, the authors consider Ramsey equilibria in which the government can precommit to its policies at the beginning of time bu t in which private agents can default. They...