Econometrica: Nov, 2001, Volume 69, Issue 6

Sequential Equilibria in a Ramsey Tax Model

https://doi.org/10.1111/1468-0262.00255
p. 1491-1518

Christopher Phelan, Ennio Stacchetti

This paper presents a full characterization of the equilibrium value set of a Ramsey tax model. More generally, it develops a dynamic programming method for a class of policy games between the government and a continuum of households. By selectively incorporating Euler conditions into a strategic dynamic programming framework, we wed two technologies that are usually considered competing alternatives, resulting in a substantial simplification of the problem.