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Robert D. Burch Center for Tax Policy and Public Finance

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Burch Center Working Papers

The Burch Center is funded through an endowment from Robert Dale Burch, a Cal alumnus, and was established at the University of California, Berkeley, to promote research in tax policy and public finance, to disseminate this research to the academic and tax policy communities, and to stimulate informed discussion of tax policies of national significance.

The Center, housed in the Department of Economics and the Boalt School of Law, works closely with these departments to offer students, faculty and the public cross-disciplinary seminars and conferences in tax policy and public finance.

Cover page of Optimal Long-Run Fiscal Policy: Constraints, Preferences and the Resolution of Uncertainty

Optimal Long-Run Fiscal Policy: Constraints, Preferences and the Resolution of Uncertainty

(2002)

We construct a computational dynamic stochastic overlapping generations general equilibrium model with uncertain lifetimes and explore the impact of policy stickiness (specifically, a major reform will preclude future reforms for a generation) on optimal long-run fiscal policy. Under such circumstances, entitlement reforms exhaust a valuable option to move in the future. We explore the conditions under which the gain to waiting is large enough to induce optimizing policymakers to delay reforming a suboptimal system. We also allow for the uncertainty to have ARCH characteristics and explore the impact of time-varying uncertainty on the optimality of delayed policy action.

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