Working Paper: NBER ID: w9077
Authors: Patrick J. Kehoe; Fabrizio Perri
Abstract: This study demonstrates how constrained efficient allocations can arise endogenously as equilibria in an economy with a limited ability to enforce contracts and with private agents behaving competitively, taking a set of taxes as given. The taxes in this economy limit risk-sharing and arise in an equilibrium of a dynamic game between governments of sovereign nations. The equilibrium allocations depend on governments choosing to tax both the repayment of international debt and the income from capital investment in their countries.
Keywords: competitive equilibria; limited enforcement; international debt; risk-sharing; dynamic games
JEL Codes: D5; E21; E32; E44; F3; F34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government tax policies (H29) | constrained efficient allocations (D61) |
| government decisions (H11) | risk-sharing capabilities of private agents (D82) |
| enforcement constraints (K40) | constrained efficient allocations (D61) |
| capital income taxes (E25) | decentralized allocations as competitive equilibria (D51) |