@techreport{NBERw9132, title = "Optimal Long-Run Fiscal Policy: Constraints, Preferences and the Resolution of Uncertainty", author = "Alan J. Auerbach and Kevin A. Hassett", institution = "National Bureau of Economic Research", type = "Working Paper", series = "Working Paper Series", number = "9132", year = "2002", month = "August", doi = {10.3386/w9132}, URL = "http://www.nber.org/papers/w9132", abstract = {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.}, }