Optimal policy in OG models (Q1976441): Difference between revisions

A mathematical model of general stationary overlapping generations economies with long-lived consumers, many commodities and productions is considered. An economy is regulated by government via fiscal policy (transfers and taxes). Its aim is to maximize a utilitarian social welfare function, which is a possibly discounted sum of such generations' functions that consisted on weighted sums of the utility functions of the consumers. The consumers maximize their utilities subject to budget constraints and the firms maximize their profits under technological constraints. Both kinds of constraints are depended on the government's policy. Through a transformation of the government's problem into an optimal growth problem, it is shown that if the discounted factor is sufficiently closed to one (discontinuity diminishes) then the optimal trajectory (dynamic equilibrium) has the turnpike property.