Time Inconsistency in Fiscal Policy s The following model, developed g 0 by Fischer(1981, JEDC), is a benchmark to start with ☆ Household's behavior maxUC.c, L 2 g Subject to +k=2=(+了k+(=r1 This yields households response function Ig) k 56 A benevolent government would like 3 to maximize households'welfare,45 subject to g=ckk+rzlTime Inconsistency in Fiscal Policy ❖ The following model, developed by Fischer (1981, JEDC), is a benchmark to start with. ❖ Household’s Behavior maxU(c ,c ,l, g) 1 2 Subject to c k y c ( )Rk ( )zl k l + = = 1− + 1− 1 2 This yields households’ response function c ( g) c ( g) k( g) l( g) k l k l k l k l , , , , , , , , 1 2         • A benevolent government would like to maximize households’ welfare, subject to g k zl k l = +