What causes Time Inconsistency sufficient Policy Instruments: One can easily find that there is no time go inconsistency in the second model if the government is allowed to levy lump-sum tax (or proportional income tax? ) However, this explanation seems not satisfactory since it can't explain why time inconsistency rises in the first model Persson and Tabellini(1994)argue that ti is due to the sequential nature of policy-making. This, again, is only partially correct Now most economists believe that TI is induced by the heterogeneity of interests, or equivalently some 复9大学经学院 externality This is first pointed out by F Chari, Kehoe and Prescott (1989)What Causes Time Inconsistency • Insufficient Policy Instruments: One can easily find that there is no time inconsistency in the second model if the government is allowed to levy lump-sum tax (or proportional income tax?). However, this explanation seems not satisfactory since it can’t explain why time inconsistency rises in the first model. • Persson and Tabellini (1994) argue that TI is due to the sequential nature of policy-making. This, again, is only partially correct. • Now most economists believe that TI is induced by the heterogeneity of interests, or equivalently, some externality. This is first pointed out by Chari, Kehoe and Prescott (1989)