Credibility, time inconsistency and economic policies.

Summary We focus on issues of economic policy credibility. We first review the literature on the selection of credible economic policies in a democracy. Then, we study under which conditions a European central bank that depends on national states for its economic information can be truly independent. Then, we study the concept of equilibrium with economically rational expectations. Then, we try to clarify the difference between tc1 and tc0 policies and the difference between time-consistent policies and game theory. Finally, we propose an explanation for the simultaneous decline in capital and direct investment tax rates in developing countries during the 1980s.