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intertemporal budget constraint


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In a dynamic economy this is the constraint on the flows of spending and income, and the stock of wealth, over two or more periods. For example, a consumer's intertemporal budget constraint in an economy with perfect credit markets requires that the present value of their lifetime consumption does not exceed the present value of their lifetime income plus their initial wealth. The government's intertemporal budget constraint requires that the present value of current and future taxes must be sufficient to cover the present value of current and future government spending plus the initial stock of government debt. In other words, the intertemporal budget constraint reflects the fact that with borrowing and lending current spending need not be restricted by current wealth.

Subjects: Economics.


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