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Ricardian Consumers with Keynesian Propensities

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Author Info
Barsky, Robert B
Mankiw, N Gregory
Zeldes, Stephen P

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Abstract

This paper examines Ricardian equivalence in a world in which taxes arenot lump sum, but are levied on risky labor income. It shows that themarginal propensity to consume out of a tax cut, coupled with a futureincome tax increase, can be substantial under plausible assumptions. Indeed, the MPC out of a tax cut can be closer to the Keynesian valuethat ignores the future tax liabilities than to the Ricardian value that treats future taxes as if they were lump sum. Copyright 1986 by American Economic Association.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 76 (1986)
Issue (Month): 4 (September)
Pages: 676-91
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Handle: RePEc:aea:aecrev:v:76:y:1986:i:4:p:676-91

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  1. Bryant, John, 1983. "Government Irrelevance Results: A Simple Exposition," American Economic Review, American Economic Association, vol. 73(4), pages 758-61, September. [Downloadable!] (restricted)
  2. Laurence J. Kotlikoff & Lawrence H. Summers, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Chan, Louis Kuo Chi, 1983. "Uncertainty and the neutrality of government financing policy," Journal of Monetary Economics, Elsevier, vol. 11(3), pages 351-372. [Downloadable!] (restricted)
  4. Hall, Robert E & Mishkin, Frederic S, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," Econometrica, Econometric Society, vol. 50(2), pages 461-81, March. [Downloadable!] (restricted)
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  5. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec.. [Downloadable!] (restricted)
  6. Blinder, Alan S, 1981. "Temporary Income Taxes and Consumer Spending," Journal of Political Economy, University of Chicago Press, vol. 89(1), pages 26-53, February. [Downloadable!] (restricted)
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  7. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August. [Downloadable!] (restricted)
  8. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Blackwell Publishing, vol. 37(3), pages 353-60, July. [Downloadable!] (restricted)
  9. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 275-98, May. [Downloadable!] (restricted)
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  10. Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5, pages 7-29. [Downloadable!] (restricted)
  11. Feldstein, Martin S, 1976. "Perceived Wealth in Bonds and Social Security: A Comment," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 331-36, April. [Downloadable!] (restricted)
  12. Carmichael, Jeffrey, 1982. "On Barro's Theorem of Debt Neutrality: The Irrelevance of Net Wealth," American Economic Review, American Economic Association, vol. 72(1), pages 202-13, March.
  13. Dreze, Jacques H. & Modigliani, Franco, 1972. "Consumption decisions under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 308-335, December. [Downloadable!] (restricted)
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