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The Effects of Fiscal Policies when Incomes Are Uncertain: A Contradiction to Ricardian Equivalence

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  • Feldstein, Martin

Abstract

This paper shows that, when future earnings are uncertain, the substitution of deficit fin ance for tax finance (or the introduction of an unfunded social secur ity program) can raise consumption even if all bequests reflect inter generational altruism. An operative bequest motive therefore need not imply Ricardian equivalence. This conclusion follows from the result , derived in the paper, that the uncertainty of future income makes t he existence of a future bequest uncertain to the prospective donor. Copyright 1988 by American Economic Association.

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  • Feldstein, Martin, 1988. "The Effects of Fiscal Policies when Incomes Are Uncertain: A Contradiction to Ricardian Equivalence," American Economic Review, American Economic Association, vol. 78(1), pages 14-23, March.
    • Handle: RePEc:aea:aecrev:v:78:y:1988:i:1:p:14-23
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    1. Feldstein, Martin, 1982. "Government deficits and aggregate demand," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 1-20.
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