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Fiscal Policy With Intertemporally Non-Separable Preferences

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  • Pedro Gomis Porqueras

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  • Luca Bossi

    ()

Abstract

In this paper, we show that Ricardian equivalence does not hold in a representative agent framework if one considers goods whose current consumption affect future marginal utilities. We find that, when the intertemporal elasticity of substitution changes over time, the timing of lump sum taxation has an asymmetric effect on current and future consumption. This in turn induces distinctive welfare consequences even if the government and individual budget constraints are unchanged in present value terms.

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Bibliographic Info

Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2010-512.

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Length: 13 Pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:acb:cbeeco:2010-512

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  1. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
  2. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  3. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-90, March.
  4. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  5. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
  6. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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Cited by:
  1. Richard Barnett & Joydeep Bhattacharya & Helle Bunzel, 2013. "Deviant generations, Ricardian equivalence, and growth cycles," Economic Theory, Springer, vol. 52(1), pages 367-396, January.

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