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Public debt and limited altruism: is Ricardian equivalence possible if altruism is limited ?

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MICHEL, Philippe

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Abstract

There have been many criticisms of Barro's theorem on Ricardian equivalence, but these criticisms apply mainly to a "special form" of Barro's model and there are different possible interpretations of this model. We study another very simple model in which altruism is limited. The effects of public debt are studied under two different types of assumptions. The first type of assumptions is standard: young agents buy the government bonds which are perfect substitutes to the assets of firms. This leads to the "traditional" effects of public debt: it increases current consumptions and decreases future capital stocks. Alternatively, we assume that agents apply a special rule called the "patriarchal rule". If agents expect that their children will apply it, then it is rational for them to apply it. This rule leads to a robust property of Ricardian equivalence.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003008.

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Date of creation: 01 Feb 2003
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Handle: RePEc:cor:louvco:2003008

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Related research
Keywords: public debt; altruism; ricardian equivalence;

Find related papers by JEL classification:
H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management
D64 - Microeconomics - - Welfare Economics - - - Altruism
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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  1. Kimball, Miles S., 1987. "Making sense of two-sided altruism," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 301-326, September. [Downloadable!] (restricted)
  2. Gary S. Becker & Robert J. Barro, 1988. "A Reformulation of the Economic Theory of Fertility," NBER Working Papers 1793, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669 Elsevier. [Downloadable!] (restricted)
    Other versions:
  4. Malinvaud, Edmond, 1987. "The Overlapping Generations Model in 1947," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 103-05, March. [Downloadable!] (restricted)
  5. Gary S. Becker, 1974. "A Theory of Social Interactions," NBER Working Papers 0042, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467. [Downloadable!] (restricted)
  7. Barro, Robert J, 1989. "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 37-54, Spring. [Downloadable!] (restricted)
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  8. Andrew B. Abel, . "Operative Gift and Bequest Motives," Rodney L. White Center for Financial Research Working Papers 9-87, Wharton School Rodney L. White Center for Financial Research.
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  9. Lambrecht, S. & Michel, P. & Thibault, E., 2000. "Intertemporal Equilibrium with Myopic Altruism," G.R.E.Q.A.M. 00a24, Universite Aix-Marseille III.
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  11. JeanPierre Vidal & Philippe Michel & Stephane Lambrecht, 2001. "Public pensions and growth," Working Paper Series 090, European Central Bank. [Downloadable!]
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  12. Bernheim, B Douglas & Bagwell, Kyle, 1988. "Is Everything Neutral?," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 308-38, April. [Downloadable!] (restricted)
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  13. 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.
  14. 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)
  15. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-90, March. [Downloadable!] (restricted)
  16. Weil, Philippe, 1987. "Love thy children : Reflections on the Barro debt neutrality theorem," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 377-391, May. [Downloadable!] (restricted)
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