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Ricardian equivalence with wage-rate uncertainty

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  • Dean Croushore

Abstract

This paper examines Ricardian equivalence when the wage rate is uncertain and people choose their labor supply. The author reviews the model of Robert B. Barsky, Gregory Mankiw, and Stephen P. Zeldes (1986) and shows that their finding of a positive marginal propensity to consume out of a tax cut is due to the insurance aspect of distortionary taxation. Then the author explores the trade-off between this insurance aspect and labor-supply distortions in the context of a model similar to that of Barsky, Mankiw, and Zeldes but incorporating labor supply. Copyright 1996 by Ohio State University Press.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 93-14.

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Date of creation: 1993
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Handle: RePEc:fip:fedpwp:93-14

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Keywords: Consumption (Economics) ; Labor supply ; Taxation;

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References

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  1. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, Econometric Society, vol. 58(1), pages 53-73, January.
  2. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings uncertainty and precautionary saving," Journal of Monetary Economics, Elsevier, Elsevier, vol. 30(2), pages 307-337, November.
  3. Kimball, Miles S & Mankiw, N Gregory, 1989. "Precautionary Saving and the Timing of Taxes," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 863-79, August.
  4. Caballero, R.J., 1988. "Consumption Puzzles And Precautionary Savings," Discussion Papers, Columbia University, Department of Economics 1988_05, Columbia University, Department of Economics.
  5. Fremling, Gertrud M & Lott, John R, Jr, 1994. "Do Deficits Affect the Level of Insurance?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 26(4), pages 934-40, November.
  6. DREZE, Jacques H. & MODIGLIANI, Franco, . "Cosumption decisions under uncertainty," CORE Discussion Papers RP -119, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Robert J. Barro, 1988. "The Ricardian Approach to Budget Deficits," Working Papers, Queen's University, Department of Economics 728, Queen's University, Department of Economics.
  8. Sinn, Hans-Werner, 1995. " A Theory of the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 97(4), pages 495-526, December.
  9. Andrew B. Abel, 1988. "The Implications of Insurance for the Efficacy of Fiscal Policy," NBER Working Papers 2517, National Bureau of Economic Research, Inc.
  10. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, Elsevier, vol. 17(2), pages 181-211, March.
  11. Jonathan S. Skinner, 1987. "Risky Income, Life Cycle Consumption, and Precautionary Savings," NBER Working Papers 2336, National Bureau of Economic Research, Inc.
  12. Jeff Dominitz & Charles F. Manski, 1994. "Using Expectations Data to Study Subjective Income Expectations," NBER Working Papers 4937, National Bureau of Economic Research, Inc.
  13. Stern, N. H., 1976. "On the specification of models of optimum income taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 6(1-2), pages 123-162.
  14. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  15. Robert B. Barsky & N. Gregory Mankiw & Stephen P. Zeldes, 1987. "Ricardian Consumers With Keynesian Propensities," NBER Working Papers 1400, National Bureau of Economic Research, Inc.
  16. Hansson, Ingemar & Stuart, Charles, 1985. "Tax revenue and the marginal cost of public funds in Sweden," Journal of Public Economics, Elsevier, Elsevier, vol. 27(3), pages 331-353, August.
  17. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  18. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(2), pages 275-98, May.
  19. Chan, Louis Kuo Chi, 1983. "Uncertainty and the neutrality of government financing policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 11(3), pages 351-372.
  20. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 14(1), pages 49-68, August.
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Citations

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Cited by:
  1. Jonathan Heathcote, 2003. "Fiscal Policy with Heterogeneous Agents and Incomplete Markets," Working Papers, Georgetown University, Department of Economics gueconwpa~03-03-23, Georgetown University, Department of Economics.
  2. Hideaki Tamura & Yoichi Matsubayashi, 2014. "A New Solution to the Equity Premium Puzzle and the Risk-Free Rate Puzzle: Theory and Evidence," Discussion Papers 1422, Graduate School of Economics, Kobe University.
  3. Simon Grant & John Quiggin, 2002. "The Risk Premium for Equity: Implications for the Proposed Diversification of the Social Security Fund," American Economic Review, American Economic Association, American Economic Association, vol. 92(4), pages 1104-1115, September.
  4. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669 Elsevier.
  5. Koumparoulis, Dimitrios, 2006. "Ευρωπαϊκή Δημοσιονομική Πολιτική Και Οικονομική Μεγέθυνση: Η Νεοκλασική Οικονομική Θεωρία Για Την ΠερίπτωσÎ," MPRA Paper 44310, University Library of Munich, Germany.

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