Advanced Search
MyIDEAS: Login to save this paper or follow this series

Finite Lifetimes, Borrowing Constraints, and Short-Run Fiscal Policy

Contents:

Author Info

  • R. Glenn Hubbard
  • Kenneth L. Judd

Abstract

Recent developments in public finance in the analysis of dynamic government debt policies have emphasized effects on the distribution of real resources across generations. At the same time, macroeconomists have emphasized the importance of the length of the time horizon over which agents optimize their decisions about consumption for judging the effects of fiscal policy on aggregate demand. Much of the discussion of these issues has focused on whether linkages among generations are sufficient to give consumers infinite horizons. To the extent that horizons are finite, debt burdens can be shifted to future generations, and substitutions of debt for taxes have real effects. This paper argues that, as a matter of quantitative significance, theoretical and empirical emphasis on the importance of finite horizons for the analysis of many fiscal policies is misplaced. Studies of the role of finite horizons in determining the effects of short-run fiscal policies on consumption have been conducted largely under the assumption of perfect capital markets. We show that while the marginal propensity to consume (MPC) out of temporary tax changes is nonzero in finite- horizon models, it is not very large. We demonstrate that the MPC is, however, quite sensitive to the importance of restrictions on borrowing in the economy. The clear implication is that shifting emphasis from the length of the planning horizon to the structure of capital markets is an important step for empirical research.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w2158.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2158.

as in new window
Length:
Date of creation: Jan 1987
Date of revision:
Handle: RePEc:nbr:nberwo:2158

Note: ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Bernanke, Ben S, 1984. "Permanent Income, Liquidity, and Expenditure on Automobiles: Evidence from Panel Data," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 99(3), pages 587-614, August.
  2. Martin Feldstein, 1980. "Government Deficits and Aggregate Demand," NBER Working Papers 0435, National Bureau of Economic Research, Inc.
  3. Fumio Hayashi, 1979. "The Permanent Income Hypothesis: Estimation and Testing," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 484, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Barsky, Robert B & Mankiw, N Gregory & Zeldes, Stephen P, 1986. "Ricardian Consumers with Keynesian Propensities," American Economic Review, American Economic Association, American Economic Association, vol. 76(4), pages 676-91, September.
  5. James M. Poterba & Lawrence H. Summers, 1986. "Finite Lifetimes and the Effects of Budget Deficits on National Savings," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 434, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Laurence J. Kotlikoff, 1985. "Taxation and Savings - A Neoclassical Perspective," NBER Working Papers 1302, National Bureau of Economic Research, Inc.
  7. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(2), pages 223-47, April.
  8. 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.
  9. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  10. Stephen Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 24-85, Wharton School Rodney L. White Center for Financial Research.
  11. R. Glenn Hubbard & Kenneth L. Judd, 1986. "Liquidity Constraints, Fiscal Policy, and Consumption," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(1), pages 1-60.
  12. Zvi Bodie & John B. Shoven & David A. Wise, 1987. "Issues in Pension Economics," NBER Books, National Bureau of Economic Research, Inc, number bodi87-1.
  13. R. Glenn Hubbard & Kenneth L. Judd, 1985. "Social Security and Individual Welfare: Precautionary Saving, LiquidityConstraints, and the Payroll Tax," NBER Working Papers 1736, National Bureau of Economic Research, Inc.
  14. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 974-1009, October.
  15. Alan S. Blinder & Angus Deaton, 1985. "The Time Series Consumption Function Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 465-521.
  16. J. Bradford De Long & Lawrence H. Summers, 1984. "The Changing Cyclical Variability of Economic Activity in the United States," NBER Working Papers 1450, National Bureau of Economic Research, Inc.
  17. R. Glenn Hubbard, 1988. "Uncertain Lifetimes, Pensions, and Individual Saving," NBER Working Papers 1363, National Bureau of Economic Research, Inc.
  18. Fumio Hayashi, 1985. "Tests for Liquidity Constraints: A Critical Survey," NBER Working Papers 1720, National Bureau of Economic Research, Inc.
  19. Robert E. Hall & Frederic S. Mishkin, 1980. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc.
  20. Marjorie A. Flavin, 1984. "Excess Sensitivity of Consumption to Current Income: Liquidity Constraints or Myopia?," NBER Working Papers 1341, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2158. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.