In evaluating the existing theory and evidence on Ricardian equivalence, it is essential to distinguish between the short run effects of government borrowing (primarily the potential for stimulating aggregate demand) and the long run effects (primarily the potential for depressing capital accumulation). I argue that the theoretical case for long run neutrality is extremely weak, in that it depends upon improbable assumptions that are either directly or indirectly falsified through empirical observation. In contrast, the approximate validity of short run neutrality depends primarily upon assumptions that have at least an aura of plausibility. Nevertheless, even in this case behavioral evidence weighs heavily against the Ricardian view. Efforts to measure the economic effects of deficits directly through aggregate data confront a number of problems which, taken together, may well be insuperable. It is therefore not at all surprising that this evidence has, by itself, proven inconclusive. Overall, the existing body of theory and evidence establishes a significant likelihood that deficits have large effects on current consumption, and there is good reason to believe that this would drive up interest rates. In addition, I find a complete lack of either evidence or coherent theoretical argument to dispute the view that sustained deficits significantly depress capital accumulation in the long run.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
2330.
Length: Date of creation: Mar 1988 Date of revision: Publication status: published relationship to a non-chapter. This should not happen. Please contact NBER. Handle: RePEc:nbr:nberwo:2330
Note: PE 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
For technical questions regarding this item, or to correct its listing, contact: ().
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.:
B. Douglas Bernheim & Kyle Bagwell, 1989.
"Is Everything Neutral?,"
NBER Working Papers
2086, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1985.
"The Strategic Bequest Motive,"
Journal of Political Economy,
University of Chicago Press, vol. 93(6), pages 1045-76, December.
[Downloadable!] (restricted)
Other versions:
Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1986.
"The Strategic Bequest Motive,"
Journal of Labor Economics,
University of Chicago Press, vol. 4(3), pages S151-82, July.
[Downloadable!] (restricted)
Cited by: (explanations, 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.) This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.
Did you know? All full texts are decentralized with the publishers, none reside on this server, thus making it possible to offer this service for free to all parties.