Fiscal Policy With Impure Intergenerational Altruism
AbstractRecent work demonstrates that dynastic assumptions guarantee the irrelevance of all redistributional polices, distortionary taxes, and prices--the neutrality of fiscal policy (Ricardian equivalence) is only the "tip of the iceberg." In this paper, we investigate the possibility of reinstating approximate Ricardian equivalence. by introducing a small amount of friction in intergenerational links. If Ricardian equivalence depends upon significantly shorter chains of links than do these stronger neutrality results, then friction my dissipate the effects that generate strong neutrality, without significantly affecting the Ricardian result. Although this intuition turns out to be essentially correct, we show that models with small amounts of friction have other untenable implications. We conclude that the theoretical case for Ricardian equivalence remains tenuous.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2613.
Date of creation: Jan 1992
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Publication status: published as Econometrica, Vol. 59, No. 6, pp. 1687-1711, (November 1991).
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- Abel, Andrew B & Bernheim, B Douglas, 1991. "Fiscal Policy with Impure Intergenerational Altruism," Econometrica, Econometric Society, vol. 59(6), pages 1687-1711, November.
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