A case where Barro expectations are not rational
AbstractThe paper generalizes Feldstein's criticism (Perceived Wealth in Bonds and Social Security, 1976) of Barro's analysis (Are Government Bonds Real Net Wealth?, 1974) for the case that the interest rate exceeds the growth rate. This is done by considering an economy in steady state where all agents hold Barro expectations: they believe that government debt must necessarily be repaid and therefore leave the present value of their income streams unchanged. In this scenario, a change in the mode of taxation affects the present value of disposable income in the private sector. This violates their Barro expectations. --
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2012-13.
Date of creation: 2012
Date of revision:
Barro-Ricardo equivalence; Ricardian equivalence; fiscal policy; debt; taxation; rational expectations;
Other versions of this item:
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- H6 - Public Economics - - National Budget, Deficit, and Debt
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- Barro, Robert J., 1974.
"Are Government Bonds Net Wealth?,"
3451399, Harvard University Department of Economics.
- Schlicht, Ekkehart, 2008.
"Public Debt as Private Wealth,"
Munich Reprints in Economics
2143, University of Munich, Department of Economics.
- Ekkehart Schlicht, 2006.
"Public Debt As Private Wealth: Some Equilibrium Considerations,"
Wiley Blackwell, vol. 57(4), pages 494-520, November.
- Schlicht, Ekkehart, 2013.
"Unexpected Consequences of Ricardian Expectations,"
Discussion Papers in Economics
14847, University of Munich, Department of Economics.
- repec:lmu:muenar:14673 is not listed on IDEAS
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