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Ricardian Consumers with Keynesian Propensities

  • Barsky, Robert B
  • Mankiw, N Gregory
  • Zeldes, Stephen P

This paper examines Ricardian equivalence in a world in which taxes arenot lump sum, but are levied on risky labor income. It shows that themarginal propensity to consume out of a tax cut, coupled with a futureincome tax increase, can be substantial under plausible assumptions. Indeed, the MPC out of a tax cut can be closer to the Keynesian valuethat ignores the future tax liabilities than to the Ricardian value that treats future taxes as if they were lump sum. Copyright 1986 by American Economic Association.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 76 (1986)
Issue (Month): 4 (September)
Pages: 676-91

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Handle: RePEc:aea:aecrev:v:76:y:1986:i:4:p:676-91
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  1. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 275-98, May.
  2. Hall, Robert E & Mishkin, Frederic S, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," Econometrica, Econometric Society, vol. 50(2), pages 461-81, March.
  3. Feldstein, Martin S, 1976. "Perceived Wealth in Bonds and Social Security: A Comment," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 331-36, April.
  4. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
  5. Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 7-29, January.
  6. Kotlikoff, Laurence J & Summers, Lawrence H, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 706-32, August.
  7. Alan S. Blinder, 1978. "Temporary Income Taxes and Consumer Spending," NBER Working Papers 0283, National Bureau of Economic Research, Inc.
  8. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  9. Dreze, Jacques H. & Modigliani, Franco, 1972. "Consumption decisions under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 308-335, December.
  10. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Wiley Blackwell, vol. 37(3), pages 353-60, July.
  11. F. Thomas Juster, 1977. "The Distribution of Economic Well-Being," NBER Books, National Bureau of Economic Research, Inc, number just77-1, July.
  12. Carmichael, Jeffrey, 1982. "On Barro's Theorem of Debt Neutrality: The Irrelevance of Net Wealth," American Economic Review, American Economic Association, vol. 72(1), pages 202-13, March.
  13. Bryant, John, 1983. "Government Irrelevance Results: A Simple Exposition," American Economic Review, American Economic Association, vol. 73(4), pages 758-61, September.
  14. Chan, Louis Kuo Chi, 1983. "Uncertainty and the neutrality of government financing policy," Journal of Monetary Economics, Elsevier, vol. 11(3), pages 351-372.
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