Defence Spending in a Neo-Ricardian World
This paper shows that Ricardian equivalence no longer holds once it is recognized that government acts as an intermediary between generations in the provision of national defense. Consequently, the level of public debt is positively related to defense spending since this component of government expenditures insures the transferability of bequests, as well as protecting savings. It is shown that defense spending has an adverse effect on both national saving and the saving rate that has not been considered in the economic growth literature. More generally, the paper emphasizes that, in developing a positive theory of taxation, the composition of government spending plays an integral role. Copyright 1998 by The London School of Economics and Political Science
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Volume (Year): 65 (1998)
Issue (Month): 258 (May)
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