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Ignorance and Ricardian Equivalence

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  • Gruen, David

Abstract

An immortal, intertemporally optimizing consumer, who is ignorant of the link between bonds and future taxes, is exposed to the changing level of U.S. federal government debt over the thirty years, 1961-90. Estimates of the cost of ignorance are about $1 to $10 per annum. Provided governments do not use bond-financing too aggressively, it may therefore be privately optimal for consumers to ignore the link between bonds and future taxes. Then bond-financed fiscal policy has significant systematic effects on aggregate demand and national savings. Copyright 1997 by The Economic Society of Australia.

Suggested Citation

  • Gruen, David, 1997. "Ignorance and Ricardian Equivalence," The Economic Record, The Economic Society of Australia, vol. 73(220), pages 35-44, March.
  • Handle: RePEc:bla:ecorec:v:73:y:1997:i:220:p:35-44
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    Cited by:

    1. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer.
    2. Anton Gerunov, 2016. "Cyclical dynamics of key fiscal aggregates in Bulgaria over the period 1998-2014," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 56-73,74-89.

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