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Crowding out in Ricardian economies


  • Abel, Andrew B.


The crowding-out coefficient is the ratio of the reduction in privately-issued bonds to the increase in government bonds that are issued to finance a tax cut. If (1) Ricardian Equivalence holds, and (2) households do not borrow risklessly while holding positive gross positions in other riskless assets, the crowding-out coefficient equals the fraction of the aggregate tax cut that accrues to households that borrow. In the conventional case in which all households receive equal tax cuts, the crowding-out coefficient equals the fraction of households that borrow; in the United States, about 75% of households borrow, so the crowding-out coefficient is predicted to be 0.75. Allowing for cross-sectional variation in tax changes increases the crowding-out coefficient to about 0.85.

Suggested Citation

  • Abel, Andrew B., 2017. "Crowding out in Ricardian economies," Journal of Monetary Economics, Elsevier, vol. 87(C), pages 52-66.
  • Handle: RePEc:eee:moneco:v:87:y:2017:i:c:p:52-66
    DOI: 10.1016/j.jmoneco.2017.03.002

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    References listed on IDEAS

    1. Gary Gorton & Stefan Lewellen & Andrew Metrick, 2012. "The Safe-Asset Share," American Economic Review, American Economic Association, vol. 102(3), pages 101-106, May.
    2. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
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    Cited by:

    1. Robert J. Barro & Jesús Fernández-Villaverde & Oren Levintal & Andrew Mollerus, 2014. "Safe Assets," NBER Working Papers 20652, National Bureau of Economic Research, Inc.
      • Barro, Robert J. & Fern�ndez-Villaverde, Jes�s & Levintal, Oren & Mollerus, Andrew, 2017. "Safe Assets," CEPR Discussion Papers 12043, C.E.P.R. Discussion Papers.
      • Robert Barro & Jesus Fernandez-Villaverde & Oren Levintal & Andrew Mollerus, 2017. "Safe Assets," PIER Working Paper Archive 17-008, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 10 May 2017.

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    Crowding out; Ricardian Equivalence; Bonds;


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