Tax Timing and Liquidity Constraints: A Heterogenous-Agent Model
This paper considers the Ricardian equivalence hypothesis in a model in which some families face binding liquidity constraints and others do not. The source of heterogeneity that generates binding constraints in some families, but not in others, is shown to be the rate of intergenerational discount. In an economy populated by these two types of families, a change in tax timing has non-Ricardian short-run effects but many Ricardian long-run effects. This implies that heterogeneous agent models can reconcile some of the conflicting empirical evidence on Ricardian equivalence. Copyright 1993 by Ohio State University Press.
Volume (Year): 25 (1993)
Issue (Month): 2 (May)
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