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Is Everything Neutral?

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  • Bernheim, B Douglas
  • Bagwell, Kyle

Abstract

In this paper, the authors critique the assumption on which Robert J. Barro's dynastic model is predicated and a rgue that this framework is not a suitable abstraction in contexts in which the objective is to analyze the effects of public policies. Th ey formally consider a world in which each generation consists of man y distinct individuals and show that family linkages form complex net works, in which each individual may belong to many dynastic groupings. The resulting proliferation of linkages between families gives rise to a host of neutrality results, including the irrelevance of all public distributions, distortionary taxes, and prices. Since these results are not at all descriptive of the real world, the authors conclude that, in some fundamental sense, the world is not even approximatel y dynastic. Copyright 1988 by University of Chicago Press.

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  • Bernheim, B Douglas & Bagwell, Kyle, 1988. "Is Everything Neutral?," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 308-338, April.
  • Handle: RePEc:ucp:jpolec:v:96:y:1988:i:2:p:308-38
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    1. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    2. Stephen W. Salant, 1974. "Profitable speculation, price stability, and welfare," International Finance Discussion Papers 54, Board of Governors of the Federal Reserve System (U.S.).
    3. Danthine, Jean-Pierre, 1978. "Information, futures prices, and stabilizing speculation," Journal of Economic Theory, Elsevier, vol. 17(1), pages 79-98, February.
    4. McCafferty, Stephen & Driskill, Robert, 1980. "Problems of Existence and Uniqueness in Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 48(5), pages 1313-1317, July.
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