A Case Where Barro Expectations Are Not Rational
This note generalizes Feldsteinâ€™s (1976) criticism of Barroâ€™s(1974) analysis for the case that the interest rate exceeds the growth rate. This is done by considering an economy in steady state where all agents hold â€œBarro expectationsâ€: they believe that government debt must necessarily be repaid and therefore leave the present value of their income streams unchanged. In this scenario, a change in the mode of taxation affects the present value of disposable income in the private sector. This violates their Barro expectations.
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- Schlicht, Ekkehart, 2008.
"Public Debt as Private Wealth,"
Discussion Papers in Economics
2143, University of Munich, Department of Economics.
- Ekkehart Schlicht, 2006. "Public Debt As Private Wealth: Some Equilibrium Considerations," Metroeconomica, Wiley Blackwell, vol. 57(4), pages 494-520, November.
- Barro, Robert J., 1979.
"On the Determination of the Public Debt,"
3451400, Harvard University Department of Economics.
- Schlicht, Ekkehart, 2012.
"A case where Barro expectations are not rational,"
Economics Discussion Papers
2012-13, Kiel Institute for the World Economy.
- Schlicht, Ekkehart, 2012. "A Case Where Barro Expectations Are Not Rational," Discussion Papers in Economics 12715, University of Munich, Department of Economics.
- Schlicht, Ekkehart, 2012. "Unexpected Consequences of Ricardian Expectations," Discussion Papers in Economics 13794, University of Munich, Department of Economics.
- Feldstein, Martin S, 1976. "Perceived Wealth in Bonds and Social Security: A Comment," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 331-36, April.
- 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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