Love Thy Children: Reflections on the Barro Debt Neutrality Theorem
This paper proves that Barro's (1974) debt neutrality proposition, whose relevance hinges, in an economy with bequest motives, on bequests being operative in the economy without public debt, is not applicable to a wide class of overlapping generation economies — those with a ‘weak’ bequest motive. In particular, it is shown that the bequest motive is always too weak, and public debt therefore non-neutral, when non-physical assets have a well-defined function (reducing oversavings) in the corresponding economy without bequest motive, i.e., when the non-altruistic economy is dynamically inefficient.
|Date of creation:||May 1987|
|Publication status:||Published in ICFAI Journal of Monetary Economics, 1987, vol. 19, pp.377-391|
|Contact details of provider:|| Web page: http://www.sciencespo.fr/|
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- 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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- Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November. Full references (including those not matched with items on IDEAS)
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