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- Title
Unexpected Consequences of Ricardian Expectations.
- Authors
Schlicht, Ekkehart
- Abstract
The Ricardian equivalence thesis maintains that, given the time-path of government spending, a change in taxation does not alter the set of feasible lifetime consumption plans of the households and affects neither the demand for commodities and services nor the rate of interest, provided the households act rationally. This note establishes that the very expectations the thesis proposes ('Ricardian expectations') are invalidated if households act rationally. The divergence from Ricardian equivalence is traced to the omission of interest payments on public debt as part of the households' disposable income. The non-equivalence is valid in a wide class of models.
- Subjects
RICARDIAN equivalence theorem; ECONOMIC expectations; PUBLIC spending; PUBLIC debts; COMMERCIAL products; INTEREST rates
- Publication
Metroeconomica, 2013, Vol 64, Issue 3, p498
- ISSN
0026-1386
- Publication type
Article
- DOI
10.1111/meca.12017