Ignorance and Ricardian Equivalence

David Gruen

The Economic Record, 1997, vol. 73, issue 220, pages 35-44

Abstract: An immortal, intertemporally optimizing consumer, who is ignorant of the link between bonds and future taxes, is exposed to the changing level of U.S. federal government debt over the thirty years, 1961-90. Estimates of the cost of ignorance are about $1 to $10 per annum. Provided governments do not use bond-financing too aggressively, it may therefore be privately optimal for consumers to ignore the link between bonds and future taxes. Then bond-financed fiscal policy has significant systematic effects on aggregate demand and national savings. Copyright 1997 by The Economic Society of Australia.

Date: 1997
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