A Case Where Barro Expectations Are Not Rational
Ekkehart Schlicht ()
Discussion Papers in Economics from University of Munich, Department of Economics
This note generalizes Feldstein’s (1976) criticism of Barro’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 “Barro expectations”: 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.
Keywords: Barro-Ricardo equivalence; Ricardian equivalence; fiscal policy; debt; taxation; rational expectations (search for similar items in EconPapers)
JEL-codes: E2 E12 E6 H6 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
http://epub.ub.uni-muenchen.de/12715/2/Schlicht_20 ... Are_Not_Rational.pdf (application/pdf)
Working Paper: Unexpected Consequences of Ricardian Expectations (2012)
Working Paper: A case where Barro expectations are not rational (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:lmu:muenec:12715
Access Statistics for this paper
More papers in Discussion Papers in Economics from University of Munich, Department of Economics
Address: Ludwigstr. 28, 80539 Munich, Germany
Contact information at EDIRC.
Series data maintained by Alexandra Frank ().