Ignorance and Ricardian Equivalence

David Gruen

The Economic Record, 1997, vol. 73, issue 220, 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 US Federal government debt over the 30 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.

Date: 1997
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