Endogenous Government Spending and Ricardian Equivalence

Henning Bohn

Economic Journal, 1992, vol. 102, issue 412, 588-97

Abstract: Many analyses of debt policy assume exogenous government expenditures. Instead, the author uses an optimizing model in which the government endogenously selects values of taxes, spending, and debt to maximize welfare. If demand for publicly provided goods is elastic, a debt-financed tax cut increases consumption because individuals rationally expect some reduced government spending in the future. Even though future taxes rise, they do not offset the expansionary effect of the current tax cut on consumption. Depending on preferences, the marginal propensity to consume out of tax cuts can take any value between zero and the marginal propensity out of ordinary income. Copyright 1992 by Royal Economic Society.

Date: 1992
References: Add references at CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
http://links.jstor.org/sici?sici=0013-0133%2819920 ... 0.CO%3B2-M&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecj:econjl:v:102:y:1992:i:412:p:588-97

Ordering information: This journal article can be ordered from
http://www.blackwell ... al.asp?ref=0013-0133

Access Statistics for this article

Economic Journal is currently edited by Martin Cripps, Steve Machin, Woulter den Haan, Andrea Galeotti, Rachel Griffith and Frederic Vermeulen

More articles in Economic Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().