Does Ricardian Equivalence Hold When Expectations are not Rational?

Seppo Honkapohja, George Evans and Kaushik Mitra

No 7792, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper shows that the Ricardian Equivalence proposition can continue to hold when expectations are not rational and are instead formed using adaptive learning rules. In temporary equilibrium, with given expectations, Ricardian Equivalence holds under the standard conditions for its validity under rational expectations. Furthermore, Ricardian Equivalence holds for paths of temporary equilibria under learning provided suitable additional conditions on learning dynamics are satisfied. New cases of failure of the Ricardian proposition emerge under learning. Most importantly, agents' expectations must not depend on government's financial variables under deficit financing.

Keywords: Expectations; Ramsey model; Ricardian equivalence; Taxation (search for similar items in EconPapers)
JEL-codes: D84 E21 E43 E62 (search for similar items in EconPapers)
Date: 2010-04
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Does Ricardian Equivalence Hold When Expectations Are Not Rational? (2012)
Journal Article: Does Ricardian Equivalence Hold When Expectations Are Not Rational? (2012)
Working Paper: Does Ricardian Equivalence Hold When Expectations are not Rational? (2010)
Working Paper: Does Ricardian Equivalence Hold When Expectations are not Rational? (2010)
Working Paper: Does Ricardian Equivalence hold when expectations are not rational? (2010)
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