Does Ricardian Equivalence Hold When Expectations are not Rational?

George Evans and Seppo Honkapohja

University of Oregon Economics Department Working Papers from University of Oregon Economics Department

Abstract: This paper considers the Ricardian Equivalence proposition when expectations are not rational and are instead formed using adaptive learning rules. We show that Ricardian Equivalence continues to hold provided suitable additional conditions on learning dynamics are satisfied. However, new cases of failure can also emerge under learning. In particular, for Ricardian Equivalence to obtain, agents’ expectations must not depend on government’s financial variables under deficit financing.

Keywords: Taxation; expectations; Ramsey model; Ricardian equivalence. (search for similar items in EconPapers)
JEL-codes: D84 E21 E43 E62 (search for similar items in EconPapers)
Pages: 28
Date: 2010-08-04
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mic
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http://economics.uoregon.edu/papers/UO-2010-3_Evans_Ricardian.pdf (application/pdf)

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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Persistent link: https://EconPapers.repec.org/RePEc:ore:uoecwp:2010-3

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