Ricardian Equivalence Survives Strategic Behavior
Robert Rebelein ()
No 62, Vassar College Department of Economics Working Paper Series from Vassar College Department of Economics
Robert Barro (1974) showed government debt has no real effects when generations are linked by altruistically motivated intergenerational transfers, a result now known widely as the Ricardian Equivalence Theorem. An important condition for debt neutrality is believed to be the absence of strategic interactions between members of different generations. I use a simple two-period, parent and child model in which the parent is altruistic, to show Ricardian equivalence holds in the presence of intergenerational strategic behavior for a broad class of utility functions. The intuition for this result derives from the fact that the child’s utility is a public good.
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Journal Article: Ricardian Equivalence Survives Strategic Behavior (1998)
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