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Ricardian Equivalence Survives Strategic Behavior

Robert Rebelein ()

No 62, Vassar College Department of Economics Working Paper Series from Vassar College Department of Economics

Abstract: 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.

Date: 2004-10
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Related works:
Journal Article: Ricardian Equivalence Survives Strategic Behavior (1998)
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