A case where Barro expectations are not rational

Ekkehart Schlicht

No 2012-13, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The paper generalizes Feldstein's criticism (Perceived Wealth in Bonds and Social Security, 1976) of Barro's analysis (Are Government Bonds Real Net Wealth?, 1974) for the case that the interest rate exceeds the growth rate. This is done by considering an economy in steady state where all agents hold Barro expectations: they believe that government debt must necessarily be repaid and therefore leave the present value of their income streams unchanged. In this scenario, a change in the mode of taxation affects the present value of disposable income in the private sector. This violates their Barro expectations.

Keywords: Barro-Ricardo equivalence; Ricardian equivalence; fiscal policy; debt; taxation; rational expectations (search for similar items in EconPapers)
JEL-codes: E12 E2 E6 H6 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.economics-ejournal.org/economics/discussionpapers/2012-13
https://www.econstor.eu/bitstream/10419/55513/1/685294404.pdf (application/pdf)

Related works:
Working Paper: A Case Where Barro Expectations Are Not Rational (2012)
Working Paper: Unexpected Consequences of Ricardian Expectations (2012)
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:zbw:ifwedp:201213

Access Statistics for this paper

More papers in Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().