ricardian

ricardian - Ricardian Equivalence Ricardian Robert J....

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Ricardian Equivalence Ricardian Equivalence Robert J. Barro, “Are Government Bonds Net Wealth?” Robert J. Barro, “Are Government Bonds Net Wealth?” Journal of Political Economy (1974), 1095-1117. Journal of Political Economy (1974), 1095-1117. Graduate Macroeconomics I ECON 309 – Cunningham
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2 Assumptions Assumptions 1. Agents are rational and farsighted. 2. Agents either live forever, or care about their progeny as much as they care about themselves. This implies that agents are linked to the past and the future (by immortality or bequests), and have an infinite time horizon. 1. The belief that current budget deficits imply future taxes is correct. 2. Taxes are lump sum. 3. The availability of the deficit spending does not alter the political process. 4. No distributional effects. Households are homogeneous, so that a representative agent model can be used. 5. No liquidity constraints. 6. Capital markets are perfect.
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The Argument (1) The Argument (1) Question: Does it matter whether government finances current spending through taxes or debt? Assume the gov’t decreases lump-
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This note was uploaded on 02/25/2012 for the course CHEM 309 taught by Professor Staff during the Spring '11 term at UConn.

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ricardian - Ricardian Equivalence Ricardian Robert J....

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