Fiscal Policy With Impure Intergenerational Altruism / Andrew B. Abel, B. Douglas Bernheim.

Format:

Book

Author/Creator:

Abel, Andrew B.

Contributor:

National Bureau of Economic Research.

Bernheim, B. Douglas.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2613.

NBER working paper series no. w2613

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1988.

Summary:

Recent work demonstrates that dynastic assumptions guarantee the irrelevance of all redistributional polices, distortionary taxes, and prices--the neutrality of fiscal policy (Ricardian equivalence) is only the "tip of the iceberg." In this paper, we investigate the possibility of reinstating approximate Ricardian equivalence. by introducing a small amount of friction in intergenerational links. If Ricardian equivalence depends upon significantly shorter chains of links than do these stronger neutrality results, then friction my dissipate the effects that generate strong neutrality, without significantly affecting the Ricardian result. Although this intuition turns out to be essentially correct, we show that models with small amounts of friction have other untenable implications. We conclude that the theoretical case for Ricardian equivalence remains tenuous.

Notes:

Print version record

June 1988.