NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Ricardian Consumers With Keynesian Propensities

Robert B. Barsky, N. Gregory Mankiw, Stephen P. Zeldes

NBER Working Paper No. 1400 (Also Reprint No. r0821)
Issued in February 1987
NBER Program(s):   EFG

In this paper, we examine Ricardian equivalence of debt and tax finance in a world in which taxes are not lump-sum but are levied on risky labor income. First, we show that the marginal propensity to consume out of a tax cut, coupled with a future income tax increase, is positive under reasonable assumptions regarding preferences toward risk. Second, we document that the degree of income uncertainty facing the typical individual orfamily is large. Third, we show that, for plausible utility function parameters and distributions of future income, the MPC out of a tax cut is quantitatively large. Indeed, the MPC out of a tax cut, coupled with a future income tax increase, can be closer to the Keynesian value that ignores the future tax liabilities than to the Ricardian value that treats future taxes as if they were lump-sum.

download in pdf format
   (295 K)

download in djvu format
   (207 K)

email paper

This paper is available as PDF (295 K) or DjVu (207 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1400

Published: American Economic Review, Vol. 76 (September 1986): 676-691. citation courtesy of

Users who downloaded this paper also downloaded these:
Bernheim w2330 Ricardian Equivalence: An Evaluation of Theory and Evidence
Barro w2685 The Ricardian Approach to Budget Deficits
Feldstein w2062 The Effects of Fiscal Policies When Incomes are Uncertain: A Contradiction to Ricardian Equivalence
Barro w5502 Reflections on Ricardian Equivalence
Kotlikoff, Razin, and Rosenthal w2699 A Strategic Altruism Model In Which Ricardian Equivalence Does Not Hold
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us