TY  - JOUR
AU  - Barsky,Robert B.
AU  - Mankiw,N. Gregory
AU  - Zeldes,Stephen P.
TI  - Ricardian Consumers With Keynesian Propensities
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1400
PY  - 1987
Y2  - February 1987
UR  - http://www.nber.org/papers/w1400
L1  - http://www.nber.org/papers/w1400.pdf
N1  - Author contact info:
Robert B. Barsky
Department of Economics
University of Michigan
Ann Arbor, MI  48109-1220
Tel: 734/764-9476
Fax: 734/764-2769
E-Mail: barsky@umich.edu

N. Gregory Mankiw
Department of Economics
Littauer 223
Harvard University
Cambridge, MA  02138
Tel: 617/495-4301
Fax: 617/495-7730
E-Mail: ngmankiw@fas.harvard.edu

Stephen P. Zeldes
Graduate School of Business
Columbia University
3022 Broadway, Uris 825
New York, NY 10027-6902
Tel: 212/854-2492
Fax: 212/208-4699
E-Mail: stephen.zeldes@columbia.edu
AB  - 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.
ER  -