NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Crowding Out in Ricardian Economies

Andrew B. Abel

NBER Working Paper No. 21550
Issued in September 2015
NBER Program(s):   CF   EFG   ME   PE

The crowding-out coefficient is the ratio of the reduction in privately-issued bonds to the increase in government bonds that are issued to finance a tax cut. If (1) Ricardian equivalence holds, and (2) households do not simultaneously borrow risklessly and have positive gross positions in other riskless assets, the crowding-out coefficient equals the fraction of the aggregate tax cut that accrues to households that borrow. In the conventional case in which all households receive equal tax cuts, the crowding-out coefficient equals the fraction of households that borrow. In the United States, about 75% of households borrow, so the crowding-out coefficient is predicted to be 0.75, which differs from econometric estimates that are around 0.5. I explore extensions of the model, such as a departure from Ricardian Equivalence or the introduction of cross-sectional variation in taxes, that might account for this difference.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21550

Published: Andrew B. Abel, 2017. "Crowding out in Ricardian economies," Journal of Monetary Economics, vol 87, pages 52-66.

Users who downloaded this paper also downloaded* these:
Eichengreen, Park, and Shin w21556 The Global Productivity Slump: Common and Country-Specific Factors
Abel w21549 The Analytics of Investment, q, and Cash Flow
Abel w21548 Optimal Debt and Profitability in the Tradeoff Theory
Farhi and Gabaix w21524 Optimal Taxation with Behavioral Agents
Friedman w0284 Crowding Out Or Crowding In? The Economic Consequences of Financing Government Deficits
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

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

Contact Us