NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Ricardian Approach to Budget Deficits

Robert J. Barro

NBER Working Paper No. 2685 (Also Reprint No. r1220)
Issued in August 1988
NBER Program(s):   EFG

Persistent budget deficits have increased economists' interest in theories and evidence about fiscal policy. This paper develops the Ricardian approach and contrasts it with standard models. The discussion considers from major theoretical objections to Ricardian equivalence-finite lifetimes, imperfect capital markets, uncertainty about future taxes and incomes, and the distorting effects of taxation Then the paper considers empirical evidence on interest rates, consumption and saving, and current-account deficits. The conclusion is that the Ricardian approach is a useful first-order approximation, and that this approach will probably become the benchwork model for assessing fiscal policy.

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Document Object Identifier (DOI): 10.3386/w2685

Published: Journal of Economic Perspectives, Vol. 3, No. 2, pp. 37-54, (Spring 1989). citation courtesy of

 
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