Ricardian Non-Equivalence
This paper presents new survey evidence on how household spending changes in response to fiscal transfers. Our key finding is that the planned propensity to spend out of transfers equals the marginal propensity to consume (MPC). This result implies that households do not incorporate future tax liabilities into their spending plans. The canonical HANK model cannot account for our survey results because people in that model are overly sensitive to future tax liabilities. We develop an extended HANK model in which households are partially inattentive to future tax liabilities and to the general-equilibrium consequences of fiscal policy. This inattention dampens forward-looking intertemporal MPCs, bringing the model into line with our survey evidence. We use the model to analyze the aggregate effects of fiscal policy changes and find that both transfer and government spending multipliers are larger in the inattentive HANK model than in the canonical HANK framework.
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Copy CitationMartin S. Eichenbaum, Joao Guerreiro, and Jana Obradovic, "Ricardian Non-Equivalence," NBER Working Paper 34691 (2026), https://doi.org/10.3386/w34691.Download Citation
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