On the demographic realism of the Ricardian theory of public finance

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Abstract

The possibility of public debt-neutrality is discussed for countries experiencing demographic changes. The heterogeneity of agents plays a decisive role in destroying Ricardian equivalence of public finance. In addition to the usual explanatory factors of non-neutrality, such as distortionary taxation, public debt is not equivalent to current taxation as a consequence of (1) disconnected dynasties, (2) uncertain lifetimes, (3) diverging birth rates, (4) international migration, (5) population growth uncertainty, (6) diverging rates of time preference, and (7) capital market imperfections. The paper concludes that the pure Ricardian model of public finance serves a purpose as a standard of argument for the more realistic models of public finance.

Original languageEnglish
Pages (from-to)204-232
Number of pages29
JournalDe Economist
Volume140
Issue number2
DOIs
Publication statusPublished - Jun 1992
Externally publishedYes

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