Ricardian equivalence revisited: Deficits, gifts and bequests

摘要

Barro (1974) shows that operative altruistic transfer motives are key for Ricardian equivalence to hold. This paper evaluates the importance of this mechanism quantitatively by studying deficit-financed tax cut experiments. I use a heterogeneous-agents overlapping-generations economy with endogenously operative transfer motives to capture the fact that empirically transfers occur in some but not in all families. Altruism is calibrated to match aggregate transfer statistics. I find that the response of aggregate consumption to a tax cut is in the ballpark of a standard overlapping-generations economy, that is, an economy without altruistic family links. Welfare implications of this economy, however, move closer to a dynastic economy. Crown Copyright (C) 2015 Published by Elsevier B.V. All rights reserved.