Does Ricardian Equivalence Hold When Expectations are not Rational?
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Date
2010-08-04
Authors
Evans, George W., 1949-
Honkapohja, Seppo, 1951-
Mitra, Kaushik, 1969-
Journal Title
Journal ISSN
Volume Title
Publisher
University of Oregon, Dept of Economics
Abstract
This paper considers the Ricardian Equivalence proposition when
expectations are not rational and are instead formed using adaptive
learning rules. We show that Ricardian Equivalence continues to hold
provided suitable additional conditions on learning dynamics are satisfied.
However, new cases of failure can also emerge under learning. In
particular, for Ricardian Equivalence to obtain, agents’ expectations
must not depend on government’s financial variables under deficit financing.
Description
28 p.
Keywords
Taxation, Expectations, Ramsey model, Ricardian equivalence