On the demographic realism of the Ricardian theory of public finance |
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Authors: | Hendrik P van Dalen |
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Institution: | (1) Department of Mathematical Economics, Erasmus University, Rotterdam, The Netherlands |
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Abstract: | Summary 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 thepure Ricardian model of public finance serves a purpose as a standard of argument for the more realistic models of public finance.Comments by Gerbert Hebbink, Evert van Imhoff, Herman Vollebergh and members of the Department of Public Finance are gratefully acknowledged. |
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