The failure of Ricardian equivalence under dynastic altruism

This paper investigates the theoretical accuracy of the Barro [Barro, R.J., 1974. Are government bonds net wealth? Journal of Political Economy, 82, 1095–1117] debt neutrality proposition. We first identify a discrepancy between the transversality condition of a social planning problem and the one of altruistically linked overlapping generations. Then, this discrepancy is exploited to construct public debt policies which affect the competitive equilibrium allocation even when bequests are strictly positive in all periods: a violation of Ricardian equivalence.