英语论文网

if societies change their behaviour specially in the context of debt significant effects of debt may emerge.

Before investigating the trivial and controversial aspects of the theory it is best to describe the basics of the modern form of ricardian equivalence. The process takes it roots from the basic Permanent Income Life-Cycle Hypothesis and takes it towards a reasonable completion in the presence of our variables under study i.e.: government expenditure, taxation, and debt. Ricardian Equivalence requires many assumptions regarding consumer behaviour/tastes and the environment affecting their decisions.

To analyse this, we find that initially to bear this debt the consumer would part with some portion of his income keeping the expectation of a future stream of income generated by the carried interest rate in his mind along with the returning of the principal purchase amount in the future. Alternatively it is also seen that the in the first period the individual's tax payments decrease by the amount B. The decisive thing to note is that every inflow is matched by a respective outflow and vice versa. This way it would mean that the budget constraint of the individual has not been altered and the governments financing scheme would be perceived as having no effect on his/her wealth in any way. The nature of tax too(lumpsum) means that no marginal rates have been altered in the model and thus the set of choices that the consumer faced earlier are identical to the ones after this refinancing scheme. There is of-course the issue of the persons saving behaviour and the changes in it due to this scheme. The explanation could looked at as when the government cuts taxes and issues debt the consumer foresees that in the future to finance the interest payments and the repayment of the principal. He could use this tax refund to negate the scheme by buying the government bonds whose interest earnings and principal repayment that would cover him from the future tax.

So thus far we have come to the well known Ricardian stance on government debt i.e. the abscence of any effect on life time budget constraints and on the economic choices. The theory goes as far as stating that government purchases are not the only way the government lays claim on the resources of the economy even if they present a facade by calling it taxation would have the same implications as stated above . the presence of the word equivalence in the theory is justified by stating that on a given scheme of government purchases/finance bond finance or a lump sum tax lead to the same conclusion and present the same economic choices to the agents present.

This equivalence theory can be taken as a generalisation of the theory of both the long and short run that attributes no effects of public policies on the aggregate demand in the economy. However this analysis has been challenged by pointing out that rational consumers perceive that deficit in the short run as an increase in taxes in the long run. Bernheim (1987) , Seater (1993) are two of the most important survey on this topic conclude with contrasting findings. Stanley (1998) performs a meta- analysis and brings to the fore strong empirical evidence against the proposition of ricardian equivalence while Elmendorf and Mankiw(1999) leave the debate inconclusive based on their studies.

The golden age of the theory was undoubtedly the 1980's where high levels of