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is responsibility in the form of deferred taxation. The value of the reduction in taxes for the current generation would be higher than the present value of the future taxation implied by the issue of debt. Thus by the mere policy change of timing of taxes or debt for tax swap gives rise to wealth effects in the economy and breaks the equivalence.

So strong was this argument of finite horizons against Ricardian Equivalence that for many years the theory lay in dark as one that had failed and had no relevance to wat happens in the economy. It was labelled as being trivially false. That was until Robert Barro(1974) showed that the theory does hold some impetus in the finite horizon models. The assumption and reasoning he used was that if people thought of their children as logical extensions of themselves. In such a amended model parents would use their increase in disposable income through a tax in a different way by bequeathing upon their children. The bequest or extra wealth transferred down is enough to allow the children to bear the future taxes implied by the debt issue today. With this framework of decision making no one alters their consumption decisions or other substantiative economic decisions and thus Ricardian Equivalence came to the fore once again. The treatment of another's utility and satisfaction as an extension of ones own utility has come to be known in literature as altruism. The presence of altruistic behaviour between generations in essence transforms the finite horizon model into an infinitely long horizon.

We find that the foundations for study in this regard were being laid down before RJ Barro produced his paper in 1976.In fact Barro's work has been termed by many as ‘'the popularisation of the debt neutrality hypothesis of Ricardo (1817)''. Barro seeks to analyse under what scenarios government spending crowds-out private consumption and under what scenarios government spending is not offset by private consumption by using transformed finite horizon model altruism and bequests. Barro argued that if generations are interlinked to each other via bequests changes in stock of government debt have no effect on steady state capital stock.

In what follows I use the Barrovian framework to analyse debt neutrality and explain the similarities of his model to optimal growth models in macroeconomics(developed by Burbidge 1983) and the relevance of the Golden rule level we are familiarised with. I then analyse the introduction of debt into this model of bequests and see what implications it holds for debt neutrality. The growth model analysis too is developed alongside for comparison and a way of explaining the working of Barro's model. A number of assumptions like that of constant population are relaxed as we look at Barro's framework as a macroeconomic growth model so that results are more realistic.Inheritance/ Bequest taxation is then introduced. This aspect relating to Barro's model is studied in detail including the rationale for the introduction of such taxes, its effects on the Barrovian framework and implications for neutrality, the cases where inheritance taxation and neutrality results perish are then analysed. Efficiency concerns regarding bequest taxation too are addressed before econometric analysis of debt neutrality in The UK is carried out in the presence of income and wealth taxation for the period 1991-2004.

The Model: