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Ignorance and Ricardian Equivalence *
Author(s) -
GRUEN DAVID
Publication year - 1997
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1997.tb00977.x
Subject(s) - ricardian equivalence , ignorance , bond , economics , debt , monetary economics , equivalence (formal languages) , public economics , macroeconomics , finance , law , political science , linguistics , philosophy
An immortal, intertemporally‐optimizing consumer who is ignorant of the link between bonds and future taxes, is exposed to the changing level of US Federal government debt over the 30 years, 1961–90. Estimates of the cost of ignorance are about $1 to $10 per annum. Provided governments do not use bond‐financing too aggressively, it may therefore be privately optimal for consumers to ignore the link between bonds and future taxes. Then bond‐financed fiscal policy has significant systematic effects on aggregate demand and national savings.