American Economic Review Vol. 76 No. 4 1986
Ricardian Consumers with Keynesian Propensities
Abstract
This paper examines Ricardian equivalence in a world in which taxes are not lump sum, but are levied on risky labor income. It shows that the marginal propensity to consume out of a tax cut, coupled with a future income tax increase, can be substantial under plausible assumptions. Indeed, the MPC out of a tax cut can be closer to the Keynesian value that ignores the future tax liabilities than to the Ricardian value that treats future taxes as if they were lump sum.
- Volume
- 76
- Issue
- 4
- Pages
- 676-691
- Sources
- bibtex:phds-export.bib