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Tax Timing and Liquidity Constraints: A Heterogenous-Agent Model

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  • Daniel, Betty C

Abstract

This paper considers the Ricardian equivalence hypothesis in a model in which some families face binding liquidity constraints and others do not. The source of heterogeneity that generates binding constraints in some families, but not in others, is shown to be the rate of intergenerational discount. In an economy populated by these two types of families, a change in tax timing has non-Ricardian short-run effects but many Ricardian long-run effects. This implies that heterogeneous agent models can reconcile some of the conflicting empirical evidence on Ricardian equivalence. Copyright 1993 by Ohio State University Press.

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  • Daniel, Betty C, 1993. "Tax Timing and Liquidity Constraints: A Heterogenous-Agent Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 176-196, May.
    • Handle: RePEc:mcb:jmoncb:v:25:y:1993:i:2:p:176-96
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    Cited by:

    1. Jonathan Heathcote, 2005. "Fiscal Policy with Heterogeneous Agents and Incomplete Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(1), pages 161-188.
    2. Smetters, Kent, 1999. "Ricardian equivalence: long-run Leviathan," Journal of Public Economics, Elsevier, vol. 73(3), pages 395-421, September.
    3. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669, Elsevier.
    4. Roberto Ricciuti, 2003. "Assessing Ricardian Equivalence," Journal of Economic Surveys, Wiley Blackwell, vol. 17(1), pages 55-78, February.
    5. Koumparoulis, Dimitrios, 2006. "Ευρωπαϊκή Δημοσιονομική Πολιτική Και Οικονομική Μεγέθυνση: Η Νεοκλασική Οικονομική Θεωρία Για Την Περίπτωση Της Ελλάδας [European Fiscal Policy and Economic Growth: The Neoclassical Economic Theory," MPRA Paper 44310, University Library of Munich, Germany.

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