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Expectation and Variation in Long Run Decisions

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  • Gilboa, Itzhak

Abstract

The purpose of this paper is to develop and estimate a stochastic-intertemporal model of consumption behavior and to use it for testing a version of the Ricardian-equivalence proposition with time series data. Two channels that may give rise to deviations from this proposition are specified: Finite horizons and liquidity constraints. In addition, the model incorporates explicitly the roles of taxes, substitution between public and private consumption, and different degrees of consumer goods' durability The evidence, based on data for Israel in the first half of the 1980s supports the Ricardian neutrality specification, yielding plausible estimates for the behavioral parameters of the aggregate consumption function.

Suggested Citation

  • Gilboa, Itzhak, 1987. "Expectation and Variation in Long Run Decisions," Foerder Institute for Economic Research Working Papers 275426, Tel-Aviv University > Foerder Institute for Economic Research.
    • Handle: RePEc:ags:isfiwp:275426
    DOI: 10.22004/ag.econ.275426
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    References listed on IDEAS

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    1. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 75(4), pages 643-669.
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