Abstract
This paper examines how relaxing the assumption of lump-sum taxation affects the Ricardian equivalence theorem. In a model with income taxation instead of lump-sum taxation structural deficit finance causes Keynesian-like effects even though government bonds are not perceived as net wealth. A temporary substitution of debt for taxation significantly increases consumption, work and output initially — the same effects as in the Keynesian case where the implied future tax liability is not perceived. But in contrast to the Keynesian case, investment also increases initially. In the long run, however, deficit finance significantly reduces investment, work, output and consumption.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
