The Ricardian Approach to Budget Deficits

40 Pages Posted: 1 Jun 2006 Last revised: 4 Nov 2022

See all articles by Robert J. Barro

Robert J. Barro

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 1988

Abstract

Persistent budget deficits have increased economists' interest in theories and evidence about fiscal policy. This paper develops the Ricardian approach and contrasts it with standard models. The discussion considers from major theoretical objections to Ricardian equivalence-finite lifetimes, imperfect capital markets, uncertainty about future taxes and incomes, and the distorting effects of taxation Then the paper considers empirical evidence on interest rates, consumption and saving, and current-account deficits. The conclusion is that the Ricardian approach is a useful first-order approximation, and that this approach will probably become the benchwork model for assessing fiscal policy.

Suggested Citation

Barro, Robert J., The Ricardian Approach to Budget Deficits (August 1988). NBER Working Paper No. w2685, Available at SSRN: https://ssrn.com/abstract=294715

Robert J. Barro (Contact Author)

Harvard University - Department of Economics ( email )

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