ABSTRACT
These notes aim to revisit the debate, the model, the results, and main objections to the validity of the Ricardian Equivalence Theorem as presented in Barro (1974Barro, T. (1974) Are Government Bonds Net Wealth? Journal of Political Economy, The University of Chicago Press, Vol. 82, No. 6, Nov. - Dec., 1974, pp. 1095-1117.). It is intended to explore his thesis that tax and debt are equivalent and have no real effect on perceived wealth, demand, the real interest rate or on the economy. The thesis refers to the analysis of the ways of financing debt at a given level of government expenditure and does not address the effects of an expansion of this volume of spending, nor it specifically analyzes the effects of an increase in public debt due to a tax reduction policy. After this presentation, the thesis is debated, consolidating some of the premises that are necessary to validate it. The purpose of the paper is to explore the first round of debates on the theme, explaining the restrictions to which the Barro-Ricardo Theorem or the Ricardian Equivalence Theorem is subject, based on the publications by Barro (1976Barro, R. (1976) Perceived Wealth in Bonds and Social Security and the Ricardian Equivalence Theorem: Reply to Feldstein and Buchanan. Journal of Political Economy, The University of Chicago Press, vol. 84, No. 2, April, 1976, pp. 343-350.), Buchanan (1976Buchanan, M. (1976) Barro on the Ricardian Equivalence Theorem. Journal of Political Economy, The University of Chicago Press, vol. 84, o. 2 (Apr., 1976), pp. 337-342.) and Feldstein (1976Feldstein, M. (1976) Perceived Wealth in Bonds and Social Security: A Comment. Journal of Political Economy, The University of Chicago Press, vol. 84, No. 2 (Apr., 1976), pp. 331-336.), all of them within the ‘realm’ of economic orthodoxy. The final section presents some remarks and an analysis of Barro’s later work (1989Barro, R. (1989) The Ricardian approach to budget deficits. Journal of Economic Perspectives-Volume 3, Number 2, p. 37-54, Spring 1989. and 1996Barro, R. (1996) Reflections on Ricardian equivalence. National Bureou of Economic Research, Working paper 5502, March, 1996.).
KEYWORDS:
Ricardian Equivalence; Barro-Ricardo Theorem