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A Political Theory of Government Debt

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journal contribution
posted on 01.10.2011, 00:00 by Alex Cukierman, Allan MeltzerAllan Meltzer

Ricardian equivalence implies that the public debt affects neither wealth nor welfare. Rational, far seeing individuals undo privately any intergenerational transfers made by government. This conclusion is puzzling. Complaints about the burden of the debt on future generations are common in countries with public debt or current and prospective deficits. Why do rational individuals complain about a burden that, according to Ricardian equivalence does not occur?


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