A Macroeconomics Reader

By Brian Snowdon; Howard R. Vane | Go to book overview

NOTES
1
The calculations use the government’s interest rate in each period to calculate present values, and assume perfect foresight with respect to future government expenditures and taxes. For further discussion see Ben McCallum (1984) and Robert Barro (1989).
2
The term, Ricardian equivalence theorem, was introduced to macroeconomists by James Buchanan (1976). After Gerald O’Driscoll (1977) documented Ricardo’s reservations about this result, some economists have referred to the equivalence finding as being non-Ricardian. But, as far as I have been able to discover, David Ricardo (1951) was the first to articulate this theory. Therefore, the attribution of the equivalence theorem to Ricardo is appropriate even if he had doubts about some of the theorem’s assumptions. As to whether the presence of this idea in Ricardo’s writings is important for scientific progress, I would refer to Nathan Rosenberg’s (1976:79) general views on innovations in the social sciences: ‘what often happens in economics is that, as concern mounts over a particular problem …an increasing number of professionals commit their time and energies to it. We then eventually realize that there were all sorts of treatments of the subject in the earlier literature…. We then proceed to read much of our more sophisticated present-day understanding back into the work of earlier writers whose analysis was inevitably more fragmentary and incomplete than the later achievement. It was this retrospective view which doubtless inspired Whitehead to say somewhere that everything of importance has been said before—but by someone who did not discover it. ’ (This last point relates to ‘Stigler’s Law’, which states that nothing is named after the person who discovered it. )
3
Philippe Weil (1987) and Miles Kimball (1987) analyze conditions that ensure an interior solution for intergenerational transfers. Douglas Bernheim and Kyle Bagwell (1988) argue that difficulties arise if altruistic transfers are pervasive. See Barro (1989) for a discussion of their analysis.
4
The assumption is the real debt remains permanently higher by the amount of the initial deficit. For some related calculations, see Merton Miller and Charles Upton (1974: ch. 8) and James Poterba and Lawrence Summers (1987: section I).
5
For discussions of the tax-smoothing model of budget deficits, see A. C. Pigou (1928: ch. 6) and Robert Barro (1979; 1986).
6
A colleague of mine argues that a ‘normative’ model should be defined as a model that fits the data badly.
7
I am grateful to Ed Offenbacher for calling my attention to the Israeli experience. The data, all expressed in US dollars, are from Bank of Israel (1987).
8
Household net worth comes from Board of Governors of the Federal Reserve System (1988). The nominal year-end figures were divided by the fourth-quarter GNP deflator. The Federal Reserve numbers include stocks, housing, and consumer durables at estimated market value, but bonds at par value. I made no adjustments for households’ liabilities for future taxes associated with the government’s debt net of assets. There is a conceptual problem here because some of this liability is already reflected in the market values of households’ stocks, housing, and so on. Also, the Federal Reserve’s measures of government liabilities and assets are not well developed.
9
The data are quarterly, seasonally adjusted values from Citibase. The results are similar if the federal surplus is used instead of the total government surplus.

REFERENCES

a
Ando, Albert, and Franco Modigliani, ‘The “Life Cycle” Hypothesis of Saving: Aggregate Implications and Tests’, American Economic Review March 1963, 53, 55-84.

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