Michael Reiter, Universitat Pompeu Fabra, Barcelona

Ricardian Equivalence with Uninformed Consumers?

March 1997, revised July 1998

Abstract

Empirical studies have shown that the majority of people are poorly informed about the size of government debts and deficits. This paper investigates whether it is nevertheless possible for households to mimic Ricardian behavior on the basis of those variables that they actually observe. In a simple two-period model it is shown that imperfect information about government debt might lead to departures from Ricardian Equivalence even if the households' estimates of debt are unbiased. The paper discusses why households face serious difficulties in obtaining relevant information about government debt.