The Ricardian Approach to Budget Deficits 4/ seemed to depend on infinite horizons, can remain valid in a model with finite lifetimes Two important points should be stressed. First, intergenerational transfers do not ave to be "large, what is necessary is that transfers based on altruism be operative at the margin for most people. Specifically, most people must be away from the corner solution of zero transfers, where they would, if permitted, opt for negative payments to their children. (The results also go through, however, if children typically support their aged parents. )Second, the transfers do not have to show up as bequests at death. Other forms of intergenerational transfers, such as inter wwos gifts to children, support of childrens education, and so on, can work in a similar manner. Therefore, the Ricardian results can hold even if many persons leave little in the way of formal One objection to Ricardian equivalence is that some persons, such as those without children, are not connected to future generations(see James Tobin and Willem Buiter, 1980, Pp. 86ff ) Persons in this situation tend to be made wealthier hen the government substitutes a budget deficit for taxes. At least this conclusion obtains to the extent that the interest and principal payments on the extra public debt are not financed by higher taxes during the remaining lifetimes of people currently alive. However, the quantitative effects on consumption tend to be small. For example, if the typical person has 30 years of remaining life and consumes at a constant rate, a one-time budget deficit of $100 per person would increase each persons real consumption demand by $1. 50 per year if the annual real interest rate is 5 percent, and by $2.10 per year if the real interest rate is 3 percent. The aggregate effect from the existence of childless persons is even smaller because people with more than the average number of descendants experience a decrease in wealth when taxes are replaced by budget deficits. (In effect, although some people have no children, all children must have parents. In a world of different family sizes, the presumption for a net effect of budget deficits on aggregate consumer demand depends on different propensities to consume out of wealth for people with and without children. Since the propensity for those without children larger(because of the shorter horizon), a positive net effect on aggregate consumer demand would be predicted. However, the quantitative effect is likely to be trivia Making the same assumptions as in the previous example, a budget deficit of $100 per capita would raise real consumption demand per capita by 30 cents per year if the real interest rate is 5 percent, and by 90 cents if the real interest rate is 3 percent a variety of evidence supports the proposition that intergenerational transfers defined broadly to go beyond formal bequests -are operative for most people Philippe Weil (1987) and Miles Kimball (1987) analyze condition ure an interior solution for tergenerational transfers. Douglas Bernheim and Kyle Bagwell (1988) argue that difficulties arise if truistic transfers are pervasive, See Barro( 1989)for a discussion of their analysis 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, Chapter 8)and James Poterba and Lawrence Summers( 1987, Section I