The Extent of Departures from Debt Neutrality When Future Income Is Uncertain.

This paper uses a model of stochastic consumption behavior over the life cycle to reconsider earlier conclusions by R. B. Barsky, N. G. Mankiw and S. P. Zeldes (1986) and R. J. Barro (1989) about the extent to which income uncertainty can induce departures from pure debt neutrality. Its results suggest that Barro understates, and Barksy, Mankiw, and Zeldes overstate, the importance of income uncertainty in this context. Copyright 1997 by Blackwell Publishers Ltd and The Victoria University of Manchester