Debt Neutrality Without Altruism: Voluntary Contributions to Public Goods as ‘Operative Linkages’

In this paper an overlapping-generations model in which generations make voluntary contributions to a public good is considered. It is described how the supply and the cost sharing of financing the public good develop in a conflict between young and old generations. It is shown that, due the strategic effects of present savings on future private and public consumption levels, generations are ‘operatively linked’. As a consequence, an intergenerational income redistribution via public debt is neutral with respect to the intertemporal resource allocation. This result has two implications: First, it suggests that the Warr Neutrality Theorem in the static standard model of voluntary public good provision can be extended to a dynamic context. Second, it shows that the Ricardian Equivalence Theorem can hold even in the absence of altruism.