THE EXTENT OF DEPARTURES FROM DEBT NEUTRALITY WHEN FUTURE INCOME IS UNCERTAIN

A model of stochastic consumption behaviour over the life cycle is use d to reconsider earlier conclusions by Barsky, Mankiw and Zeldes (''Ri cardian Consumers with Keynesian Propensities'', American Economic Rev iew, Vol. 76, No. 4 (1986), pp. 676-691) and Barro (''The Ricardian Ap proach to Budget Deficits'', Journal of Economic Perspectives, Vol. 3, No. 2 (1989), pp. 37-54) about the extent to which income uncertainty can induce departures from pure debt neutrality. The results suggest that Barro understates, and Barsky ct al. overstate, the importance of income uncertainty in this context.