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Replicating Ricardian Equivalence Tests with Simulated Series

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  • Cardia, Emanuela

Abstract

This paper replicates standard consumption function tests of Ricardian equivalence using series generated from a model which nests Ricardian equivalence within a non-Ricardian alternative (due to finite horizons and/or distortionary taxation). The author shows that the estimates of the effects of taxation on consumption are not robust and that standard tests may have weaknesses which can lead to conflicting results, whether Ricardian equivalence holds or not. The simulations also show that no clear conclusions about Ricardian equivalence can be drawn from observing a low correlation between the current account and government budget deficits. Copyright 1997 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 87 (1997)
Issue (Month): 1 (March)
Pages: 65-79

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Handle: RePEc:aea:aecrev:v:87:y:1997:i:1:p:65-79

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Cited by:
  1. Waqas, Muhammad & Awan, Masood Sarwar, 2011. "Are Pakistani Consumers Ricardian?," MPRA Paper 35375, University Library of Munich, Germany.
  2. Heathcote, Jonathan, 1999. "Fiscal Policy with Heterogeneous Agents and Incomplete Markets," Working Paper Series in Economics and Finance 319, Stockholm School of Economics, revised 28 Jul 1999.
  3. CARDIA, Emanuela & KOZHAYA, Norma & RUGE-MURCIA, Francisco J., 1999. "Distortionary Taxation and Labor Supply: Evidence from Canada," Cahiers de recherche 9913, Universite de Montreal, Departement de sciences economiques.
  4. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669 Elsevier.
  5. Ahmad Zubaidi Baharumshah & Evan Lau & Ahmed M. Khalid, 2005. "Testing Twin Deficits Hypothesis: Using VARs and Variance Decomposition," International Finance 0504001, EconWPA.
  6. Reiter, Michael, 1999. "Ricardian equivalence with uninformed consumers?," European Journal of Political Economy, Elsevier, vol. 15(4), pages 747-758, November.
  7. Jørgensen, Ole Hagen & Jensen, Svend E. Hougaard, 2009. "Labour supply and retirement policy in an overlapping generations model with stochastic fertility," Discussion Papers of Business and Economics 1/2009, Department of Business and Economics, University of Southern Denmark.
  8. Shinichi Nishiyama & Kent Smetters, 2002. "Ricardian Equivalence with Incomplete Household Risk Sharing: Technical Paper 2002-4," Working Papers 14222, Congressional Budget Office.
  9. repec:ebl:ecbull:v:5:y:2006:i:1:p:1-12 is not listed on IDEAS
  10. Kalou, Sofia & Paleologou, Suzanna-Maria, 2012. "The twin deficits hypothesis: Revisiting an EMU country," Journal of Policy Modeling, Elsevier, vol. 34(2), pages 230-241.
  11. Waqas, Muhamad & Awan, Masood Sarwar & Aslam, Muhammad Amir, 2011. "We are living on the cost of our children," MPRA Paper 32044, University Library of Munich, Germany.
  12. Shinichi Nishiyama & Kent Smetters, 2002. "Ricardian Equivalence with Incomplete Household Risk Sharing," NBER Working Papers 8851, National Bureau of Economic Research, Inc.
  13. Leung, Siu Fai, 2007. "The existence, uniqueness, and optimality of the terminal wealth depletion time in life-cycle models of saving under uncertain lifetime and borrowing constraint," Journal of Economic Theory, Elsevier, vol. 134(1), pages 470-493, May.
  14. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
  15. Joe Stone & Jo Anna Gray, 2006. "Ricardian equivalence for sub-national states," Economics Bulletin, AccessEcon, vol. 5(1), pages 1-12.

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