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Euler testing Ricardo and Barro in the EU

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  • António Afonso

    ()
    (ECB and ISEG/UTL)

Abstract

According to Keynesian economics wisdom, government debt has an effect on the economy since consumers see government debt as net wealth. However, according to the debt neutrality hypothesis of Ricardo (1817), popularised by Barro (1974), such effects would be absent. This paper's results, obtained from Euler equation estimations using a panel data approach, indicate that it would be wise to reject the debt neutrality hypothesis for the EU and that higher government indebtedness could actually deter private consumption.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 5 (2008)
Issue (Month): 16 ()
Pages: 1-14

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Handle: RePEc:ebl:ecbull:eb-07e60010

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Cited by:
  1. 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.
  2. Afonso, António & Sousa, Ricardo M., 2009. "The macroeconomic effects of fiscal policy," Working Paper Series 0991, European Central Bank.
  3. Francesco Forte & Cosimo Magazzino, 2013. "Twin Deficits in the European Countries," International Advances in Economic Research, Springer, vol. 19(3), pages 289-310, August.
  4. Cosimo Magazzino, 2012. "Fiscal Policy, Consumption and Current Account in the European Countries," Economics Bulletin, AccessEcon, vol. 32(2), pages 1330-1344.

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