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Emerging Market Countries Don’t Believe in Fiscal Stimuli: Should We Blame Ricardo?

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Abstract

Emerging market countries had by early 2009 announced that they will have remained fiscally conservative during the 2008–09 crisis, at least compared with the developed countries, which announced much larger fiscal stimuli. The authors argue that the difference in the pre-announced fiscal stance between those two groups of countries could be at least partly due to the awareness of Ricardian equivalence, that is, a higher offset between private and public saving in emerging market countries. They find that the offset coefficient is almost twice as high in emerging market countries as in developed countries, implying that additional government spending, that is, public dissaving, would be almost completely offset by private saving.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 59 (2009)
Issue (Month): 2 (June)
Pages: 153-164

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Handle: RePEc:fau:fauart:v:59:y:2009:i:2:p:153-164

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Keywords: private saving; Ricardian equivalence; fiscal policies;

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  1. Easterly, William, 1999. "The ghost of financing gap: testing the growth model used in the international financial institutions," Journal of Development Economics, Elsevier, vol. 60(2), pages 423-438, December.
  2. Timothy D. Lane & Leslie Lipschitz & Cristina Arellano & Ales Bulir, 2005. "The Dynamic Implications of Foreign Aid and its Variability," IMF Working Papers 05/119, International Monetary Fund.
  3. Bandiera, Oriana & Caprio, Gerard & Honohan, Patrick & Schiantarelli, Fabio, 1999. "Does financial reform increase or reduce savings ?," Policy Research Working Paper Series 2062, The World Bank.
  4. Agrawal, Pradeep & Sahoo, Pravakar & Dash, Ranjan Kumar, 2009. "Savings behaviour in South Asia," Journal of Policy Modeling, Elsevier, vol. 31(2), pages 208-224.
  5. Edwards, Sebastian, 1996. "Why are Latin America's savings rates so low? An international comparative analysis," Journal of Development Economics, Elsevier, vol. 51(1), pages 5-44, October.
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