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Testing Ricardian Neutrality with an Intertemporal Stochastic Model

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  • Leiderman, Leonardo
  • Razin, Assaf

Abstract

The purpose of this paper is to develop and estimate a stochastic-intertemporal model of consumption behavior and to use it for testing a version of the Ricardian-equivalence proposition with time series data. Two channels that may give rise to deviations from this proposition are specified: Finite horizons and liquidity constraints. In addition, the model incorporates explicitly the roles of taxes, substitution between public and private consumption, and different degrees of consumer goods' durability The evidence, based on data for Israel in the first half of the 1980s supports the Ricardian neutrality specification, yielding plausible estimates for the behavioral parameters of the aggregate consumption function.

Suggested Citation

  • Leiderman, Leonardo & Razin, Assaf, 1987. "Testing Ricardian Neutrality with an Intertemporal Stochastic Model," Foerder Institute for Economic Research Working Papers 275425, Tel-Aviv University > Foerder Institute for Economic Research.
    • Handle: RePEc:ags:isfiwp:275425
    DOI: 10.22004/ag.econ.275425
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    References listed on IDEAS

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