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Government indebtedness and european consumers behaviour

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Author Info
António Afonso

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Abstract

According to conventional macroeconomics, public debt has a significant effect on the economy since consumers see public debt as net wealth, however, according to the Ricardian Equivalence hypothesis, that effect 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-15. However, estimations carried out after dividing the countries into two groups, tentatively allow us to conclude that private consumption in "less indebted" countries seems to be more responsive to wealth increases than in the "more indebted" countries.

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Paper provided by Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon. in its series Working Papers with number 2001/12.

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Date of creation: 2001
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Handle: RePEc:ise:isegwp:wp122001

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Postal: Department of Economics, School of Economics and Management (ISEG), Technical University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: http://www.iseg.utl.pt/departamentos/economia/

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Related research
Keywords: Deficit finance; Ricardian equivalence; Private consumption; European Union; panel data.;

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management

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