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Government indebtedness and european consumers behaviour

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  • António Afonso

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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Bibliographic Info

Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics 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, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC

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

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