Public Debt and Private Consumption in OECD countries
AbstractThe recent ceiling of U.S. federal debt and the European sovereign debt crises raised once again the interest upon balanced government budgets. The Ricardian Equivalence proposition appears as an attractive alternative for policy makers, since postponing taxes to be paid once growth is restored seems a very efficient scheme that relieves public discomfort. This paper attempts to investigate the long-run relationship between public debt and private consumption in order to test for the potential validity of the Ricardian equivalence proposition. We use a wide dataset of fifteen OECD countries using annual data for the period 1980–2010. For the empirical estimation we employ both a univariate time series and a panel cointegration approach. Our empirical findings fail to provide empirical evidence in support of the Ricardian equivalence proposition for all countries of the sample, since the assumptions proposed by theory cannot be fulfilled.
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Bibliographic InfoPaper provided by Democritus University of Thrace, Department of Economics in its series DUTH Research Papers in Economics with number 1-2013.
Length: 9 pages
Date of creation: 19 Mar 2013
Date of revision: 01 Feb 2014
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More information through EDIRC
Ricardian Equivalence; Consumption; Debt; VAR models; VEC models; Response function; Variance decomposition;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-23 (All new papers)
- NEP-FDG-2013-03-23 (Financial Development & Growth)
- NEP-MAC-2013-03-23 (Macroeconomics)
- NEP-ORE-2013-03-23 (Operations Research)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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