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Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia

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    Abstract

    This paper examines the growing gap between the theoretical and empirical growth literature and policy needs of the developing economies. Growth literature has focused mainly on long term growth outcomes, but policy makers of the developing economies need rapid improvements in the short to medium term growth rates; see Pritchett (2006). In this paper we argue that this gap can be reduced by distinguishing between the short to medium term dynamic effects of policies from their long run equilibrium effects. With data from Singapore, Malaysia and Thailand, we show that an extended version of the Solow (1956) model is well suited for this purpose. We find that the short to medium term growth effects of the investment ratio are quite significant and they may persist for up to 10 years.

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    Paper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number wp09-10.

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    Length: 39 pages
    Date of creation: 2009
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    Handle: RePEc:uow:depec1:wp09-10

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    Postal: School of Economics, University of Wollongong, Northfields Avenue, Wollongong NSW 2522 Australia
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    Web page: http://business.uow.edu.au/econ/index.html
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    Keywords: Ricardian equivalence; fiscal policy; cointegration; structural breaks.;

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