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Ricardian equivalence for sub-national states

  • Joe Stone

    ()

    (University of Oregon)

  • Jo Anna Gray

    ()

    (University of Oregon)

The authors test Ricardian equivalence within an endogenous growth model for U.S. states, which have high rates of migration relative to most countries. Results are consistent with both Ricardian equivalence and endogenous growth, despite the relative ease of migration. Increases in productive government expenditures increase long-run real growth by the same amount, for example, whether financed by taxes or bonds. State rules limiting the use of bond financing may play a role in supporting Ricardian equivalence. The study provides the first explicit test of Ricardian equivalence for sub-national states in the context of an endogenous growth model.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 5 (2006)
Issue (Month): 1 ()
Pages: 1-12

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Handle: RePEc:ebl:ecbull:eb-05e00011
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  12. Himarios, Daniel, 1995. "Euler equation tests of Ricardian equivalence," Economics Letters, Elsevier, vol. 48(2), pages 165-171, May.
  13. Mofidi, Alaeddin & Stone, Joe A, 1990. "Do State and Local Taxes Affect Economic Growth?," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 686-91, November.
  14. Eric M. Engen & R. Glenn Hubbard, 2004. "Federal Government Debt and Interest Rates," NBER Working Papers 10681, National Bureau of Economic Research, Inc.
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