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Public debt and private consumption in OECD countries

Author

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  • Gogas, Periklis
  • Plakandaras, Vasilios
  • Papadimitriou, Theophilos

Abstract

The 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.

Suggested Citation

  • Gogas, Periklis & Plakandaras, Vasilios & Papadimitriou, Theophilos, 2014. "Public debt and private consumption in OECD countries," The Journal of Economic Asymmetries, Elsevier, vol. 11(C), pages 1-7.
  • Handle: RePEc:eee:joecas:v:11:y:2014:i:c:p:1-7
    DOI: 10.1016/j.jeca.2014.03.001
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    Cited by:

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    2. Lorenzo Esposito & Giuseppe Mastromatteo, 2019. "Defaultnomics: Making Sense of the Barro-Ricardo Equivalence in a Financialized World," Economics Working Paper Archive wp_933, Levy Economics Institute.
    3. Teboho Jeremiah Mosikari & Mmamontsho Charlotte Senosi & Joel Hinaunye Eita, 2016. "Manufactured exports and economic growth in Southern African Development Community (SADC) region: A panel cointegration approach," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 12(5), pages 266-278, OCTOBER.
    4. Ian P. Cassar & Kurt Davison & Christian Xuereb, 2018. "Does the Ricardian Equivalence Theorem Capture the Consumption Behavior of Maltese Households?," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(12), pages 1-77, December.
    5. Mario Coccia, 2018. "National debts and government deficits within European Monetary Union: Statistical evidence of economic issues," Papers 1806.07830, arXiv.org.
    6. Coccia, Mario, 2017. "Asymmetric paths of public debts and of general government deficits across countries within and outside the European monetary unification and economic policy of debt dissolution," The Journal of Economic Asymmetries, Elsevier, vol. 15(C), pages 17-31.

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    More about this item

    Keywords

    Ricardian equivalence; Private consumption; Public debt; VECM; Panel cointegration tests; Multivariate Johansen cointegration test;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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