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Deficits and Interest Rates as Evidence of Ricardian Equivalence


  • David C. Rose

    (University of Missouri, St. Louis)

  • David R. Hakes

    (University of Northern Iowa)


A number of empirical studies have failed to find a significant relationship between deficits and interest rates. This "non-finding" has become something of a stylized fact among many economists and is often cited as evidence of the validity of the Ricardian equivalence theorem. In this paper we show that estimates of reduced-form interest rate equations do not provide direct information about structural parameters that might reveal Ricardian equivalence. As a result, an insignificant relationship between deficits and interest rates is only a necessary, not a sufficient, condition for Ricardian equivalence.

Suggested Citation

  • David C. Rose & David R. Hakes, 1995. "Deficits and Interest Rates as Evidence of Ricardian Equivalence," Eastern Economic Journal, Eastern Economic Association, vol. 21(1), pages 57-66, Winter.
  • Handle: RePEc:eej:eeconj:v:21:y:1995:i:1:p:57-66

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    References listed on IDEAS

    1. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185-185.
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    Cited by:

    1. António Afonso, 2007. "An Avenue for Expansionary Fiscal Contractions," The IUP Journal of Public Finance, IUP Publications, vol. 0(3), pages 7-15, August.
    2. António Afonso, 2001. "Non-Keynesian Effects of Fiscal Policy in the EU-15," Working Papers Department of Economics 2001/07, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    3. António Afonso & Christophe Rault, 2015. "Short- and long-run behaviour of long-term sovereign bond yields," Applied Economics, Taylor & Francis Journals, vol. 47(37), pages 3971-3993, August.
    4. António Afonso, 2001. "Government indebtedness and european consumers behaviour," Working Papers Department of Economics 2001/12, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    5. William Gissy, 1999. "Net treasury borrowing and interest-rate changes," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 23(1), pages 23-29, March.
    6. Tomas Wroblowsky, 2007. "Explaining the Variability of Debt Neutrality Tests Results: A Meta-Analysis of Ricardian Equivalence," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 5(1), pages 7-24.
    7. Tuan Van Nguyen, 2013. "Do Budget Deficits Affect Real Interest Rates? A Test of Ricardian Equivalence Theorem," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 9(5), pages 86-102, October.

    More about this item


    Deficit; Ricardian Equivalence;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy


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