Testing Ricardian Neutrality with an Intertemporal Stochastic Model
The purpose of this paper is to develop and estimate a stochastic-intertemporal model of consumption behavior and to use it for testing a version of the Ricardian-equivalence proposition with time series data. Two channels that may give rise to deviations from this proposition are specified: Finite horizons and liquidity constraints. In addition, the model incorporates explicitly the roles of taxes, substitution between public , and private consumption, and different degrees of consumer goods' durability. The evidence, based on data for Israel in the first half of the 1980s, supports the Ricardian neutrality specification, yielding plausible estimates for the behavioral parameters of the aggregate consumption function.
|Date of creation:||May 1987|
|Date of revision:|
|Publication status:||published as Journal of Money, Credit and Banking, Vol. 20, No. 1, (February 2000).|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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