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  • Waqas, Muhamad
  • Awan, Masood Sarwar
  • Aslam, Muhammad Amir

Abstract

The strict assumptions of Ricardian Equivalence Hypothesis hoist the debates on this issue among different school of thoughts. Its validity entails certain assumptions which raise the doubts on its validity especially in the context of developing countries like Pakistan. The aim of this study is to check the validity of Ricardian Equivalence Hypothesis and its sources of deviation in case of Pakistan. The study use annual data for the period of 1973-2009. Engle and Granger and Johansen cointegration approaches depicts the long run relationship among variables. Generalized Method of Moment results shows that the presence of liquidity constraints and infinite horizons are the sources of failure of Ricardian Equivalence Hypothesis. These findings illustrate concentration towards the importance of fiscal policies in raising private consumption and controlling budget deficits, which are the prime goals of stabilization policies.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32044.

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Date of creation: 2011
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Publication status: Published in Interdisciplinary Journal of Contemporary Research in Business 2.3(2011): pp. 607-623
Handle: RePEc:pra:mprapa:32044
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Keywords: Fiscal policy; Ricardian Equivalence; Pakistan;

Find related papers by JEL classification:

  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
  • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
  • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
  • H6 - Public Economics - - National Budget, Deficit, and Debt

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Cited by:

  1. Waqas, Muhammad & Awan, Masood Sarwar, 2011. "Are Pakistani Consumers Ricardian?," MPRA Paper 35375, University Library of Munich, Germany.
  2. Shaheen, Safana & Awan, Masood Sarwar & Waqas, Muhammad & Aslam, Muhammad Amir, 2011. "Financial Development, International Trade and Economic Growth: Empirical Evidence from Pakistan," MPRA Paper 32876, University Library of Munich, Germany.
  3. Muhammad Waqas & Masood Sarwar Awan, 2012. "Exchange Rate, Interest Rate and Ricardian Equivalence Evidence from Pakistan," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 0(SS), pages 249-269.

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