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Crowding-Out Hypothesis versus Ricardian Equivalence Proposition: Evidence from Literature

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  • Gumus, Erdal

Abstract

The size of government expenditure in an economy grows over time. To finance these expenditures, public incomes must grow as well. Given that tax revenues are not sufficient for such spending and levying, new taxes and/or increasing current tax rates are not politically desirable, the only option left is to borrow. The purpose of this paper is to survey the two most important approaches, "crowding-out hypothesis" and "Ricardian Equivalence proposition", in the literature, and evaluate the economic consequences of public borrowing.

Suggested Citation

  • Gumus, Erdal, 2003. "Crowding-Out Hypothesis versus Ricardian Equivalence Proposition: Evidence from Literature," MPRA Paper 42141, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:42141
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    File URL: https://mpra.ub.uni-muenchen.de/42141/1/MPRA_paper_42141.pdf
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    References listed on IDEAS

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    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    2. Evans, Paul, 1988. "Are Consumers Ricardian? Evidence for the United States," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 983-1004, October.
    3. Mark Wheeler, 1999. "The macroeconomic impacts of government debt: An empirical analysis of the 1980s and 1990s," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 27(3), pages 273-284, September.
    4. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-190, March.
    5. Plosser, Charles I., 1982. "Government financing decisions and asset returns," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 325-352.
    6. Nadeem U. Haque, 1988. "Fiscal Policy and Private Sector Saving Behavior in Developing Economies," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 316-335, June.
    7. Roberto Ricciuti, 2003. "Assessing Ricardian Equivalence," Journal of Economic Surveys, Wiley Blackwell, vol. 17(1), pages 55-78, February.
    8. Bradley, Michael D., 1986. "Government spending or deficit financing: which causes crowding out?," Journal of Economics and Business, Elsevier, vol. 38(3), pages 203-214, August.
    9. Haug, Alfred A, 1990. "Ricardian Equivalence, Rational Expectations, and the Permanent Income Hypothesis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(3), pages 305-326, August.
    10. Weintraub, Robert E., 1978. "Congressional supervision of monetary policy," Journal of Monetary Economics, Elsevier, vol. 4(2), pages 341-362, April.
    11. Buchanan, James M, 1976. "Barro on the Ricardian Equivalence Theorem," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 337-342, April.
    12. Makin, John H, 1983. "Real Interest, Money Surprises, Anticipated Inflation and Fiscal Deficits," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 374-384, August.
    13. Dwyer, Gerald P, Jr, 1982. "Inflation and Government Deficits," Economic Inquiry, Western Economic Association International, vol. 20(3), pages 315-329, July.
    14. Gochoco, Maria S., 1990. "Financing decisions and the 'crowding out' effect : The case of the Philippines," Economics Letters, Elsevier, vol. 32(4), pages 331-333, April.
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    More about this item

    Keywords

    Crowding-out; crowding-in; Ricardian equivalence; government expenditure; public borrowing;

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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