Fiscal adjustments in Europe and Ricardian equivalence
DOI:
https://doi.org/10.13133/2037-3643/10598Keywords:
Europe, Economic aspectsAbstract
According to the ‘Ricardian’ equivalence hypothesis, consumption is dependent on permanent disposable income and current deficits are equivalent to future tax payments. This hypothesis is tested on 14 European countries in the 1990s. The relationships between private sector savings and general government deficit, and the GDP growth rate and the unemployment rate are determined. The results show the change in consumers' behaviour with respect to government deficit, and that expectations of an increase in future wealth are no longer associated with a decrease in deficit.
JEL Codes: E01
References
ALESINA A. and R. PEROTTI (1995), "Fiscal expansions and adjustments in OECD countries", Economic Policy, vol. 21, pp. 206-47.
BARSKY R.B., N.G. MANKIW and S.P. ZELDES (1986), "Ricardian consumers with Keynesian propensities", American Economic Review, vol. 76, pp. 676-91.
EUROPEAN COMMISSION (1993-97), "Annual report", European Economy.
DALAMAGAS B. (1993), "Fiscal illusion and the level of indebtedness: an international comparison", South African Journal of Economics, vol. 61, pp. 45-68.
DE BONIS V. (1996), "The effects of budget cuts on consumption: the case of Denmark", Problemi di Finanza Pubblica, vol. 9, pp. 361-74.
DE BONIS V. (1997), "Contrazione fiscale e crescita della produzione: il ruolo del settore estero nel caso dell'Irlanda", Economia Internazionale, vol. 50, pp.163-82.
DOMAR E. (1944), "The burden of debt and the national income", American Economic Review, vol. 34, pp. 798-827.
FLAVIN M.A. (1981), "The adjustment of consumption to changing expectations about future income", Journal of Political Economy, vol. 189, pp. 974-1009.
GIAVAZZI F. and M.A. MICELI (1993), "When are fiscal contractions expansionary?", in F. Parrillo, a cura di, Sviluppo economico e movimenti internazionali di capitali, ISCONA, Roma.
GIAVAZZI F. and M. PAGANO (1990), "Can severe fiscal contractions be expansionary? Tales of two small European countries", NBER Macroeconomics Annual.
GIAVAZZI F. and M. PAGANO (1996), "Non-Keynesian effects of fiscal policy changes: international evidence and the Swedish experience", Swedish Economic Policy Review, vol. 3, pp. 67-103.
HALL R. (1978), "Stochastic implications of the life cycle/permanent income hypothesis: theory and evidence", Journal of Political Economy, vol. 86, pp. 971-98.
HAYASHI F. (1982), "The permanent income hypothesis: estimation and testing by instrumental variables", Journal of Political Economy, vol. 90, pp. 895-916.
IMF (1993-97), World Economic Outlook, Washington.
MODIGLIANI F. and R. BRUMBERG (1954), "Utility analysis and the consumption function: an interpretation of cross-section data", in K. Kirihara ed., Post Keynesian Economics, Rutgers University Press, New Brunswick.
OECD (1997), Analytical Database, Paris.
SUTHERLAND A. (1997), "Fiscal crises and aggregate demand: can high public debt reverse the effects of fiscal policy?", Journal of Public Economics, vol. 65, pp. 147- 62.
Downloads
Published
How to Cite
Issue
Section
License
