Fiscal Policy and Private Sector Saving Behavior: Tests of Ricardian Equivalence in Some Developing Economies

July 1, 1987

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Tax or debt financing of a given rate of government expenditures would, according to the now well-known Ricardian Equivalence proposition, have equivalent effects on aggregate demand. Among the reasons for a deviation from the equivalence is the possibility that the government and the private sector have different planning horizons. The paper finds no empirical support for differing planning horizons across sectors in a group of 16 developing economies and, therefore, provides empirical evidence for the equivalence hypothesis.

Subject: Consumption, Disposable income, Expenditure, National accounts, Private consumption, Public debt

Keywords: budget constraint, Consumption, consumption decision, consumption function, Disposable income, equivalence hypothesis, equivalence proposition, market discount rates, Private consumption, WP

Pages:
24
Volume:
1987
DOI:
https://doi.org/10.5089/9781451970487.001
Issue:
051
Series:
Working Paper No. 1987/051
Stock No:
WPIEA0511987
ISBN:
9781451970487
ISSN:
1018-5941

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