an alternative test for ricardian equivalence

Jäger, Albert (December 1987) an alternative test for ricardian equivalence. Former Series > Forschungsberichte / Research Memoranda 241


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abstract: recent empirical work on the validity of the ricardian equivalence proposition (rep) using the "consumption function approach" has produced sharply conflicting evidence. this paper develops an alternative but simple test for the rep. the test exploits the idea that a permanent shock in public sector savings implies testable restrictions on the long-run joint behavior of private consumption and two income series suitably defined. more concrete, given a permanent shock in public savingsprivate consumption should not be cointegrated with conventially defined disposable income as implied by the permanent income hypothesis but should be cointegrated with an appropriately redefined income concept suggested by the rep. in this sense, the test exploits the information contained in the low frequency part of the macroeconomic time series involved. the empirical analysis of the paper is based on austrian and us-data. the rep is rejected by austrian data. us-data for the time period 1949-84 appear to be non-informative for judging the validity of the rep.;

Item Type: IHS Series
Date Deposited: 26 Sep 2014 10:34
Last Modified: 01 Apr 2016 14:07

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