Is the Ricardian Equivalence Proposition an Aerie Fairy Theory for Europe?

13 Pages Posted: 22 Oct 2007

See all articles by Jesús Crespo Cuaresma

Jesús Crespo Cuaresma

University of Innsbruck - Department of Economic Theory, Economic Policy and Economic History

Gerhard Reitschuler

University of Innsbruck

Abstract

Using a theoretical model based on dynamic optimizing agents, we test empirically the Ricardian equivalence proposition (REP) for the EU-15 countries. The theoretical setting allows us to obtain estimates of the structural parameters of the model and to test directly the hypothesis implied by the REP. Using recently developed end-of-sample co-integration breakdown tests, we find evidence of a change in the fiscal behavior of individuals during the last decade after the introduction of a fiscal rule, namely the Maastricht criteria for most countries in the sample. The results concerning the direction of change are mixed.

Suggested Citation

Crespo Cuaresma, Jesús and Reitschuler, Gerhard, Is the Ricardian Equivalence Proposition an Aerie Fairy Theory for Europe?. Economica, Vol. 74, No. 296, pp. 682-694, November 2007. Available at SSRN: https://ssrn.com/abstract=1022706 or http://dx.doi.org/10.1111/j.1468-0335.2007.00588.x

Jesús Crespo Cuaresma (Contact Author)

University of Innsbruck - Department of Economic Theory, Economic Policy and Economic History ( email )

Universitaetsstrasse 15
Innsbruck, A - 6020
Austria

Gerhard Reitschuler

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

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