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Euler Testing Ricardo and Barro in the EU

Economics Bulletin, Vol. 5, No. 16, pp. 1-14, 2008

Posted: 9 Apr 2008  

Antonio Afonso

University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics)

Abstract

According to Keynesian economics wisdom, government debt has an effect on the economy since consumers see government debt as net wealth. However, according to the debt neutrality hypothesis of Ricardo (1817), popularised by Barro (1974), such effects would be absent. This paper's results, obtained from Euler equation estimations using a panel data approach, indicate that it would be wise to reject the debt neutrality hypothesis for the EU and that higher government indebtedness could actually deter private consumption.

Keywords: debt neutrality, private consumption, EU, panel data

JEL Classification: C23, E21, E62, H63

Suggested Citation

Afonso, Antonio, Euler Testing Ricardo and Barro in the EU. Economics Bulletin, Vol. 5, No. 16, pp. 1-14, 2008 . Available at SSRN: https://ssrn.com/abstract=1118217

Antonio Afonso (Contact Author)

University of Lisbon - ISEG (School of Economics and Management) ( email )

R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal
+351 21 392 5985 (Phone)
+351 21 396 6407 (Fax)

HOME PAGE: http://www.iseg.utl.pt/~aafonso/AAWeb.html

UECE (Research Unit on Complexity and Economics)

Rua Miguel Lupi 20
Lisbon, 1249-078
Portugal
+351-213 925 912 (Phone)
+351-213 971 196 (Fax)

HOME PAGE: http://www.iseg.utl.pt/~uece/

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