The Ricardian Equivalence Proposition in OECD Countries: Does Government Debt Weigh Down Growth?
14 Pages Posted: 6 Nov 2011
Date Written: September 22, 2006
This article tests the effect of fiduciary public debt on the economic growth of OECD countries in the period 1980-2000. It is a test of the Ricardian Equivalence Proposition in these countries. REP is traditionally tested according to two approaches: the first seeks effects of government deficits on interest rates and the second analyses the impact of public debt on either consumption or savings, for example. The novelty in this article focuses on the effects of public indebtedness on economic growth rates, and not on variables whose measurement is usually controversial. The empirical tests involved two alternative variables as proxies for public indebtedness, firstly the debt-to-gdp ratio (stock/flow) and secondly the interest payments-to-gdp ratio (flow/flow). Results indicate that public indebtedness negatively affect economic growth rates of OECD countries.
Keywords: marketable public debt, central government debt, government bonds, debt-to-gdp-ratio, economic growth, Ricardian equivalence, non-neutrality, percapita gdp, interest payments, OECD countries, between groups estimation
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