Testing Ricardian Neutrality with an Intertemporal Stochastic Model

38 Pages Posted: 31 Jul 2007 Last revised: 7 Sep 2010

See all articles by Leonardo Leiderman

Leonardo Leiderman

Tel Aviv University - Eitan Berglas School of Economics; Bank of Israel

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: May 1987

Abstract

The purpose of this paper is to develop and estimate a stochastic-intertemporal model of consumption behavior and to use it for testing a version of the Ricardian-equivalence proposition with time series data. Two channels that may give rise to deviations from this proposition are specified: Finite horizons and liquidity constraints. In addition, the model incorporates explicitly the roles of taxes, substitution between public , and private consumption, and different degrees of consumer goods' durability. The evidence, based on data for Israel in the first half of the 1980s, supports the Ricardian neutrality specification, yielding plausible estimates for the behavioral parameters of the aggregate consumption function.

Suggested Citation

Leiderman, Leonardo and Razin, Assaf, Testing Ricardian Neutrality with an Intertemporal Stochastic Model (May 1987). NBER Working Paper No. w2258. Available at SSRN: https://ssrn.com/abstract=347039

Leonardo Leiderman (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

Bank of Israel

P.O. Box 780
Jerusalem, 91907
Israel

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7303 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
25
Abstract Views
377
PlumX Metrics