Modelling and Testing Ricardian Equivalence: A Survey

39 Pages Posted: 15 Feb 2006

See all articles by Leonardo Leiderman

Leonardo Leiderman

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

Mario I. Blejer

Central Bank of Argentina

Date Written: April 29, 1987

Abstract

Ricardian Equivalence states that, under certain circumstances and for a given path of expenditures, the substitution of debt for taxes does not affect private sector wealth and consumption. Ricardian Equivalence is based on the premise that debt financing is only a change in the timing of taxation that has no impact on private sector consumption if the present value of the stream of taxation remains unchanged. This paper provides a model that illustrates the implications of Ricardian Equivalence, surveys the relevant literature, and considers the effects of relaxing the basic assumptions. It also critically reviews recent empirical work on Ricardian Equivalence.

JEL Classification: 3210, 3212, 3216

Suggested Citation

Leiderman, Leonardo and Blejer, Mario I., Modelling and Testing Ricardian Equivalence: A Survey (April 29, 1987). IMF Working Paper No. 87/35. Available at SSRN: https://ssrn.com/abstract=884728

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

Mario I. Blejer

Central Bank of Argentina

Reconquista 266
Edificio Central, piso 7
Buenos Aires, 1003
Argentina

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