Modelling and Testing Ricardian Equivalence: A Survey
39 Pages Posted: 15 Feb 2006
Date Written: April 29, 1987
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: Suggested Citation