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Journal articles on the topic 'Ricardian Equivalence Theorem'

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Published: 4 June 2021

Last updated: 1 February 2022

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1

AHIAKPOR, JAMES C. W. "THE MODERN RICARDIAN EQUIVALENCE THEOREM: DRAWING THE WRONG CONCLUSIONS FROM DAVID RICARDO’S ANALYSIS." Journal of the History of Economic Thought 35, no. 1 (January 21, 2013): 77–92. http://dx.doi.org/10.1017/s1053837212000648.

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The modern Ricardian equivalence theorem focuses on the intertemporal equivalence between taxation and bond financing of government expenditures that David Ricardo considered practically irrelevant, rather than their contemporaneous equivalence in terms of the opportunity cost of government spending. Relying upon the implausible assumption of each individual’s future tax-capitalization behavior that Ricardo explicitly rejected, the modern Ricardian equivalence theorem reaches the exact opposite conclusions about government deficit spending than Ricardo argued. This paper explains these fundamental problems with the modern Ricardian equivalence proposition and shows an alternative method of arguing Robert Barro’s original point about the inefficacy of Keynesian deficit spending.

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2

Hayford, Marc. "Liquidity Constraints and the Ricardian Equivalence Theorem: Note." Journal of Money, Credit and Banking 21, no. 3 (August 1989): 380. http://dx.doi.org/10.2307/1992420.

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3

İkiz, Ahmet Salih. "Testing the Ricardian Equivalence Theorem: Time Series Evidence from Turkey." Economies 8, no. 3 (August 21, 2020): 69. http://dx.doi.org/10.3390/economies8030069.

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Two of the most common measures adopted by the government to stimulate the economy are increasing government borrowings and implementing tax cuts. These tax cuts are financed through increased debt. According to the Ricardian equivalence theory, the consumers will not change their current spending when they anticipate a tax increase in the future. In order to pay high taxes in the future, the government should increase its present savings. However, the extent of applicability of Ricardian equivalence could vary across nations. In this context, the present study explores the long-running relationship between domestic borrowing and private savings in Turkey. For this purpose, the researcher collected the data for key variables, gross domestic savings, and government debt, for the period of 1980–2017. The researcher used unit root, cointegration, VECM, and the Granger causality test to examine the relationships among the variables. Apart from this, ARDL regression was used in order to examine the long-term relationships among the variables. The empirical results indicate that there is presence of bidirectional causality, indicating that Ricardian equivalence is applicable in the economy. Households display a rational behavior by increasing their savings during the periods in which high government expenditure is incurred.

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4

Leachman, Lori L. "New evidence on the Ricardian equivalence theorem: a multicointegration approach." Applied Economics 28, no. 6 (June 1996): 695–704. http://dx.doi.org/10.1080/000368496328443.

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5

Kingston, Geoffrey, and John Piggott. "A Ricardian Equivalence Theorem on the taxation of pension funds." Economics Letters 42, no. 4 (January 1993): 399–403. http://dx.doi.org/10.1016/0165-1765(93)90092-q.

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6

Kazmi, Aqdas Ali. "Ricardian Equivalence: Some Macro-econometric Tests for Pakistan." Pakistan Development Review 31, no. 4II (December 1, 1992): 743–58. http://dx.doi.org/10.30541/v31i4iipp.743-758.

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The Ricardian Equivalence Hypothesis (REH) since resurrected by Barro (1974) states that deficit fmancing and taxation produce the same intertemporal allocation of consumption. To establish his theorem, Barro has to make a number of restrictive assumptions such as: all government revenue is collected by lump-sum taxation, debt is believed to be eventually repaid, capital markets are perfect, there is no uncertainty and agents are 'effectively' infinite-lived. To motivate the last assumption, Barro shows that because of purely altruistic motives, the agents derive utility from the welfare of their children and their grandchildren and so on such that through the inter-generational transfers, they act virtually like the infinitely lived. With the publication of Barro's seminal paper, a flood of theoretical and empirical literature on Ricardian Equivalence has emerged whiCh was published mostly in the 1970s and 1980s. A complete review of the literature is not possible. However, it must be pointed out that not a single study to the author's knowledge, has appeared dealing with developing countries. Kochin (1974); Aschauer (1985); Kormendi (1983); Leiderman and Razin (1988) have produced empirical support for the Ricardian Equivalence Hypothesis using data on USA, Canada and other developed countries. On the other hand, Buchanan (1986); Brennen (1987); Modigliani, Jappali and Pagano (1985); Feldstein (1976); Feldstein and Elmendorf (1987); Haque (1988); Buiter and Tobin (1980); Poterba and Summers (1988) produce evidence which is generally inconsistent with the basic logic of the Ricardian Equivalence Hypothesis. The overall reviews of the debate are presented in Bernheim (1987); Boskin, Flamming and Gorini (1987); Bernheim (1989) and Leiderman and Blajer (1988), which generally come to the conclusion contradicting the fmdings of the Ricardian Equivalence Hypothesis. A comprehensive review of REH literature is given in Kazmi (1991).

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7

Cassar, Ian P., Kurt Davison, and Christian Xuereb. "Does the Ricardian Equivalence Theorem Capture the Consumption Behavior of Maltese Households?" International Journal of Economics and Finance 10, no. 12 (November 10, 2018): 77. http://dx.doi.org/10.5539/ijef.v10n12p77.

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This paper explores the relationship between government debt and private consumption for Malta. In particular, it attempts to find evidence in favor or against the proposition that the consumption behavior of Maltese households follows the Ricardian Equivalence Theorem. The empirical findings from this analysis suggest that household consumption behavior in Malta is not Ricardian. The resulting lack of evidence supporting the presence of a cointegrating relationship between private consumption and public debt indicates that there is no long run relationship amongst these two variables. However, the results obtained from a subsequent application of a vector auto regressive generalized impulse response function suggests that in the short-term a rise in public debt does positively influence private household consumption. This implies that Keynesian theory may be better suited at explaining the underlying behavior of Maltese households in response to changes in the level of public debt, supporting the view that Maltese households, on aggregate, exhibit a myopic behavior with regards to household consumption patterns. This suggests that to an extent, the Government may thus be able to take advantage of the implicit effectiveness of an expansionary fiscal stance to stimulate the economy through higher aggregate consumption, at least in the short run. However, it should be noted that in the case of Malta the non-presence of the Ricardian Equivalence Theorem may not necessarily imply a high level of effectiveness of Keynesian fiscal policy, given that Malta is a small and open economy characterized by a high level of import content in its aggregate demand components. The longer-term implications pertaining to the public debt burden on future generations should be taken into account by policy makers as higher levels of debt could result in an eventual contractionary fiscal stance, which would negatively impact the consumption pattern of future generations.

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8

Fields, T. WINDSOR, and WILLIAM R. Hart. "ON INTEGRATING THE RICARDIAN EQUIVALENCE THEOREM AND THE IS-LM FRAMEWORK." Economic Inquiry 28, no. 1 (January 1990): 185–93. http://dx.doi.org/10.1111/j.1465-7295.1990.tb00810.x.

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9

Winner, L. E. "The Relationship of the Current Account Balance and the Budget Balance." American Economist 37, no. 2 (October 1993): 78–84. http://dx.doi.org/10.1177/056943459303700213.

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This paper demonstrates that the traditional theory, that the current account balance and the budget balance are positively related, does not uphold when applied to Australian data. On the other hand, Australian data seems to indicate that Ricardian Equivalence Theorem better explains the movements in the economy.

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10

Krawczyk, Marcin. "Oczekiwania i decyzje gospodarstw domowych oraz przedsiębiorstw a makroekonomiczne konsekwencje polityki gospodarczej." Kwartalnik Kolegium Ekonomiczno-Społecznego. Studia i Prace, no. 2 (November 27, 2016): 29–48. http://dx.doi.org/10.33119/kkessip.2016.2.2.

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The paper describes different approaches in the theory of economics (from Phillips curve through ricardian equivalence theorem to the demand for money) to the expectations of business entities on the future shape of basic macroeconomic aggregates. Inclusion of such expectations in theoretical framework of economics changes described economic processes and leads to change in the conclusions.

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11

Hayo, Bernd, and Florian Neumeier. "The (In)validity of the Ricardian equivalence theorem–findings from a representative German population survey." Journal of Macroeconomics 51 (March 2017): 162–74. http://dx.doi.org/10.1016/j.jmacro.2017.01.003.

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12

Toso, S. "The Italian School of Public Finance at the Turn of the Twentieth Century and the Ricardian Equivalence Theorem." History of Political Economy 24, no. 4 (December 1, 1992): 819–41. http://dx.doi.org/10.1215/00182702-24-4-819.

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13

Ali, Shahid, and Naved Ahmad. "The Effects of Fiscal Policy on Economic Growth: Empirical Evidences Based on Time Series Data from Pakistan." Pakistan Development Review 49, no. 4II (December 1, 2010): 497–512. http://dx.doi.org/10.30541/v49i4iipp.497-512.

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Fiscal policy refers to government‟s efforts to influence the direction of the economy through changes in taxes or expenditures. Optimal fiscal policy in Pakistan and in other developing countries plays a pivotal role in growth process and, hence, serves as a vital instrument for economic growth. The efficacy of fiscal policy in improving economic conditions in the long run is, however, a controversial issue and needs further investigation. In conventional model, a federal tax cut without a corresponding reduction in federal expenditures will encourage consumption expenditures and interest earnings due to increase in personal disposable income. Contrarily, according to Ricardian Equivalence Theorem (RET), the same change in fiscal policy will not result in any of the above mentioned macroeconomic impacts. In other words, a reduction in deficit-financed federal tax cut will not affect macroeconomic outcomes [Saxton (1999)].

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14

Banday, Umer J., and Ranjan Aneja. "Does Fiscal Deficit Affect Current Account Deficit in India? An Econometric Analysis." Review of Market Integration 9, no. 3 (December 2017): 155–74. http://dx.doi.org/10.1177/0974929217744462.

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The aim of this article is to examine the validity of the Keynesian proposition and Ricardian equivalence (RE) theorem for the developing country India over the period 1990–2015. The Mundell–Fleming model and Feldstein chain model which revolve around the Keynesian proposition argues it is budget deficit (BD) which influences current account deficit (CAD), with the increase in interest rate. While as RE theorem states that there is no relationship between BD and CAD, the decrease in tax rates will not increase the consumption because rational agents consider today’s deficit financing as tomorrow’s liabilities. The article initially investigates the theoretical foundation, followed by empirical literature, and uses various methods of econometrics to testify its validity. A co-integration and vector error correction model (VECM) model validates the existence of long-run relationship. The results of Granger causality test reveal the existence of bi-directional causality between BD and CAD and validates Keynesian proposition in India. Our results conclude that instability in macro variables such as inflation, exchange rate, interest rate and money supply (MS) causes CAD and BD which further have been proved by Cholesky decomposition method. However, it has been said in the global economic world that no one can escape the windfall effect of exchange rate volatility and rising prices, and such effects can be minimised but not eliminated. JEL: E12, E31, E52, E62, E63, E41

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15

Sargent, Thomas J., and Bruce D. Smith. "THE TIMING OF TAX COLLECTIONS AND THE STRUCTURE OF “IRRELEVANCE” THEOREMS IN A CASH-IN-ADVANCE MODEL." Macroeconomic Dynamics 14, no. 4 (June 15, 2010): 585–603. http://dx.doi.org/10.1017/s1365100509990939.

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A standard timing protocol in a cash-in-advance model allows the government to elude the inflation tax. That matters. Altering the timing of tax collections to make the government hold cash overnight disables some classical propositions but enables others. The altered timing protocol loses a Ricardian proposition and also the proposition that open market operations, accompanied by tax adjustments needed to finance the change in interest on bonds due the public, are equivalent to pure units changes. The altered timing enables a Modigliani–Miller equivalence proposition that does not otherwise prevail.

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16

Buchanan, James M., and Jennifer Roback. "The Incidence and Effects of Public Debt in the Absence of Fiscal Illusion." Public Finance Quarterly 15, no. 1 (January 1987): 5–25. http://dx.doi.org/10.1177/109114218701500101.

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This article clarifies several points concerning the effects of public debt. First, the article clarifies the distinction between the Ricardian equivalence and Barro neutrality theorems. Second, the article develops a voting model with two types of families, neither of whom have fiscal illusion. We show that debt may have redistributive consequences and that some voters will rationally prefer debt to taxes. In this way, we develop a rudimentary positive theory of debt issue. We also verify the proposition that debt issues that redistribute income are not neutral with respect to savings and consumption.

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17

Kim, Minseong. "Extended Ricardian Equivalence Theorem for Helicopter Money." SSRN Electronic Journal, 2016. http://dx.doi.org/10.2139/ssrn.2773595.

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18

Josheski, Dushko. "Anything Goes Theorem, Incomplete Markets and Ricardian Equivalence Hypothesis." SSRN Electronic Journal, 2017. http://dx.doi.org/10.2139/ssrn.3073568.

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19

Gupta, Kanhaya L. "Cambridge Theorem, Ricardian Equivalence and Government Activity / Cambridge Theorem, ricardianische Äquivalenz und staatliches Handeln." Jahrbücher für Nationalökonomie und Statistik 215, no. 3 (January 1, 1996). http://dx.doi.org/10.1515/jbnst-1996-0307.

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SummaryThe aim of this paper is threefold. First, it develops a generalized savings function which explicitly takes into account the government’s budget constraint properly specified. Second, it reexamines the “Cambridge Theorem” when the savings functions are properly specified. And, finally, it proposes a way to explicitly model the RET and shows how it would affect the steady-state rate of profit and what this would be.

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20

Bode, Eckhardt. "Einige kritische Anmerkungen zu empirischen Tests des Ricardianischen Äquivalenztheorems/Some Critical Remarks upon Empirical Tests of the Ricardian Equivalence Theorem." Jahrbücher für Nationalökonomie und Statistik 206, no. 2 (February 1, 1989). http://dx.doi.org/10.1515/jbnst-1989-0205.

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21

Payesteh, Sayeed. "Do The Federal Deficits Matter?" International Business & Economics Research Journal (IBER) 7, no. 1 (February 15, 2011). http://dx.doi.org/10.19030/iber.v7i1.3205.

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The sharp and sustained increases in the budget and current-account deficits have once again raised a great deal of concern among many economists on the reemergence of the twin deficits of the1980s and their impacts upon macroeconomic variables. In view of majority of economists, these developments will be creating economic problems such as high real rates of interest, low savings, stagnant economic growth, large and persistent current account deficits, and probably a higher inflation. All economists, however, do not share this view. Those associated with the writings of Robert Barro, argue the Ricardian Equivalence Theorem that budget deficits do not matter and they have no real effects on the economy. The empirical evidence on this issue has been rather inconclusive. In contrast to the previous studies that have used single equation, I use a balance of payment model to investigate simultaneously the impacts of budget deficits on a number of macroeconomic variables using a system of simultaneous equations.

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