Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia

Shane Brittle
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Shane Brittle: University of Wollongong, http://www.uow.edu.au/index.html

Economics Working Papers from School of Economics, University of Wollongong, NSW, Australia

Abstract: This paper examines the growing gap between the theoretical and empirical growth literature and policy needs of the developing economies. Growth literature has focused mainly on long term growth outcomes, but policy makers of the developing economies need rapid improvements in the short to medium term growth rates; see Pritchett (2006). In this paper we argue that this gap can be reduced by distinguishing between the short to medium term dynamic effects of policies from their long run equilibrium effects. With data from Singapore, Malaysia and Thailand, we show that an extended version of the Solow (1956) model is well suited for this purpose. We find that the short to medium term growth effects of the investment ratio are quite significant and they may persist for up to 10 years.

Keywords: Ricardian equivalence; fiscal policy; cointegration; structural breaks. (search for similar items in EconPapers)
JEL-codes: C22 E21 E62 H62 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2009
New Economics Papers: this item is included in nep-mac, nep-pub and nep-sea
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