Is the Ricardian Equivalence Proposition an ‘Aerie Fairy’ Theory for Europe?

Jesus Crespo Cuaresma and Gerhard Reitschuler

Economica, 2007, vol. 74, issue 296, 682-694

Abstract: Using a theoretical model based on dynamic optimizing agents, we test empirically the Ricardian equivalence proposition (REP) for the EU‐15 countries. The theoretical setting allows us to obtain estimates of the structural parameters of the model and to test directly the hypothesis implied by the REP. Using recently developed end‐of‐sample cointegration breakdown tests, we find evidence of a change in the fiscal behaviour of individuals during the last decade—after the introduction of a fiscal rule, namely the Maastricht criteria—for most countries in the sample. The results concerning the direction of change are mixed.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:bla:econom:v:74:y:2007:i:296:p:682-694

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