Are increases in government spending neutral? Evidence from Latin-American households

Jose Angelo Divino and Luis Felipe Nunes Pereira ()

Journal of Applied Economics, 2013, vol. 16, 101-120

Abstract: Using a dynamic optimization model, Ricardian Equivalence (RE) is empirically tested for Argentina, Brazil, Chile and Mexico. The system of equations obtained in the theoretical model is solved using Generalized Method of Moments and Full Information Maximum Likelihood. Results indicate that the null hypothesis concerning RE cannot be rejected for Argentina, Brazil, and Chile but is strongly rejected for Mexico. Therefore, when the fiscal authority seeks to stimulate economic activity by means of tax reductions and increases in government spending, the outstanding effect might be only a rise in private savings for the first three countries.

Keywords: fiscal policy; Ricardian Equivalence; public debt (search for similar items in EconPapers)
JEL-codes: E62 H30 H60 (search for similar items in EconPapers)
Date: 2013
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Journal Article: Are Increases in Government Spending Neutral? Evidence from Latin-American Households (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cem:jaecon:v:16:y:2013:n:1:p:101-120

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