Ricardian equivalence, budget deficits, and saving in the United States, 1955:1-1991:4

Richard Cebula (), Chao-Shun Hung and Neela Manage

Applied Economics Letters, 1996, vol. 3, issue 8, 525-528

Abstract: The Ricardian equivalent theory is examined by dichotemizing the total US federal budget deficit into its structural (exogeneous) and cyclical (endogeneous) components. The former is hypothesized to be the expected, planned deficit, whereas the latter is viewed as the unpredictable, unplanned, unexpected deficit. Instrumental variables estimates for the periods 1955-1991 and 1973-1991 find that structural deficits elicit increased saving but cyclical deficits do not. Thus, the findings indicate support for a partially Ricardian equivalent world: saving only partially offsets budget deficits.

Date: 1996
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DOI: 10.1080/135048596356168

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