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The relationship between public and private saving in Spain: does Ricardian equivalence hold?

Francisco de Castro Fernández () and José Fernández ()
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José Fernández: Banco de España

No 923, Working Papers from Banco de España

Abstract: This paper aims to test the validity of the Ricardian proposition for the Spanish economy from three different approaches: a) by testing its theoretical implications on the stability of national saving and the relationship between fiscal and current account balances, b) by carrying a number of tests on different structural consumption equations and, c) by testing this hypothesis in consumption functions stemming from the Euler equations derived from a consumer’s maximization problem. Our results lean toward rejection of the Ricardian proposition, although some degree of substitution between public and private saving is detected. In terms of policy implications, these results would suggest that there is some room for fiscal policy to exert its countercyclical role in the case of Spain. However, the effectiveness of such a policy might be limited in a context of rising debt ratios that trigger sustainability concerns and make consumers increasingly Ricardian.

Keywords: Ricardian equivalence; debt neutrality; saving; fiscal policy (search for similar items in EconPapers)
JEL-codes: E62 E21 H30 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2009-10
New Economics Papers: this item is included in nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0923

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