The effects of tax-cuts and government bonds on aggregate demand

Faik Bilgili

MPRA Paper from University Library of Munich, Germany

Abstract: Ricardian Equivalence states that the choice between tax-cuts and debt finance have no effect on resource allocation between private investment and consumption in the economy, for given government expenditures. Studies of this statement yield controversial results. This controversy may arise due to simply the fact that the testing models employ different variables. In testing the equivalence, the data or sample period by itself may cause statistical rejection (acceptance) at a certain level of significance, although theory is correct (wrong). Or failure of Ricardian Equivalence may originate in structure of economies under study, i.e., imperfect credit markets. The result from a model that uses both contemporaneous and lagged values of variables indicates that Ricardian Equivalence holds. If this statistical result is true, government deficits or debt outstanding due to tax-cuts are irrelevant to alter the levels of investment, savings and aggregate demand, for given government expenditures.

Keywords: Ricardian equivalence; tax-cuts; debt finance; VAR system; Turkey; US; UK (search for similar items in EconPapers)
JEL-codes: B0 C3 C32 C51 E13 E62 H2 (search for similar items in EconPapers)
Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Journal of Faculty of Economics and Administrative Sciences, Erciyes University 13 (1998): pp. 123-130

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/75606/1/MPRA_paper_75606.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:75606

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().