Ghassan, Hassan B. (): Test de l’équivalence Ricardienne par la Modélisation SVAR. Published in: Revue de l’Institut National de. Emmanuel Thibault, “L’Equivalence Ricardienne dans les Modèles de Croissance avec Accumulation du Capital”, Revue d’Économie Politique, vol. , hypotheses of rational expectations and Ricardian equivalence can not be anticipations rationnelles et de l’equivalence ricardienne n’est pas rejetee par les .

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## Test de l’équivalence Ricardienne par la Modélisation SVAR

The consideration of dissimilarities in debt ratio and living standards implies that a decision should be reached equialence which group of countries is likely to differ from the others, in the process of testing REH. The results of the discriminant analysis are presented in Table 1.

An interpretation of this dichotomy in consumer behaviour is provided via the debt-illusion hypothesis. InBarro offered a number of defenses against various other critiques. University of Athens Department of Economics The REH is said to hold if certain stringent assumptions are met intergenerational altruistic preferences perfect capital markets lump-sum taxation certainty etc.

Budget expenditures and revenues: Following the classification of the pooled cross-section, time-series sample size of 49 countries into three groups, according to the level of indebtedness, each group need be further segregated into two subgroups, according to the level of per capita income.

Such being the case, a consumer may be thought of as maximizing his expected future utility out of a stream of income flows if he succeeds in minimizing his composite disutility out ricardkenne a stream of actual and imputed tax liabilities.

To surpass the problem, the substitution of the original data for their annual rates of growth could be a good first approximation for the time being, we disregard the expected or unexpected nature of the variables on the right-hand side of 8.

### Ricardian equivalence – Wikipedia

In the Ronald Reagan era, the US government had a historically large budget deficit due to the Reagan administration tax cuts and increases in military spending. Table 2 reports the estimates of the coefficients of equation 9 for the total of the 49 sample countries, using annual data over the period.

Having ordered the sample countries according to debt ratios and living standards, we may proceed to the empirical investigation of consumer behaviour, after tackling a major problem in estimating equation 8: The model was an important contribution to the Ricarsienne Classical Macroeconomicsbuilt around the assumption of rational expectations.

In empirical studies of aggregate consumption, two approaches are usually employed. Even less conclusive is the reaction pattern equivalencw households with respect to changes in the tax burden. Therefore, the private and public sectors can be integrated by combining equiivalence and government’s budget constraints.

Thus, depending on the specific form of consumer behaviour, the marginal disutility of paying a given amount of tax in the present period may be equal to or much lower than the marginal disutility of creating a debt-financed budget deficit of equal amount by the government which, in turn, equals the marginal disutility of the present value of the stream of equivalennce, that will be levied in the future, in order to finance the flow of payments to lenders.

Following Rossi [], we directly compute the parameters of the disutility function, without explicitly solving the consumer’s optimization problem, by estimating the marginal condition from 1 and 2 as follows:.

### L&#;EQUVALENCE RICARDIENNE by asma Guezguez on Prezi

Vector autoregressions and reality. Our results suggest that the REH applies to Moroccan economy, since private saving compensates a big fraction i.

The cornerstone assumption of the equivalence theorem is that the future tax implications of current government outlays are fully recognized by the private sector complete tax discountingso that the coefficient on tax revenue should be insignificantly different from zero. Introduction to Multiple Time Series Analysis. However, Ricardo himself was skeptical of this equivalence. A conceptual explanation for the additional classification according to per capita income may be given by the significant portion of the population in developing countries that is possibly affected by liquidity constraints.

Thus, the representative household is assumed to have a stationary utility function that is defined over a composite’ good’, as shown below: Finite lifetimes and the effects of budget deficits on national saving.

For more details see McMillin Following Eqiuvalence [], we directly compute the parameters of the disutility function, ricardjenne explicitly solving the consumer’s optimization problem, by estimating the marginal condition from 1 and 2 as follows: Using lagged variables in a pooled cross-section time-series VAR model, however, means in essence that agents in each country use information from the other 48 sample countries in order to formulate their expectations as to the economic developments in their own country.

Similarly, the same tax burden may affect private consumption in a variety of ways, should it be associated with differing amounts of fiscal deficit.

In contrast with much of the recent work on this topic, the theoretical framework used in the present study allows us to shift the emphasis to a composite variable reflecting the substitution of debt for taxes. Download full text from publisher File URL: The advantage of the latter so-called Euler equation approach is that, if we are prepared to assume that preferences are additively separable over time, a possibility opens for a direct estimation of the parameters of an intertemporal utility function, without requiring explicit solution of the dynamic optimization problem.

The estimated values of the coefficients on government spending G point to a substantial degree of substitutability between government and private goods, but only for the advanced economies.

The final step before embarking on a formal testing of the above assumptions via equation 9 is to incorporate expectations in the analysis. Runkle, David E, Among his conclusions, Barro wrote:. The reality [14] was that the net private saving as a percentage of GNP was 8. Since there are three groups, two discriminant functions can be calculated. Debt accumulation — so the argument goes — induces precautionary savings when it surpasses the threshold, beyond which its adverse consequences income inequality, high interest rates, balance-of-payments problems, etc.

Since bonds are loans, they must eventually be repaid—presumably by raising taxes in the future. Journal of Public Administration 43 4 Journal of Monetary Economics 20 2: In such periods, consumers have a strong incentive to view tax cuts as merely replacing current taxes with future taxes of equal present value, as a result of the unfavourable prospects concerning their future riacrdienne standards ; the unfavourable prospects reinforce their precautionary motive for saving as a hedge against the anticipated deterioration in economic conditions.

A transformed variable is defined as the original variable minus the country and time means plus the total mean.

He demonstrated that the equivalnece of public debt depresses savings in a growing economy. The Ricardian view of equivalence between debt and tax financing is tested in the context of a pooled cross-section, time-series macroeconomic model for 49 countries.

Journal of Equivalende and Economic Statistics 5: To this end, the above described two-step procedure cluster and discriminant analyses is replicated for the ricradienne belonging to each of the three groups and new discriminant scores are derived, which take on increasing values as per capita income rises.

The choice is therefore “tax now or tax later. If you are a registered author of this item, you may also want to check the “citations” tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation. Equivalencee tests have shown that the differences among the five groups as well as among the subgroups seems to be in both the constant term ricqrdienne the regression and the other coefficients of the model. Journal of Monetary Economics.

Consumer behaviour in debt-ridden countries contrasts sharply with that in solvent countries. See for example Dalamagas ] where an explicit rational expectations opti mizing model of consumer behaviour is utilized for sample of six industrialized coun tries Among the major findings of the study is that individuals make meir consumption decisions with without regard to the future tax implications of current expansion in public debt at high low levels of government indebtedness.