Waqas, Muhamad and Awan, Masood Sarwar and Aslam, Muhammad Amir (2011): We are living on the cost of our children. Published in: Interdisciplinary Journal of Contemporary Research in Business , Vol. 3, No. 2 (2011): pp. 607-623.
Download (214kB) | Preview
The strict assumptions of Ricardian Equivalence Hypothesis hoist the debates on this issue among different school of thoughts. Its validity entails certain assumptions which raise the doubts on its validity especially in the context of developing countries like Pakistan. The aim of this study is to check the validity of Ricardian Equivalence Hypothesis and its sources of deviation in case of Pakistan. The study use annual data for the period of 1973-2009. Engle and Granger and Johansen cointegration approaches depicts the long run relationship among variables. Generalized Method of Moment results shows that the presence of liquidity constraints and infinite horizons are the sources of failure of Ricardian Equivalence Hypothesis. These findings illustrate concentration towards the importance of fiscal policies in raising private consumption and controlling budget deficits, which are the prime goals of stabilization policies.
|Item Type:||MPRA Paper|
|Original Title:||We are living on the cost of our children|
|Keywords:||Fiscal policy, Ricardian Equivalence, Pakistan|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
H - Public Economics > H5 - National Government Expenditures and Related Policies > H53 - Government Expenditures and Welfare Programs
H - Public Economics > H6 - National Budget, Deficit, and Debt
|Depositing User:||Muhammad Waqas|
|Date Deposited:||06. Jul 2011 05:31|
|Last Modified:||12. Feb 2013 12:51|
Afonso, A. 2007. Euler Testing Ricardo and Barro in the EU. Economic Bulletin. 5:1-14.
Abimanyu, Y. 1998. Using Indonesia’s Real Exchange Rate to Test Ricardian Equivalence. International Economic Journal. 12:17-29.
Aschauer, D. 1985. Fiscal Policy and Aggregate Demand. The American Economic Review. 75:117-127.
Aschauer, D. 1988. The Equilibrium Approach to Fiscal Policy. Journal of Money, Credit and Banking. 20:41-62.
Aschauer, D. 1989. Is Public Expenditure Productive? Journal of Monetary Economics. 23:177-200.
Aschauer, D. 1993. Fiscal Policy and Aggregate Demand : Reply.The American Economic Review. 83:667-669.
Barro, R. 1974. Are Government Bonds Net Wealth? The Journal of Political Economy. 82:1095-1117.
Barro, R. 1979. On the Determination of the Public Debt. The Journal of Political Economy.87:940-971.
Barro, R. 1980. Federal Deficit Policy and the Effects of Public Debt Shocks. Journal of Money, Credit, and Banking 12: 747–761.
Barro, R. 1989. The Ricardian Approach to Budget Deficits.The Journal of Economic Perspectives. 3:37-54.
Bernheim, D. 1987. Ricardian Equivalence: An Evaluation of Theory and Evidence. NBER, Macroeconomics Annual.263-315.
Cardia, E. 1997. Replicating Ricardian equivalence Tests with Simulated Series. The American Economic Review. 87:65-79.
Cuaresma, J. C. and Reitschuler, G. 2007. Is Ricardian Equivalence Ricardian Proposition an ‘Aerie Fairy Theory for Europe? Economica. 74:682-694.
Diamond, P. 1965. National Debt in a Neoclassical Growth Model. The American Economic Review. 55:1126-1150.
Drakos, K. 2001. Testing Ricardian Equivalence Theorem: Time Series Evidence From Greece. Journal of Economic Development. 26:1-12.
Drakos, K. 2003. Testing the Ricardian equivalence proposition: Panel data Evidence From the EU. Working Paper, Department of Economics. University of Rome.
Eisner, E. 1989. Budget Deficits: Rhetoric and Realities. The Journal of Economic Prespectives. 3:73-93.
Evans, P. 1985. Do Large Deficits Produce High Interest Rates? The American Economic Review. 75:66-87.
Evans, P. 1988. Are Consumers Ricardian? Evidence for the United States. The Journal of Political Economy. 96:583-1004.
Evans, P. 1993. Consumers are not Ricardian: Evidence from Nineteen Countries. Economic Inquiry. 31:534–548.
Evans, P. 2001. Consumer Behaviour in the United States: Implications for Social Security Reform. Economic Inquiry. 39:568–582.
Feldstein, M. 1982. Government Deficits and Aggregate Demand.Journal of Monetary Economics. 9:1-20.
Feldstein, M. 1988. The Effects of Fiscal Policies When Incomes Are Uncertain : A Contradiction to Ricardian Equivalence. The American Economic Review. 78:14-23.
Feldstein, M. and Douglas, E. 1990. Government Debt, Government Spending, and Private-Sector Behavior Revisited: Comment. The American Economic Review. 80:589-599.
Garcia, A. and Ramajo, J. 2003. Fiscal Policy and Private Consumption Behaviour: The Spanish Case. Empirical Economics. 30:115–135.
Ghatak, A. and Ghatak, S. 1996. Budgetary Deficits and Ricardian Equivalence: The Case of India. Journal of Public Economics. 60:267-282.
Giorioni, G and Holden, K. 2001. Does the Ricardian Equivalence Proposition Hold in Less Developed Countries. International Review of Applied Economics. 17:209-221.
Giorioni, G. and Holden, K. 2001. Some Further International Evidence on Ricardian equivalence: A VECM Approach. Working Paper, Center for International Banking, Economics and Finance.
Graham, F. and Himarios, D. 1993. Consumption, Wealth, and Finite Horizons: Tests of Ricardian Equivalence. Economic Inquiry. 34:527-544.
Graham, F. 1993. Fiscal Policy and Aggregate Demand: Comment. The American Economic Review. 83:659-666.
Graham, F. 1995. Government Debt, Government Spending, and Private-Sector Behavior: Comment. The American Economic Review. 85:1348-1356.
Gray, J. and Stone, J.A. 2005. Ricardian equivalence For Sub National States. University of Oregon Eugene.
Hall, R. 1978. Stochastic Implications of the Life Cycle/Permanent Income Hypothesis: Theory and Evidence. Journal of Political Economy. 86:971 987.
Haug, A. 1996. Blanchard’s Model of Consumption: An Empirical Study. Journal of Business and Economic Statistics. 14:169–177.
Haque, N. U. and Montiel, P. 1987. Ricardian Equivalence, Liquidity Constraints, and the Yari-Blanchard Effect: Tests for Developing Countries. IMF Working Paper.
Haque, N. U. and Montiel, P. 1989. Consumption in Developing Countries: Tests for Liquidity Constraints and Finite Horizons. The Review of Economics and Statistics. 71:408-415.
Hayashi, F. 1985. The Effect of Liquidity Constraints on Consumption: A Croos- Sectional Analysis. Quarterly Journal of Economics. 100:183-206.
Hayashi, F. 1985. Tests for Liquidity Constraints: A Critical Survey. NBER, Working Paper, No. w1720.1-46.
Himarios, D. 1995. Euler Equations Test of Ricardian Equivalence. Economic Letters. 48:165–171.
Kaadu, H. and Uuskula, L. 2004. Liquidity Constraints and Ricardian Equivalence in Estonia. Working Papers of Eesti Pank, No.7.
Kazmi, A.A. 1991.Saving, Consumption and Ricardian equivalence: A Macro Econometric Analysis of Pakistan. Ph.D. Dissertation, Boston University, Boston, U.S.A.
Kazmi, A.A. 1992.Ricardian equivalence: Some Macro Econometric Tests For Pakistan. The Pakistan Development Review. 31:743-758.
Kazmi, A.A. 2001.Ricardian Equivalence Hypothesis: Some Empirical Tests for Pakistan Based on Blanchard-Evans Models. The Lahore Journal of Economics. 6:75-92.
Khalid, A.M. 1996. Ricardian Equivalence: Empirical Evidence from Developing Economies. Journal of Development Economics. 51:413-432.
Kormendi, R. 1983. Fiscal Policy and Aggregate Demand. The American Economic Review. 73:994-1010.
Kormendi, R. and Meguire, P. 1986. Government Debt, Government Spending, and Private Sector Behaviour: Reply. American Economic Review. 76:1180–1187.
Kormendi, R. and Meguire, P. 1990. Government Debt, Government Spending, and Private Sector Behaviour: Reply and Update. American Economic Review 80:604–617.
Kormendi, R. and Meguire, P. 1986. Government Debt, Government Spending, and Private Sector Behaviour: Reply. American Economic Review. 85:1357–1361.
Lucke, B. 1999. Econometric Tests of Ricardian Equivalence: Results for Germany. Universität Hamburg. Fachbereich Wirtschaftswissenschaft. Institut für Wachstum und Konjunktur.
Leiderman, L. 1987. Testing Ricardian Neutrality with an Intertemporal Stochastic Model. NBER, Working Paper No. 2258.
Malengier, G. and Poozi, L. 2004. Examining Ricardian Equivalence by Estimating and Bootstrapping a Non-linear Dynamic Panel Model. Money Macro and Finance Research Group Confrence.
Marinheiro, C.F. 2001. Ricardian equivalence:An Empirical Application to Portuguese Economy. Katholieke University Leuven Workshop in International Economics.
Modigliani, F. and Sterling, A. 1986. Government Debt, Government Spending, and Private Sector Behaviour: Comment. American Economic Review. 76:1168–1179.
Modigliani, F. and Arlie, S. 1990. Government Debt, Government Spending, and Private Sector Behavior: A Further Comment. The American Economic Review. 80:600-603.
Mohabbat, K.A. and Ashraf, A. 2003. Ricardian equivalence: Evidence form South American Countries. International Business and Economic Research Journal. 2:
Niple, K. 2006. Are We Ricardian? Evidence form U.S Countries. Issues in Political Economy. 15:
Pemberton, J. 2004. Ricardian Consumers with Non-Keynesian (and possible Ricardian) Propensities. Scottish Journal of Political Economy. 51:95-104.
Reitschuler, G. and Jesús, C.C. 2004. Ricardian Equivalence Revisited: Evidence from OECD countries. Economics Bulletin. 5:1−10.
Ricciuti, R. and Laurea, D. D. 2003. An Experimental Analysis of Two Departures Form Ricardian equivalence. Eonomic Bulletin 8:1-11.
Robert, R.B., Mankiw, N.G., and Zeldes, S.P. 1987. Ricardian Consumer with Keynesian Propensities. American Economic Review. 76:676-691.
Rockerbie, D.W. 1997. Are Consumers Ricardian When Some Are Liquidity Constrianed?Applied Economics. 29:821-827.
Sachsida, A. and Carneiro, P. E. 2001. Capital Stock, Saving and Public Debt: Are Brazilians Ricardian? Catholic University of Brasilia; Institute for Applied Economic Research.
Safa, M. F. and Siddiq, F. K. 2005. Assessment of the Canadian Experience. Third Annual Meeting of The Atlantic Canada Economic Association.
Seater, J. 1993. Ricardian Equivalence. Journal of Economic Literature. 31:142-190.
Seater, J. and Roberto, M. 1985. New Tests of the Life Cycle and Tax Discounting Hypotheses. Journal of Monetary Economics. 15:198-215.
Siddiki, J.U. 2008. The Ricardian Equivalence Hypothesis: Evidence from Bangaldesh. Applied Economics. 42:1419–1435.
Vamvoukas, A.G. and Gargalas, N.V. 2008. Testing Keynesian Proposition and Ricardian Equivalence: More Evidence on the Debate. Journal of Business and Economics Research. 6:67-76.
Walker, W. C. 2002. Ricardian Equivalence and Fiscal Policy Effectiveness in Japan. Asian Economic Journal. 16:285-302.
Whelan, K. 1991. Ricardian Equivalence and the Irish Consumption Function: The Evidence Re-examined. The Economic and Social Review. 22:229-238.