Ricardian Equivalence: Evidence from South American Countries

UNCP Author/Contributor (non-UNCP co-authors, if there are any, appear on document)
Dr. Mohammad Ashraf, Professor of Economics (Creator)
The University of North Carolina at Pembroke (UNCP )
Web Site: http://www.uncp.edu/academics/library

Abstract: This study deals with the intergenerational effect of national debt. We try to find out whether the government deficit incurred today has any adverse effect on the generations to come. More specifically, this study tests the notion that any deficit acquired by the government today is offset by the private sector by reducing their consumption and increasing their savings to pay for the debt some times in the future. Since the time horizon for the government is longer than that of the private agents, the private agents altruistically bequeath what they have saved along with interest earned to their offsprings. This study empirically verifies the debt neutrality hypothesis for several South American countries for which workable data were available. The results do not support the debt neutrality hypothesis and show that economic agents consider government bonds net wealth affecting their consumption in a positive way.

Additional Information

Language: English
Date: 2003
National Debt, Deficit, Deficit Spending, Debt Neutrality Hypothesis, South America, Mohabbat, Khan A.

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