Title: A test of Ricardian Equivalence and public debt neutrality

Authors: Amaresh Das

Addresses: Department of Economics, College of Business, Southern University at Bew Orleans, New Orleans, LA 70126, USA

Abstract: By virtue of the Ricardian Equivalence (RE) proposition, government bonds do not represent net wealth. Therefore, household|s savings will increase to offset the government policy. The paper econometrically tests if governments bonds do represent net wealth based on the time series macrodata from India spanning a time from 1990 to 2005. While doing this, the paper explores the dynamic link between domestic government borrowing and private sector savings within a possibly co-integrated system where the joint endogeneity of the variables is allowed.

Keywords: co-integrated systems; co-integration; ADF; augmented Dickey–Fuller test; endogeneity; Ricardian equivalence proposition; household savings; government policy; government bonds; net wealth; time series; India; domestic government borrowing; private sector savings.

DOI: 10.1504/IJMEF.2010.033457

International Journal of Monetary Economics and Finance, 2010 Vol.3 No.3, pp.270 - 279

Published online: 02 Jun 2010 *

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