Open AccessTesting the Ricardian equivalence hypothesis in the case of Ethiopia: An autoregressive-distributed lag approach
Author(s) -
Sisay Demissew Beyene,
Balázs Kotosz
Publication year - 2020
Publication title -
hungarian statistical review
Language(s) - English
Resource type - Journals
ISSN - 2630-9130
DOI - 10.35618/hsr2020.02.en026
Subject(s) - ricardian equivalence , distributed lag , economics , cointegration , consumption (sociology) , equivalence (formal languages) , deficit spending , debt , government (linguistics) , government expenditure , autoregressive model , government debt , government budget , econometrics , monetary economics , budget constraint , macroeconomics , lag , public finance , mathematics , microeconomics , computer network , social science , linguistics , philosophy , discrete mathematics , sociology , computer science
The Ricardian equivalence hypothesis (REH) suggests that when the government attempts to stimulate the economy by raising debt-financed government spending, consumption and demand do not increase but rather remain the same. The objective of this study is to test the existence of the REH in Ethiopia, using annual data from 1990 to 2011 and by employing the autoregressivedistributed lag cointegration approach. The study includes three variables (budget deficit, government consumption expenditure, and government debt) which contribute to the REH along with another variable. The results show that only the budget deficit and government consumption expenditure fulfil the REH. However, government debt fails to fulfil it. Thus, limited evidence of the existence of the REH is found in Ethiopia.
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