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Is the Ricardian Equivalence Proposition an ‘Aerie Fairy’ Theory for Europe?
Author(s) -
CRESPO CUARESMA JESÚS,
REITSCHULER GERHARD
Publication year - 2007
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2007.00588.x
Subject(s) - ricardian equivalence , cointegration , economics , proposition , econometrics , equivalence (formal languages) , sample (material) , macroeconomics , fiscal policy , mathematics , thermodynamics , physics , philosophy , epistemology , discrete mathematics
Using a theoretical model based on dynamic optimizing agents, we test empirically the Ricardian equivalence proposition (REP) for the EU‐15 countries. The theoretical setting allows us to obtain estimates of the structural parameters of the model and to test directly the hypothesis implied by the REP. Using recently developed end‐of‐sample cointegration breakdown tests, we find evidence of a change in the fiscal behaviour of individuals during the last decade—after the introduction of a fiscal rule, namely the Maastricht criteria—for most countries in the sample. The results concerning the direction of change are mixed.