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Testing Ricardian Equivalence with the Narrative Record on Tax Changes
Author(s) -
Haug Alfred A.
Publication year - 2020
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12339
Subject(s) - ricardian equivalence , economics , romer , monetary economics , fiscal policy , value (mathematics) , debt , keynesian economics , macroeconomics , cartography , machine learning , computer science , geography
The Ricardian equivalence hypothesis is tested empirically with a subcategory of the narrative measures of US tax shocks developed by Romer and Romer (in, American Economic Review 2010; 100 :763). The present value of tax increases motivated solely by concerns for improving the fiscal health of the government is used. These tax news represent a switch from debt to tax financing that should have no effects on real output and consumption. For the post‐1982:IV period, fiscal anticipation plays an important role as many of the tax increases are implemented with substantial delays. Anticipated tax hikes increase economic activity in the delay period. Ricardian equivalence is rejected.