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Testing the Debt-Illusion Hypothesis

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  • Basil Dalamagas

Abstract

[eng] Testing the debt-illusion hypothesis . . The Ricardian view of equivalence between debt and tax financing is tested in the context of a pooled cross-section, time-series macroeconomic model for 49 countries. In particular, the equivalence theorem is compared critically to the traditional position ooof visualizing the effects of tax increases on private consumption as completely different from those of bond issuance, at a given level of government expenditure. The results indicate that the substitution of debt for taxes increases (reduces) consumption in solvent (debt-ridden) countries, irrespective of the level of per capita income. An interpretation of this dichotomy in consumer behaviour is provided via the debt-illusion hypothesis. [fre] Testing the Debt-Illusion hypothesis. . Cet article se propose de tester l'hypothèse d'équivalence ricardienne sur des séries concernant 49 pays et combinant données chronologiques et coupes instantanées. Le théorème d'équivalence est confronté à la conception traditionnelle qui considère qu'à niveau de dépense publique donné, les impôts et l'endettement de l'État ont une incidence totalement différente sur la consommation. Les résultats montrent que la substitution de l'endettement aux impôts accroît la consom­mation dans les pays solvables, tandis que l'effet est inverse dans les pays fortement endettés. On interprète cette divergence de comportement en considérant qu'il existe une illusion fiscale, lorsque les déficits publics paraissent soutena-bles.

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  • Basil Dalamagas, 1994. "Testing the Debt-Illusion Hypothesis," Revue Économique, Programme National Persée, vol. 45(4), pages 1079-1094.
    • Handle: RePEc:prs:reveco:reco_0035-2764_1994_num_45_4_409591
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    References listed on IDEAS

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