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Fiscal policy and private consumption behaviour: The Spanish case

Author

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  • Agustín García
  • Julián Ramajo

Abstract

In this article we analyse whether the Ricardian equivalence hypothesis is a valid approximation for Spain’s economic reality or whether there exist deviations from that situation which would be more in line with the conventional Keynesian perspective of the effects of debt on private consumption-savings decisions. Our aim is to contribute to the rather sparse empirical literature on the subject for the Spanish case. The analysis is based on annual aggregate data for Spain covering the years 1955 to 2000, and uses both the structural and the Euler equation approaches to test the neutrality proposition, and is thus to be considered as a generalization of foregoing work on the Spanish economy. The findings indicate that support for Ricardian equivalence is mixed, while we also find very little support for the Keynesian specification of consumption and fiscal policy. Copyright Springer-Verlag 2005

Suggested Citation

  • Agustín García & Julián Ramajo, 2005. "Fiscal policy and private consumption behaviour: The Spanish case," Empirical Economics, Springer, vol. 30(1), pages 115-135, January.
    • Handle: RePEc:spr:empeco:v:30:y:2005:i:1:p:115-135
    DOI: 10.1007/s00181-004-0223-7
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    Citations

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    Cited by:

    1. Luigi Marattin & Arsen Palestini, 2014. "Government spending under non-separability: a theoretical analysis," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(1), pages 39-60, April.
    2. Waqas, Muhammad & Awan, Masood Sarwar, 2011. "Are Pakistani Consumers Ricardian?," MPRA Paper 35375, University Library of Munich, Germany.
    3. Agustin Garcia & Julian Ramajo, 2004. "Budget deficit and interest rates: empirical evidence for Spain," Applied Economics Letters, Taylor & Francis Journals, vol. 11(11), pages 715-718.
    4. Hannes Kaadu & Lenno Uuskula, 2004. "Liquidity Constrains and Ricardian Equivalence in Estonia," Bank of Estonia Working Papers 2004-7, Bank of Estonia, revised 10 Oct 2004.
    5. Waqas, Muhamad & Awan, Masood Sarwar & Aslam, Muhammad Amir, 2011. "We are living on the cost of our children," MPRA Paper 32044, University Library of Munich, Germany.
    6. Cedric L. Mbanga & Ali F. Darrat, 2016. "Fiscal policy and the US stock market," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 987-1002, November.
    7. Carlos David Ardila-Dueñas & Hernán Rincón-Castro, 2019. "¿Cómo y qué tanto impacta la deuda pública a las tasas de interés de mercado?," Borradores de Economia 1077, Banco de la Republica de Colombia.
    8. Luigi Marattin & Simone Salotti, 2014. "Consumption multipliers of different types of public spending: a structural vector error correction analysis for the UK," Empirical Economics, Springer, vol. 46(4), pages 1197-1220, June.
    9. Barbara Annicchiarico & Claudio Battiati & Claudio Cesaroni & Fabio Di Dio & Francesco Felici, 2017. "IGEM-PA: a Variant of the Italian General Equilibrium Model for Policy Analysis," Working Papers 2, Department of the Treasury, Ministry of the Economy and of Finance.

    More about this item

    Keywords

    Private consumption; fiscal policy; Ricardian equivalence; finite horizons; liquidity constraints; C32; E21; E62; H31; H60;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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