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The Ricardian equivalence hypothesis: evidence from Bangladesh

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  • Jalal Siddiki

Abstract

This article examines the Ricardian equivalence hypothesis (REH) and its sources of failure in the case of Bangladesh using various theoretical specifications, annual data from 1974-2001 and linear and nonlinear time series techniques. The general findings tend to invalidate the REH: a finite time horizon and the presence of liquidity-constrained individuals are the sources of deviation from the REH. Empirical results reveal that real per-capita private consumption (C) under various specifications is cointegrated generally at the 5% level with real per-capita income (Y), government expenditure before and after interest rate repayments (G and G2), taxes (T) and the interest rate (r). Results reveal that an increase in G, G2, T and r reduces C and that an increase in budget deficits raises trade deficits. These results highlight the importance of fiscal policies in boosting private consumption and controlling trade deficits, which are the prime goals of stabilization policies being followed by Bangladesh.

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  • Jalal Siddiki, 2010. "The Ricardian equivalence hypothesis: evidence from Bangladesh," Applied Economics, Taylor & Francis Journals, vol. 42(11), pages 1419-1435.
    • Handle: RePEc:taf:applec:v:42:y:2010:i:11:p:1419-1435
    DOI: 10.1080/00036840701721414
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    3. 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.
    4. Mumtaz, Kinza & Munir, Kashif, 2016. "Dynamics of Twin Deficits in South Asian Countries," MPRA Paper 74592, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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