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A New Test of Ricardian Equivalence Using the Narrative Record on Tax Changes

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  • Haug, Alfred A.

Abstract

This paper empirically tests the Ricardian equivalence hypothesis with a narrative measure of tax shocks. The present value, at the time of legislation, of tax increases motivated solely by concerns for improving the fiscal health of the government is used for the tests. These tax news represent a switch from debt to tax financing that should have no effects on the economy if Ricardian equivalence holds as a good approximation. For the post-1980:IV period, I find evidence for fiscal anticipation as many of the tax increases are implemented with substantial delays and distortionary taxes increase economic activity before taxes go up, which iscaused by intertemporal substitution. Therefore, Ricardian equivalence is rejected.

Suggested Citation

  • Haug, Alfred A., 2016. "A New Test of Ricardian Equivalence Using the Narrative Record on Tax Changes," MPRA Paper 75452, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:75452
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    Cited by:

    1. Lorenzo Esposito & Giuseppe Mastromatteo, 2019. "Defaultnomics: Making Sense of the Barro-Ricardo Equivalence in a Financialized World," Economics Working Paper Archive wp_933, Levy Economics Institute.
    2. Mouna MARZOUK & Youssef OUKHALLOU, 2017. "Fiscal policy and the Ricardian equivalence: Empirical evidence from Morocco," Journal of Economics Library, KSP Journals, vol. 4(3), pages 372-381, September.

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    More about this item

    Keywords

    Ricardian equivalence hypothesis; narrative record; exogenous tax changes; government budget deficits;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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