Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7356235 | Journal of Applied Economics | 2013 | 24 Pages |
Abstract
This paper aims to test the validity of the Ricardian proposition for the Spanish economy in two different frameworks: a) in traditional structural consumption equations and, b) in consumption functions stemming from Euler equations derived from a consumer's maximization problem. Our results lean toward rejection of the Ricardian proposition, although some degree of substitution between public and private saving is detected. Moreover, we provide some evidence of consumers becoming increasingly Ricardian with the level of government indebtedness as it may trigger sustainability concerns. In terms of policy implications, these results would suggest that until 2007 fiscal policy in Spain enjoyed some room of manoeuvre to exert its countercyclical role. The sovereign debt crisis has exhausted such margin.
Related Topics
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Authors
Francisco de Castro, José Luis Fernández,