Author(s):
Afonso, António 
Date: 2008
Persistent ID: http://hdl.handle.net/10400.5/2347
Origin: Repositório da UTL
Subject(s): debt neutrality; private consumption; EU; panel data
Document details
Euler testing Ricardo and Barro in the EU
Description
According to Keynesian economics wisdom, government debt has an effect on the economy since consumers see government debt as net wealth. However, according to the debt neutrality hypothesis of Ricardo (1817), popularised by Barro (1974), such effects would be absent. This paper's results, obtained from Euler equation estimations using a panel data approach, indicate that it would be wise to reject the debt neutrality hypothesis for the EU and that higher government indebtedness could actually deter private consumption.
According to Keynesian economics wisdom, government debt has an effect on the economy since consumers see government debt as net wealth. However, according to the debt neutrality hypothesis of Ricardo (1817), popularised by Barro (1974), such effects would be absent. This paper's results, obtained from Euler equation estimations using a panel data approach, indicate that it would be wise to reject the debt neutrality hypothesis for the EU and that higher government indebtedness could actually deter private consumption.
Document Type
Other
Language English
Language English
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