An examination of the Ricardian Equivalance worldwide; testing the connection between saving behavior and fiscal policies

Abstract

The present dissertation explores the existence of offsetting movements between private and public saving, in a global level, for the period 1970-2015. The study of saving behavior aims to provide evidence in favor of Ricardian Equivalence or against it. Ricardian Equivalence is a proposition, initially formulated by David Ricardo and since then it has divided the economists. The proposition suggests that, under some assumptions, an individual should be indifferent about how a government will finance its spending (by taxation or debt issuing). A detailed literature review is presented, while the main hypothesis is tested with dynamic panel data econometric methods. The empirical results provide support forthe existence of partial Ricardian behavior but reject the hypothesis of pure Ricardian Equivalence. We also discuss the factors that make the existence and the examination of Ricardian Equivalence a complicated procedure.