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Wallace E Oates - One of the best experts on this subject based on the ideXlab platform.
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on fiscal illusion in local public finance re examining Ricardian Equivalence and the renter effect
National Tax Journal, 2013Co-Authors: Spencer H Banzhaf, Wallace E OatesAbstract:We reevaluate fiscal illusion in local public finance. The Ricardian Equivalence Theorem suggests that the financing of a public program using either taxation or debt shouldn't affect outcomes, bec...
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on fiscal illusion and Ricardian Equivalence in local public finance
National Bureau of Economic Research, 2012Co-Authors: Spencer H Banzhaf, Wallace E OatesAbstract:We re-evaluate two forms of fiscal illusion in local public finance: debt illusion and renter illusion. The Ricardian Equivalence Theorem for local governments suggests the form of finance of a public program (tax or debt finance) has no effects on substantive outcomes. For the local case, this results from the capitalization of local fiscal differentials into property values. We show that this version of the model is quite restrictive. In particular, in the U.S, context, where state and local interest is exempt from federal taxation, rational behavior may be inconsistent with Ricardian Equivalence if local governments can borrow on more favorable terms than individuals. We also suggest a new test for renter illusion (or the renter effect). In particular, whether or not renters are more likely to support public investments in general, the renter effect suggests that renters are more likely to support them when financed with property taxes than with sales taxes. Using data from hundreds of open space referenda in the U.S. using a variety of finance mechanisms, we find evidence that households do prefer debt financing to tax financing, but find no evidence of the renter effect.
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on Ricardian Equivalence in local public finance
Social Science Research Network, 2008Co-Authors: Spencer H Banzhaf, Wallace E OatesAbstract:The Ricardian Equivalence Theorem establishes a set of conditions under which the form of finance of a public program (tax or debt finance) has no effects on any substantive outcomes. Following Barro (1974), the theorem has typically been formulated in the context of a national government in an intergenerational model of altruistic individuals, in which the impact of debt finance is offset by increased private saving. However, Ricardian Equivalence can also be established in a setting of local public finance. Here, its rationale is entirely different. It results not from altruistic behavior, but from the operation of local land markets under which local fiscal differentials are capitalized into local property values. In this paper, we provide a proof of this latter form of Ricardian Equivalence in terms of a simple multi-period model of local government finance. We then explore its relevance to local public finance. We find that it is quite restrictive in certain respects. In particular, in the U.S, context, where the interest income from state and local bonds is exempt from federal income taxation, we argue that rational behavior may be inconsistent with Ricardian Equivalence. Finally, after reviewing some earlier evidence, we present some new findings from an econometric analysis of local referenda in the U.S. for the conservation of open space that reveal a preference on the part of electorate for local bond finance over tax finance.
Spencer H Banzhaf - One of the best experts on this subject based on the ideXlab platform.
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on fiscal illusion in local public finance re examining Ricardian Equivalence and the renter effect
National Tax Journal, 2013Co-Authors: Spencer H Banzhaf, Wallace E OatesAbstract:We reevaluate fiscal illusion in local public finance. The Ricardian Equivalence Theorem suggests that the financing of a public program using either taxation or debt shouldn't affect outcomes, bec...
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on fiscal illusion and Ricardian Equivalence in local public finance
National Bureau of Economic Research, 2012Co-Authors: Spencer H Banzhaf, Wallace E OatesAbstract:We re-evaluate two forms of fiscal illusion in local public finance: debt illusion and renter illusion. The Ricardian Equivalence Theorem for local governments suggests the form of finance of a public program (tax or debt finance) has no effects on substantive outcomes. For the local case, this results from the capitalization of local fiscal differentials into property values. We show that this version of the model is quite restrictive. In particular, in the U.S, context, where state and local interest is exempt from federal taxation, rational behavior may be inconsistent with Ricardian Equivalence if local governments can borrow on more favorable terms than individuals. We also suggest a new test for renter illusion (or the renter effect). In particular, whether or not renters are more likely to support public investments in general, the renter effect suggests that renters are more likely to support them when financed with property taxes than with sales taxes. Using data from hundreds of open space referenda in the U.S. using a variety of finance mechanisms, we find evidence that households do prefer debt financing to tax financing, but find no evidence of the renter effect.
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on Ricardian Equivalence in local public finance
Social Science Research Network, 2008Co-Authors: Spencer H Banzhaf, Wallace E OatesAbstract:The Ricardian Equivalence Theorem establishes a set of conditions under which the form of finance of a public program (tax or debt finance) has no effects on any substantive outcomes. Following Barro (1974), the theorem has typically been formulated in the context of a national government in an intergenerational model of altruistic individuals, in which the impact of debt finance is offset by increased private saving. However, Ricardian Equivalence can also be established in a setting of local public finance. Here, its rationale is entirely different. It results not from altruistic behavior, but from the operation of local land markets under which local fiscal differentials are capitalized into local property values. In this paper, we provide a proof of this latter form of Ricardian Equivalence in terms of a simple multi-period model of local government finance. We then explore its relevance to local public finance. We find that it is quite restrictive in certain respects. In particular, in the U.S, context, where the interest income from state and local bonds is exempt from federal income taxation, we argue that rational behavior may be inconsistent with Ricardian Equivalence. Finally, after reviewing some earlier evidence, we present some new findings from an econometric analysis of local referenda in the U.S. for the conservation of open space that reveal a preference on the part of electorate for local bond finance over tax finance.
Gerhard Reitschuler - One of the best experts on this subject based on the ideXlab platform.
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assessing Ricardian Equivalence for the new member states does debt neutrality matter
Social Science Research Network, 2008Co-Authors: Gerhard ReitschulerAbstract:Using a structural model based on dynamic optimizing agents, we empirically test the Ricardian Equivalence Proposition (REP) for eleven New EU-Member States (NMS). We extend the basic model by including the government budget constraint, thus being able to evaluate whether individuals take the evolution of public debt into account. In the basic setting we cannot reject the validity of the REP for four NMS, in the extended model the relevance of the REP changes for six countries, implying that the development of government debt and long-term sustainability of public finances matters with regard to the validity of the REP.
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assessing Ricardian Equivalence for the new member states does debt neutrality matter
Economic Systems, 2008Co-Authors: Gerhard ReitschulerAbstract:Abstract Using a structural model based on dynamic optimizing agents, we empirically test the Ricardian Equivalence proposition (REP) for 11 New EU-Member States (NMS). We extend the basic model by including the government budget constraint, thus being able to evaluate whether individuals take the evolution of public debt into account. In the basic setting we cannot reject the validity of the REP for four NMS, in the extended model the relevance of the REP changes for six countries, implying that the development of government debt and long-term sustainability of public finances matters with regard to the validity of the REP.
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is the Ricardian Equivalence proposition an aerie fairy theory for europe
Economica, 2007Co-Authors: Jesus Crespo Cuaresma, Gerhard ReitschulerAbstract:Using a theoretical model based on dynamic optimizing agents, we test empirically the Ricardian Equivalence proposition (REP) for the EU-15 countries. The theoretical setting allows us to obtain estimates of the structural parameters of the model and to test directly the hypothesis implied by the REP. Using recently developed end-of-sample cointegration breakdown tests, we find evidence of a change in the fiscal behaviour of individuals during the last decade-after the introduction of a fiscal rule, namely the Maastricht criteria-for most countries in the sample. The results concerning the direction of change are mixed.
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Ricardian Equivalence revisited evidence from oecd countries
Economics Bulletin, 2004Co-Authors: Gerhard Reitschuler, Jesus Crespo CuaresmaAbstract:Using a theoretical model based on dynamic optimizing agents, we test empirically the Ricardian Equivalence Proposition (REP) for 26 OECD countries. The empirical specification allows us to obtain estimates of the structural parameters of the theoretical model and to test directly the hypothesis implied by the REP. We find that the REP cannot be rejected for 10 out of 26 countries, where 9 of these 10 countries are European.
Carlos Fonseca Marinheiro - One of the best experts on this subject based on the ideXlab platform.
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Ricardian Equivalence twin deficits and the feldstein horioka puzzle in egypt
Research Papers in Economics, 2006Co-Authors: Carlos Fonseca MarinheiroAbstract:Egypt has presented important budget imbalances. This paper tries to evaluate whether Egypt’s public deficit has had any impact on current account imbalances, examining the validity of the twin deficit hypothesis for Egypt. We conclude for the presence of a (weak) long-run relationship between the budget deficit and the current account deficit. Yet, we reject the twin-deficit hypothesis: we found evidence in favour of a reverse Granger-causality running from the external deficit to the budget deficit. Further, we conclude against the validity of full Ricardian Equivalence in Egypt and present evidence in favour of a high degree of capital mobility.
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Ricardian Equivalence an empirical application to the portuguese economy
Social Science Research Network, 2001Co-Authors: Carlos Fonseca MarinheiroAbstract:It is the purpose of this paper to focus on the consequences of the Ricardian offset to the conduct of stabilising fiscal policies. If Equivalence prevails there is no scope for effective stabilising fiscal policies. A review of the theoretical requirements of Ricardian Equivalence reveals that they are not likely to be fulfilled in practice. However, the brief survey of the empirical applications shows that the published empirical evidence is inconclusive. An empirical application for the Portuguese economy is carried out. The tests are based on reduced-form consumption functions and on the Euler equation approach. The overall results are ambiguous.
Claudio Sardoni - One of the best experts on this subject based on the ideXlab platform.
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the public debt and the Ricardian Equivalence some critical remarks
Structural Change and Economic Dynamics, 2021Co-Authors: Claudio SardoniAbstract:Abstract The paper criticizes the so-called Ricardian Equivalence (RE) and its implications for the analysis of the problem of the public debt. The RE hinges on a view of the economic role of the state as merely parasitic and on an unwarranted extension of the micro-economic analysis of debts to the macro-economic level. The RE is at the heart of the mainstream approach to the public debt and the policies that indicate the running of primary surpluses as the only way to stabilize its ratio to GDP. The paper suggests a different ‘non-Ricardian’ approach in which the state is not a mere parasite. The government, by restructuring its expenditure, can contribute to raise the economy’s rate of growth and ensure a stable and sustainable ratio of the public debt to GDP, without necessarily running primary surpluses.
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budget deficits public debt and the Ricardian Equivalence
Research Papers in Economics, 2020Co-Authors: Claudio SardoniAbstract:The paper criticizes the so-called Ricardian Equivalence (RE) and its implications for the analysis of the problem of the public debt. It is argued that the validity of the RE hinges on an unsatisfactory view of the economic role of the state as a mere `parasite' and on an unwarranted extension of the micro-economic analysis of debts to the macro-economic level. When dealing with the problem of the ratio of the public debt to GDP, the acceptance of the RE translates into the assumption that the economy's rate of growth is independent of public spending, taxes and debt. On the grounds of the critique of the RE, the paper presents a differ- ent approach, based on the idea that an adequate composition of public spending can ensure a stable public debt ratio even though the government runs a primary deficit. According to such approach, public outlays should be mostly devoted to productive expenditures, i.e. those which a ect the equilibrium rate of growth thanks to their positive impact on overall productivity.
