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António Afonso
''Euler testing Ricardo and Barro in the EU''
( 2008, Vol. 5 No.16 )
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.
JEL: E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
H6 - National Budget, Deficit, and Debt: General
Manuscript Received : Sep 27 2007 Manuscript Accepted : Apr 07 2008

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