In the 19th century, David Ricardo (1772-1823) argued that the way the government finances the budget deficit does not affect the level of demand because it is just a question of "tax now" or "tax later". That is to say, agents perfectly forsee future taxes stemming from public debt. In this way, there is no difference between the public borrowing of today (associated with future taxes to finance this loan) and the taxes of today. 

In 1974, Robert Barro signed one of his two most famous pieces named the "Ricardian Equivalence Hypothesis" (the other piece concerning money neutrality). Under a particular set of assumptions (e.g. intergenerational altruism, perfect capital markets, lump sum taxation, and debt not growing faster than the economy), the effect of public spending is totally independant on the way spending is financed.

If this file tries to develop this well-knowed theory, it also presents criticisms and controversial arguments. The debate is still open.

Definition / Biographies

"Ricardian Equivalence" by wikipedia.org

"Ricardian Equivalence" by fact-index.com

"Ricardian Equivalence" (and more) by thefreedictionary.com

"Review of Ricardian Equivalence: Theorical and Empirical Studies" by P. Mueser (cmap.mr - pdf)

"The Ricardian Equivalence Hypothesis": a full presentation with mathematical modelling (pdf)

"Twin deficits and Ricardian equivalence" by Paul Klein (University of Western Ontario) (pdf)

"Does It Matter How You Pay for a State Dinner? A Lesson on Ricardian Equivalence" by Morgan Rose (econlib.org - September 2001)

Ricardian Equivalence: Mathematical modelling

David Ricardo biography by cepa.newschool.edu

Robert Barro biography by cepa.newschool.edu

Working Papers

"When are structural deficits good policies?" by Jean Chateau (CEPII - n°2002-14 novembre - pdf)

"Microeconomic tests of Ricardian equivalence" by James P. Cunningham & Arnold C. Harberger (University of California, March 2002 - pdf)

"Ricardian equivalence with incomplete household risk sharing" by Shinichi Nishiyama (Congressional Budget Office) & Kent Smetters (Univeristy of Pennsylvania) - December 2002 - pdf

"Assessing Ricardian equivalence" by Roberto Ricciuti (University of Siena) - (March 2001 - pdf)

"Does strategic behavior automatically negate ricardian equivalence?" by Robert Rebelein (US Treasury Department - June 1998 - pdf)

"Budget Deficit Persistence and the Twin Deficits Hypothesis" by Michel Normandin (UQAM - summary)

"Governement Debt and Private Comsuption: Theory and Evidence" by Torbjorn Becker (Stockholm School of Economics - October 1995 - pdf)

"Does the Ricardian equivalence proposition hold in less developed countries?" by Gianluigi Goirgioni (University of Abertay Dundee) & Ken Holden (Liverpool Business School) - (January 2001 - pdf)

Articles

"Ricardian equivalence and the value of firms in the capital market" by Roni Frish (Research Department, Banl of Israel), Israel Economic Review, 2, 2003, pp.21-36 (pdf)

"How Effective is Fiscal Policy in Raising National Saving?" by J. Humberto Lopez, K. Schmidt-Hebbel, and Luis Serven, the Review of Economics and Statistices, LXXXII (2), May 2000, pp.226-238 (pdf)

"Are Budget Surpluses Equivalent To Tax Cuts?" by Bruce Bartlett (National Center for Policy Analysis - March 1999)

"Reflections on Ricardian Equivalence" by Robert Barro (Harvard University - march 1996 - summary)

"Assessing Ricardian Equivalence" by Roberto Ricciuti, Journal of Economic Surveys, 2003, vol.17, issue 1, pp.55-78 (summary)

"Replicating Ricardian Equivalence Tests with Simulated Series" by Emanuela Cardia, American Economic Review, March, 1997, vol.87, pp.65-779 (summary)

"Ignorance and Ricardian Equivalence" by David Gruen, The Economic Record, March 1997, volume 73, Issue 220, pp. 35-44 (summary)

"Experimental Tests of Ricardian Equivalence" by Charles Bram Cadsby & Murrayb Frank, Economic Inquiry, 1991, vol. 29, issue 4, pp. 645-64 (summary)

Empirical Applications

(USA) "The Macroeconomic Impacts of Government Debt: An Empirical Analysis of the 1980s and 1990s" by Mark Wheeler (Western Michigan Univeristy), Atlantic Economic Journal, volume 27, n°3, september 1999, pp.273-284

"Testing the ricardian equivalence proposition: Panel Data Evidence from the EU" by Kostas Drakos (University of Patras - January 2003 - working paper pdf)

"Canada's national debts and canada's international debts: Ricardian non-equivalence in an open economy" by David Johnson (School of Business and Economics, Wilfrid Laurier University - December 2002 - working paper pdf)

"Fiscal policy and private comsuption behaviour: the spanish case" by Agustin Garcia & Julian Ramajo (University of Extremadura - 2002 - working paper pdf)

"Government indebtedness and european consumers behaviour" by Antonio Afonso (University of Lisboa - September 2001 - working paper pdf)

"Fiscal Policy with Heterogeneous Agents and Incomplete Markets" by Jonathan Heathcote (Georgetown University - December 2003 - pdf)

"Some further international evidence on ricardian equivalence: a VECM approach" by Gianluigi Giorgioni (University of Abertay Dundee) & Ken Holden (Liverpool Business School) - (January 2001 - working paper pdf)

"Ricardian equivalence: an empirical application to the Portuguese economy" by Carlos Fonseca Marinheiro (University of Coimbra - March 2001 - working paper pdf)

"Tax discounting and direct crowding-out in Belgium: Implications for fiscal policy" by Lorenzo Pozzi (University of Gent, Belgium - August 1999 - working paper pdf)

(For Canada) "Liability-Creating Versus Non-Liability-Creating Fiscal Stabilization Policies: Ricardian Equivalence, Fiscal Stabilization, and EMU" by Tamim Bayoumi & Paul R. Masson (International Monetary Fund - August 1998 - working paper pdf)

"Economic Tests of Ricardian Equivalence: Results for Germany" by Bernd Lucke (Hamburg University - working paper pdf)

Resources

Ricardian Equivalence: Selected Resources by questia.com