EXPERIMENTAL TESTS OF RICARDIAN EQUIVALENCE

CHARLES BRAM CADSBY, MURRAY FRANK

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Abstract

This study employs laboratory experiments to test aspects of Ricardian equivalence. An overlapping generations model forms the basis of the experimental design. Whenever Ricardian equivalence predicts a positive bequest, outcomes close to those predicted occur, after allowance for learning. Observed deviations from Ricardian equilibrium are small, but biased in a Keynesian direction: changes in bequests do not fully offset changes in government debt. The imposition of a binding nonnegativity constraint on bequests produces the predicted neoclassical behavior. The cost to the players of deviations from the theoretical equilibrium is apparently an important determinant of the variability of observed deviations.

Original languageEnglish (US)
Pages (from-to)645-664
Number of pages20
JournalEconomic Inquiry
Volume29
Issue number4
DOIs
StatePublished - Oct 1991

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