The strong underlying assumptions of the Barro/Ricardo equivalence pro
position (REP) raise doubts on its validity especially for developing
countries. This paper attempts to analyze the validity of the REP and
the sources of deviation from REP for a large sample of developing cou
ntries. Although the results are of a mixed nature, they suggest that
the presence of liquidity-constrained individuals may be the source of
deviation from the REP. The analysis also indicates that public spend
ing is a poor substitute for private consumption and hence implies tha
t temporary increases in public spending may have some expansionary ef
fect on aggregate demand.