REPLICATING RICARDIAN EQUIVALENCE TESTS WITH SIMULATED SERIES

This paper replicates standard consumption function tests of Ricardian equivalence using series generated from a model which nests Ricardian equivalence within a non-Ricardian alternative (due to finite horizon s and/or distortionary taxation). I show that the estimates of the eff ects of taxation on consumption are not robust and that standard tests may have weaknesses which can lend to conflicting results, whether Ri cardian equivalence holds or not, The simulations also show that no cl ear conclusions about Ricardian equivalence can be drawn from observin g a low correlation between the current account and government budget deficits.