How effective is fiscal policy in raising national saving?

While fiscal adjustment is commonly viewed as the cornerstone of macroecono mic stabilization, the effectiveness of alternative fiscal instruments in r aising national saving is still poorly understood. This paper enters the de bate by estimating a private consumption function that allows for two types of agents-finite horizons and liquidity constraints-and nests three differ ent consumption hypotheses. Using a large-panel data set that includes both industrial and developing countries, we reject full Ricardian equivalence. We also find substantial differences between industrial and developing cou ntries, regarding both the extent of Ricardian offsetting and the degree to which the government budget constraint is internalized.