The effects of budget deficit on national saving in the OECD

In this paper, we estimate a structural VAR using a panel of OECD countries , which includes national saving and budget deficit, both as the ratio to G DP, to test the Ricardian Equivalence hypothesis. In this framework, we sep arate saving and deficit movements into two types of shocks, associated wit h structural parameters of these economies. Our results suggest that Ricard ian Equivalence did not work in our sample of OECD countries, since private saving compensated only a small fraction budget deficit. This supports the interpretation that the large budget deficits have been a very important f actor behind the significant increase in real interest rates in the eightie s and early nineties. (C) 2000 Elsevier Science S.A. All rights reserved.