Ricardo-Barro Equivalence Theorem and the Positive Fiscal Policy in China

Xiao-huan LIU, Su-yu LV

Abstract


This paper selects the economic data of Financial Deficit and National Debt Balance during the years of 1983-2013 to make an empirical analysis to see how the positive fiscal policy in China influences the resident consumption and whether the Ricardo-Barro Equivalence Theorem is tenable or not in China. The conclusion is that the issuing of government bonds has positive effects on the increasing of resident consumption in China, as for the growing of financial deficit, it has little effect on resident consumption in the short term, while in the long term, it seems restrain the resident consumption. Empirical results proves that the Ricardo-Barro Equivalence Theorem is untenable in China, the main reason is that Chinese consumers cannot make economic decisions under rational expectations, which means China can implement positive fiscal policy to achieve what it wants.

Keywords


Ricardo-Barro Equivalence Theorem, National Debt Balance, Financial Policy, Resident Consumption

Publication Date


2016-11-29 00:00:00


DOI
10.12783/dtem/icem2016/4044

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