Does the Ricardian Equivalence Proposition Hold in Less Developed Countries?

The objective of this paper is to assess whether the Ricardian Equivalence Proposition (REP) holds in developing countries. Prima facie, since the REP requires a number of assumptions that might not appear to be satisfied in developing countries, it seems that the REP should not hold. However, the empirical evidence provided so far is mixed. In this paper, the validity of the REP will be tested using panel data for ten developing countries: Burundi, El Salvador, Ethiopia, Honduras, India, Morocco, Nigeria, Pakistan, Sri Lanka and Zimbabw1e. The countries were chosen for the availability of data and should reflect the various circumstances of low-income countries. Despite the obvious limitation of the data available and the diversity of the countries, the results provide some tentative support for the REP for developing countries, at least warranting further research.