Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia

"Events surrounding the global financial and economic crises of 2008 and 2009 have sparked a renewed interest in discretionary fiscal policy. This article considers whether private saving in Australia behaves in a manner that is consistent with Ricardian equivalence, thus mitigating the effects of fiscal policy, or conversely, if fiscal policy has some ability to influence the real economy. Results indicate that, while there is not a full Ricardian response to changes in the fiscal stance, there is some partial offsetting behaviour-implying that fiscal policy does elicit some (limited) impact on economic activity." Copyright (c)2010 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.