The (In)Validity of the Ricardian Equivalence Theorem – Findings from a Representative German Population Survey

In this paper, we utilise data from a German population survey to test the validity of the Ricardian equivalence theorem (RET). In 2013, 2,000 representatively chosen people were asked whether they have altered their consumption and saving behaviour in response to the significant increase in public debt that occurred between 2008 and 2012. Our findings suggest that, in general, RET does not hold. Only 7% of our respondents reported consuming a smaller proportion of their income, and saving a larger proportion, in response to public debt accumulation. In the case of respondents required to pay social security contributions, we can control for their expectations about the future and find that 36% behave in line with RET. We interpret our findings as microeconomic evidence in support of the ‘rule-of-thumb’ consumer assumptions employed in macroeconomic models. Moreover, using multinominal logit regressions, we find that individuals’ consumption responses are significantly related to their economic situation, time preferences, education, and age.