Publication Date


Publication Details

Brittle, S, Ricardian equivalence and the efficacy of fiscal policy in Australia, Working Paper 09-10, Department of Economics, University of Wollongong, 2009, 37p.


Events surrounding the global financial and economic crises of 2008 and 2009 have sparked a renewed interest in discretionary fiscal policy. This paper 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 real economic activity. A model of private and public saving is estimated using the autoregressive distributed lag approach (ARDL) to cointegration. This estimation procedure is advantageous due to its ability to provide both short- and long-run coefficient estimates, and can accommodate coefficients for structural breaks. Given that the Australian economy has been subject to a substantial amount of structural change over the past 50 years, the estimations attempt to account for these structural effects on long-run savings behaviour. Results indicate that while there is not a full Ricardian response to changes in the fiscal stance, evidence suggests some partial offsetting behaviour – implying that fiscal policy does elicit some (limited) impact on economic activity.