Fiscal policy and private consumption behaviour: The Spanish case

In this article we analyse whether the Ricardian equivalence hypothesis is a valid approximation for Spains economic reality or whether there exist deviations from that situation which would be more in line with the conventional Keynesian perspective of the effects of debt on private consumption-savings decisions.Our aim is to contribute to the rather sparse empirical literature on the subject for the Spanish case. The analysis is based on annual aggregate data for Spain covering the years 1955 to 2000, and uses both the structural and the Euler equation approaches to test the neutrality proposition, and is thus to be considered as a generalization of foregoing work on the Spanish economy.The findings indicate that support for Ricardian equivalence is mixed, while we also find very little support for the Keynesian specification of consumption and fiscal policy.First revision received: March 2003 / Final version received: October 2003The authors wish to thank M. Ferré, J.M. González-Páramo, A. Marchante, P. Meguire, F. Pedraja, J.L. Raymond, J. Salinas and two anonymous referees for their helpful comments and suggestions on this paper. We also thank the participants in the V Encuentro de Economía Aplicada (Oviedo, Spain, June 2002) and the XVII Simposio de Análisis Económico (Salamanca, Spain, December 2002) for their comments. Any remaining defects are our responsibility. We also are grateful to the Institute for Fiscal Studies of Spain (Ministerio de Hacienda, Secretaría de Estado de Hacienda) for its financial support.