Fabio C. Bagliano
Dipartimento di Scienze Economiche e Finanziarie, Università di Torino
Research in Economics, vol.48, 1994, p.87-108
Abstract
This paper provides some evidence against the rational expectations-permanent income model of consumption behaviour and the Ricardian Equivalence proposition by testing the responsiveness of spending to the implementation of pre-announced changes in income taxes. A long series of recurrent episodes of this kind for the United Kingdom (1960-1990) is examined. It is found that consumption expenditure strongly reacts to (pre-announced) fiscally-induced changes in current disposable income. This effect is attributable to the semi-durable and durable component of spending.
J.E.L. classification numbers: E2, H3
Keywords: consumption, Ricardian Equivalence.