Fiscal Policy and Private Sector Saving Behavior

Tax or debt financing of a given rate of government expenditures would, according to the now well-known Ricardian Equivalence proposition, have equivalent effects on aggregate demand. Among the reasons for a deviation from the equivalence is the possibility that the government and the private sector have different planning horizons. The paper finds no empirical support for differing planning horizons across sectors in a group of 16 developing economies and, therefore, provides empirical evidence for the equivalence hypothesis.Developing countries;Savings;Private savings;Deficit financing;Budget deficits;Economic models;taxation, consumption function, fiscal policy, disposable income, aggregate demand, government expenditures, budget constraint, fiscal deficits, consumption decisions, private consumption, consumer behavior, government spending, current consumption, government budget, aggregate consumption, government budget constraint, tax collection, current disposable income, budget constraints, permanent income hypothesis, tax income, tax structure, fiscal policy variables, labor income, permanent income, fiscal variables, fiscal deficit variables, marginal propensity to consume, fiscal imbalances, tax revenue, increase in consumption, the marginal propensity to consume, current income, fiscal deficit, fiscal savings, tax bases, fiscal policies, capital accumulation, public deficits, public debt, fiscal behavior