The Irish consumption function and Ricardian Equivalence

Abstract

The paper examines whether the Ricardian Equivalence Proposition holds for Ireland. This proposition argues that it does not matter how the government finances a given level of public spending. Specifically, it claims that economic agents anticipate the future tax liability implicit in the issue of government paper. The empirical results indicate that the Irish data provide evidence of complete tax discounting. One of the implications of this is that the level of domestic interest rates is not affected by the extent of government borrowing.