An Empirical Test on the Validity of China’s Fiscal Policy ——Based on the Ricardian Equivalence Proposition

Abstract

The Ricardian Equivalence Proposition is the essential proposition relevant to fiscal policy, which arouses general discussions on the research of macroeconomic policies. Its establishment is rather difficult in reality as it requires comparatively strict hypothesis. All the empirical studies on the Ricardian Equivalence Proposition have not come into agreement so far. The purpose of this paper is to analyze the dynamic effect of China’s fiscal policy by utilizing impulse response function on the basis of establishing SVAR model which contains China’s fiscal variables. Consequently we make an empirical conclusion that the Ricardian Equivalence Proposition is untenable on China’s economy. Keywords: