On The Reflections Of Ricardian Equivalence Theorem

Since the reform and opening up, our society's economic system has gradually led by the government planned economy to market economic system in transition.Market economy system played an important role in promoting the liberation of productive forces, keeping the rapid growth of economic output and improving the living standards.But the market economy can easily lead to domestic economic imbalance between aggregate supply and aggregate demand.Financial and tax policies play a pivotal role in adjust to macro-market total supply and total demand.Economic growth mainly relies on domestic infrastructure investment and exports,and serious shortage of domestic consumer demand has become a bottleneck for economic growth. It is very important to the analysis of fiscal policy on consumption of domestic residents.Economist David Ricardo first proposed from the theoretical level that the economic nature of debt and taxes are equivalent.Barrow, according to Ricardo's Economic views, advance the Ricardian Equivalence Theorem.Essence of Ricardian Equivalence demonstrate that on the conditions of unchanging of the government spending and other economic variables,bonds and taxes on consumption effect is equivalent.The main purpose of this demonstration is to test Ricardian Equivalence Theorem in the applicability of our country and study tax, debt and government spending of proactive fiscal policy on the impact of consumer demand.Firstly, Article briefly discusses the content of Ricardian Equivalence Theorem and summary domestic and international debate on the theorem.Secondly, by drawing on the life cycle hypothesis of Modigliani, article establishes consumption function.Using our country quarterly data, the article establishes cointegration analysis and error correction model to test long-term and short-term applicability of Ricardian Equivalence Theorem.The empirical results show that both the short and long term perspective view, Ricardian Equivalence Theorem are not applicable in China.On the conditions of unchanging of the government spending and other economic variables, bonds and taxes on consumption effect is not equivalent.Taxes and bonds for the inhibition of short-term consumer demand is greater than the long-term.Thirdly, the article based on rational expectations theory, the deficit and the money illusion, the tax system and other economic theory, analyzes the reason of the Ricardian EquivalenceTheorem not applicable.Finally, the article analyzes the essence of Ricardian Equivalence Theorem and some fiscal policy recommendations for reference.Innovation and contribution of article lies mainly in:First of all,paper builds the consumption regression model by adding the tax variable to make bonds and tax on consumer demand with a comparable effect.Secondly,by controlling government spending and income economic variables, paper constructs the ideal research environment of other factors constant.Thirdly, for the use of quarterly data, empirical regression model makes the conclusions more reliable.Fourthly, paper uses the cointegration analysis to test the long-term applicability of the Ricardian Equivalence Theorem and uses the error correction model to the short-term applicability of the Ricardian Equivalence Theorem.Finally,according to economic theory paper analyzes the reason of the Ricardian EquivalenceTheorem not applicable and the essence of Ricardian Equivalence Theorem.This article also has some shortcomings and deficiencies. This paper did not analyze the consumption patterns of rural residents. The article did not analyze the specific items of financial expenditure on effect of household consumption. The article did not analyze the ceiling of the fiscal deficit and government debt. These deficiencies are in the direction of further research.