Business Review

Author ORCID Identifier

Corresponding Author: 0000-0003-3872-9609


This paper examines the Ricardian equivalence hypothesis for Pakistan using a vector error-correction model. The sample period extends from June 2002 to January 2020. The results are reported using variance decompositions and impulse response functions. The base model contains six variables and is estimated with 4 lags. We find support for the idea that wealth does not increase as government debt increases; Hence, it proves the fact that economic agents are rational actors and foresee current expansionary actions of the government that result in accumulation of debt as the present value of future taxation that they have to pay and not an increase in wealth. The results remain robust to a change in sample, in Choleski ordering of the variables and in the lag length of the estimated models.


Ricardian equivalence, The real federal government debt, VECM, Pakistan



Journal of Economic Literature Subject Codes

E00, H2, H50, H63

Creative Commons License

Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Published Online

December 25, 2022



Publication Stage



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