Checking the Validity of Ricardian Equivalence Hypothesis: Analysis from Developed and Developing Countries

Abstract

The existence of the Ricardian Equivalence Hypothesis (REH) in the case of the Group of Seven (G7) and the South Asian Association of Regional Cooperation (SAARC) nations is investigated in this study. The objective of this study is check the idea that combining the cases of industrialized and emerging economies will demonstrate REH. General Government Revenue, Government Budget Deficit, General Government Gross Debt, Household Final Consumption Expenditure, Disposable Income, General Government Total Expenditure, and Wealth are all measured using a panel data set from 2001 to 2021.Five distinct unit root tests were used to validate the stationarity of selected variables. Considering the Hausman test, researcher estimate the random effect model before Panel Least Squares (PLS). The Wald test has rejected all restrictions applied to verify the presence of REH in developed and emerging economies after applying PLS. According to the Findings the Fiscal policy should be one of the stabilizing measures in this understudied economic world to regulate income and expenditures.