Ricardian Equivalence in Open Economy: A Dynamic Panel Analysis

We analyse Ricardian Equivalence in open economy using a panel of 18 developed countries for 1973-1998. We use a dynamic panel estimated via instrumental variables and we discuss why this specification should be preferred to a static model estimated via ordinary least squares. We find a significant effect of the budget balance on the current account, mostly in its current value, suggesting that Ricardian Equivalence does not hold.