In the current times, the issue of the deficits became very problematic for the economists, as well as for the practitioners and theoreticians. The purpose of this paper consists in the construction of a Panel VAR model, which has the role to test the Ricardian approach to deficits in several countries from Central and Eastern Europe. The analyzed countries are Austria, Czech Republic, Hungary, Bulgaria, Romania and Ukraine and the time interval starts in 1998 and it ends in 2013.  The used variables are the gross national saving rate and the budget balance for each of the six countries. Our results show that in this geographical-economical area, the Ricardian approach to deficits does not hold as a valid macroeconomic theory.


deficits, balance, panel VAR, ricadian equivalence, savings rate


Abrigo, M. R. M., Love, I., 2015. “Estimation of Panel Vector Autoregression in Stata: a Package of Programs.” manuscript , Febr 2015 available on http://paneldataconference2015.ceu.hu/Program/Michael-Abrigo.pdf

Andrews, D. W. K, Lu B., 2001. “Consistent model and moment selection procedures for GMM estimation with application to dynamic panel data models”, Journal of Econometrics, Vol. 101, Issue 1, pp. 123-164

Barro, R.J., 1989. “The Ricardian Approach to Budget Deficits”. Journal of Economic Perspectives, Vol. 3, No. 2, pp.37–54.

Belingher, D., 2015. “Testing the validity of the Ricardian approach to deficits in Romania – Historical Evidences”, Journal of Financial and Actuarial Mathematics, Issue 3/2015

Belingher, D., Moroianu, N., 2015. “Empirical Evidence on The Ricardian Equivalence in Romania”, Theoretical and Applied Economics, Vol. XXII, No. 2(603), pp. 163-170

Canova, F., Ciccarelli, M., 2013. “Panel Vector Autoregressive Models – A Survey”, ECB Working Papers Series, No. 1507 / January 2013

Gallegati, M., Stanca, L., 1999. “The dynamic relation between financial positions and investment: Evidence from company account data”. Industrial and Corporate Change, Vol. 8, Issue 3, pp. 551–572

Gilchrist, S., Himmelberg, C., 1995. ” Evidence on the role of cash flow for investment”. Journal of Monetary Economics, 36, 541–572

Gontila, A.M., 2015. ”Economical and Political Determinants of Public Deficits”, Applied Financial Research, Issue 7

Hansen, L.P., 1982. “Large sample properties of generalized method of moments estimators”, Econometrica, Vol. 50, Issue 4, pp. 1029 – 1054

Love, I., Zicchino, L., 2006. ”Financial development and dynamic investment behavior: Evidence from panel VAR”, The Quarterly Review of Economics and Finance, Issue 46/2006, pp. 190 – 210

Nickell, S.J., 1981. “Biases in dynamic model with fixed effects”, Econometrica, Vol. 49, Issue 6, pp. 1417-1426

Roodman, D., 2009. “How to do xtabond2: An introduction to difference and system GMM in Stata”, The Stata Journal, Vol. 9, Issue 1, pp.86-139

Rose, D., Hakes, D., 1995. “Deficits and Interest Rates as Evidence of The Ricardian Equivalence”, Eastern Economic Journal, Vol. 21, No. 1

*** World Economic Forum, The Global Competitiveness Report 2014 – 2015, available at http://www3.weforum.org/docs/GCR2014-15/GCR_Highlights_2014-2015.pdf

Full Text: PDF

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.