The debt neutrality hypothesis, in its quintessential form,
postulates that debt/tax mix for fmancing deficit is irrelevant. More
precisely, the debt-neutrality deals with the two fundamental questions:
(i) Given the volume and composition of government expenditures, does it
matter whether they are fmanced by taxes or debt issue? (ii) Do public
deficits absorb private savings that otherwise fmance private capital
formation? Juxtaposed to the traditional Keynesian theory which answers
these questions positively, the exponents of debt-neutrality make the
counter-claim that debt is neutral and public deficits have no "crowding
out" effects on private saving or investment. The debt-neutrality is
popularly termed as the Ricardian Equivalence Hypothesis because the
fundamental logic underlying this hypothesis was originally presented by
David Ricardo in Chapter XVII entitled "Taxes on Other Commodities than
Raw Produce" of his celebrated "The Principles of Political Economy and
Taxation". Although Ricardo explained why government borrowing and taxes
could be equivalent, he never sponsored the case for unlimited issue of
government bonds. In fact, he warned against the consequences of
continuous fiscal deficits in the following words: "Form what I have
said, it must not be inferred that I consider the system of borrowing as
the best calculated to defray the extraordinary
expenses.....................
Investigating the “Complementarity Hypothesis” in Greek Agriculture: An Empirical Analysis
