Abstract
Full integration of the government sector's intertemporal budget constraint into the private sector's intertemporal budget constraint implies the Ricardian equivalence proposition associated with Barro (1974) is valid. Private sector holdings of government bonds are not net wealth. Previous tests of the equivalence proposition estimate Keynesian consumption relationships augmented by alternative measures of government liabilities. Decisive results have not been obtained. The test presented here uses a formulation of the permanent income model to test the integration of the government's intertemporal budget constraint into the private sector's intertemporal budget constraint. The explicit use of a forward looking model of consumption imposes constraints on the equation estimated and on construction of the data; the present test is a significant improvement. The results of this test do not support the equivalence proposition.
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