Neutrality of Brazilian government deficit: evidence of the theory Ricardian Equivalence

To test the hypothesis of the Ricardian equivalence for the Brazilian economy between 1997 and 2011 was the central aim of the study. For that purpose, use has been made of the specification proposal made by Modigliani and Sterling (1986), which test for the equivalence of taxes and public debt by means of a consumption function. In accordance with that specification, a model with public debt default was estimated. Empirical results from both models indicate the non-rejection of the Ricardian Equivalence for the Brazilian economy. That is, if government spending is sustained, economic agents tend not to change their consumption level due to changes in the way of financing those expenditures.