Ricardian Equivalence, the Italian Fiscal Tradition and Western Australia’s Government Net Debt

Abstract

This paper uses the discussion within the Italian fiscal tradition on the supposed Ricardian equivalence between debt and taxation to give context to the Western Australian (WA) Government’s growing net debt from the late phase of the ‘millennium boom’. It is suggested that WA’s experience, in which growth in net debt has been driven significantly by growth in general government expenses, accords best with Pareto’s main reason for rejecting Ricardian equivalence. The WA Government did have a strategy to maintain structural fiscal balance over the long term, but the targets or rules associated with that strategy were abandoned and replaced by weaker rules. It is argued that, if those rules were more ‘constitutional’ in character, then the WA Government’s net debt would not have blown out in the manner that it did.