This paper tests whether the Ricardian Equivalence proposition holds in a life
cycle consumption laboratory experiment. This proposition is a fundamental
assumption underlying numerous studies on intertemporal choice and has
important implications for tax policy. Using nonparametric and panel data
methods, we find that the Ricardian Equivalence proposition does not hold in
general. Our results suggest that taxation has a significant and strong impact
on consumption choice. Over the life cycle, a tax relief increases consumption
on average by about 22% of the tax rebate. A tax increase causes consumption
to decrease by about 30% of the tax increase. These results are robust with
respect to variations in the difficulty to smooth consumption. In our
experiment, we find the behavior of about 62% of our subjects to be
inconsistent with the Ricardian proposition. Our results show dynamic effects;
taxation inuences consumption beyond the current period